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[S277]Sell And Rent Back Property

by Peter Shukla, Pet

Homes for rent back are usually made available by builders wishing to increase cash flow but keep a home in inventory for use as a model home. This model home will be open to potential buyers to help visualize their own home should they contract with the builder. If you purchase a home that the builder would sell and rent back from you, you stand to benefit in many ways.

First, you'll benefit because you are guaranteed income: a builder must pay you rent. This is actually much safer than entering into a conventional residential lease, because unlike a normal renter, the builder has a vested interest in making his payments on time. It wouldn't do him any good to be evicted from his model home!

Furthermore, model homes usually include the most expensive fixtures and fittings in order to show these to potential buyers. Because of this, you will find that the model home you buy will be the best quality home that the builder has available. Often, builders want to sell and rent back model homes and they are sold at a discounted rate because of this. This will enable you to own the highest quality home but for a far cheaper price than others would have to pay for a house with the same features.

An added advantage is the increased equity you build up. Frequently, these homes will be the first put up for sale in a completely new neighborhood. It is routine for builders to then raise their prices each month or at least each quarter as the homes in the various sectors are erected. Once you purchase a model home, your cost is fixed; and when the development finally arrives at completion, you will possess equity in an almost new house just like the ones that set your neighbors back thousands of dollars more.

Some shortcomings in this setup are immediately obvious. For one, you will not be able to move into your home right away, rather, you'll have to wait for an extended period of time, at least several months. Additionally, the new home you purchase will have had numerous visitors who have toured it before you occupy it, so wear and tear on your home might be noticeable. Suppose, however, that you want to move into your future retirement home a year or two down the road. If this is the case, this arrangement would be great for you. Moreover, developers strive to maintain the model home in good condition with regular cleaning and maintenance.

So if you have some time and patience and can put off moving into your new home, you can reap the benefits of a rent back arrangement. The increase in equity, added features and income opportunity will more than likely make it well worth the wait.

Under a "sell and rent back" deal, a homeowner who is struggling to repay their mortgage sells their property at a discount to company who then allows them to remain in the house as a tenant. But a report from the Office of Fair Trading has found that these arrangements may not be the homeowner's best option and some people had been swiftly evicted. As a result the Office of Fair Trading has ordered sixteen firms to validate all the claims they have made in their advertising. If the Office of Fair Trading finds "unfair and misleading" practices, it expects to take action which could include prosecutions.

The OFT said the advertisements to be investigated typically included claims that clients can remain in their homes after they were sold, by renting them back from the company purchasing the property at fair rental rates and for as long as the tenant wishes. Clients were also promised that they can buy back their house at an agreed point in the future. In the meantime they would have very flexible rental terms with low rental periods.

"Sale and rent back businesses must be truthful and transparent about the services they offer and the security that prospective tenants will enjoy," said a spokesperson for consumer protection from the Office of Fair Trading. "Clear advertising is particularly important in the sale and rent back sector where clients could be under severe stress from financial problems and at risk of losing their homes. These stress levels complicate the difficult and important decisions homeowners have to make."

The report from the Office of Fair Trading called on the firms involved in the business, over one thousand of them, to be far more transparent. (An unknown number of private landlords are also involved in this relatively new industry.)

The Office of Fair Trading said that about 55,000 property sales of this kind have taken place and they have expressed concern that sale and rent back deals have potential to cause serious and permanent harm to homeowners when they are most vulnerable. "Consumer groups have also urged for regulation of sale and rent back schemes, which some also call "mortgage rescue plans".

It seems that much of the advertising is targeted at those facing repossession. And the Council of Mortgage Lenders predict that there could be over half a million repossessions in the UK this year, up from around 220,000 last year.

But the Office of Fair Trading's report suggested there were better options for some of these homeowners. The report highlighted advertising containing misleading details with some tenancies only guaranteed for six to 12 months, although residents were otherwise led to believe that they could remain in their homes for years to come.

The report also identified that some landlords significantly raised the rent and moved quickly to evicting tenants who struggled to pay. And some of the former homeowners lost their homes anyway after becoming tenants, because their new landlord had defaulted on their mortgage and the property was subsequently repossessed.

The National Landlords Association has commented that there is a place for sale and rent back schemes in the housing market so long as they were operated ethically. It said that it wanted to see a code of practice put in place by the Office of Fair Trading with powers to police the code. Meanwhile, the Council of Mortgage Lenders and Citizens Advice have also urged for the speedy implementation of regulation in the sector.

Article Source : Pg. 6

About Author

Both Peter Shukla & Michael Challiner are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

Peter Shukla has sinced written about articles on various topics from Real Estate, Foreclosure Help and Real Estate. If you're considering purchasing a home to move into and as an investment, you may want to also look into a or a proper. Peter Shukla's top article generates over 40500 views. to your Favourites.

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