Rent Back Property

How Does it Work and What Do You Need to Know

Rent back property is the name given to the investment property technique where the investor purchases the property from the owner or seller and then rents back the property to the owner. This allows the homeowner who may be in trouble with the size or the promptness of the mortgage payments. A homeowner who is in danger of default on a mortgage loan may be willing to make a deal to discount property and divest himself or herself from the obligation and negative impact on credit reports. This essentially provides the struggling homeowner with the opportunity to make a new start with minimum impact on the future borrowing power.

What is It

Rent back property has become popular as a method to allow for property investment on a shoestring for the beginning investor.  It does carry some limitations, but in general is a positive approach both for the debtor and for the buyer of the property. The buyer purchases the home from the homeowner in advance of foreclosure.  There may be a down payment that will remove the threat of foreclosure from the picture.  The buyer takes ownership of the property and may even gain enough equity to refinance the loan.  The seller agrees to stay in the home and pay rent usually in an amount that will cover the refinanced property loan payments that the buyer has arranged. 

Benefits to the Buyer

Because of the opportunity to be assured of a renter for the purchased property, rent back property is an excellent idea whether the buyer is an individual or is a property investment club.  The assurance of an immediate return on the investment is an attractive reason for this type of arrangement for the buyer. When this quick return is coupled with the likelihood of a lower or discounted price, an investment of this nature is widely used for solid returns.

Benefits to the Seller

The seller also benefits when the subject property is sold through a rent back agreement with the buyer.  The seller is able to avoid foreclosure and its negative impact on credit scores and ability to purchase another piece of property later. Rent back property allows the seller to avoid the cost and disruption of moving.  Overseas property may be somewhat less common to find rent back agreements, but other creative financing options can be found so that investment in the property for income purposes makes good sense.