Beware Sale And Rent Back Firms.

Property investors have been getting a lot of flack lately in the media concerning the popular “sale and rent back” concept. In this article I shall be exploring this very worthwhile strategy whilst giving a balanced view on the market as it stands and what you need to be concerned about. Recently, one of the major national newspapers branded property investors ‘vultures’ for allegedly preying on vulnerable homeowners facing repossession and other situations that may force them to sell below market value.

The criticism stemmed from a small number of isolated cases where people had sold their home to a property investor and then rented it back – nothing new there. One of two things then happened:

1. The terms of the agreement were breached for example a long term tenancy was promised but the investor changed his mind and decided to evict the seller. The sellers did not realise they could be evicted or that the rent could be raised.

2. The property investor couldn’t keep up with his mortgage payments, the lender repossessed and evicted the tenant who had been promised a long term tenancy by the investor.

In both cases, the sellers typically were not told or did not educate themselves on what exactly they were doing when selling their property and renting it back. Let’s look into this in a bit more detail.

I’ll differentiate first between equity release
which is regulated and
sale leasebacks which are not. A lot of people get confused between the two. With equity release the homeowner retains the use of the home while using the equity to generate an income or a cash lump sum. It’s a useful concept for elderly people who want to:

1. Stay in their home for life
2. Enjoy the money tied up in the property
3. Avoid taking on debt
4. Reduce the size of their estate which can give inheritance tax benefits
   
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