How Do Quick Sale and Rent Back Companies Work?

For those people requiring a quick sale or wanting to sell and rent back their properties there is now a whole plethora of specialist homebuying and rent back companies to chose from. The problem is that until regulation comes in (which will hopefully be shortly after the FSA have finished their investigation in the practices and best way to regulate the sector) then many unscrupulous companies will be allowed to exist.

How does the quick sale process work
The home buying company will buy your property directly from you. They are not an estate agency of middleman and they take full ownership of the property. They will typically offer you between 75-85% of the market value of the property in exchange for a quick (4 weeks or less) guaranteed sale. They will then rent out the property or sell it on.

Given the buying and selling costs are about 5% each then these companies may only make 5% profit on each property if bought at 85% and less if they can not sell it for months. This is why they need to buy at a discount.

How does rent back work
If you need to sell but want to stay in your property (i.e. because you need to pay off arrears or avoid repossession for example) then renting back your property could be the ideal solution.

This involves you selling the property to a specialist company and then them renting it back to you (most home buying specialists offer this service). The sale price will normally be between 75-85% of its market value just like in a quick sale situation.

The rent you would be charged would be similar to the market rent of that property. This rent normally works out less than previous mortgage payments and loan outgoings so that the person stays in the their property and reduces their outgoings.

When you rent back your property will most normally be on an assured shorthold tenancy agreement (AST). This is the standard contract between tenants and landlords. The maximum term of this contract can only be 12 months so it is imperative this has a clause added to this agreement giving you the right to renew this contract on it expiry. They should also specify how much the rent will increase each year (normally with inflation or set % amount).

A good company will insert a right to renew clause in the tenancy agreement. This gives the tenancy the right to renew their tenancy each year as long as conditions are met (i.e. the rent is paid, the property is kept in satisfactory condition).

Be careful which company you deal with
Anyone who says they can show you how to "Sell your property in 7
days or less for full market value" is LYING!! They just want to get into your front door and soon the offer of buying at full market value disappears. If you think about it, how could they make such an offer and make money as a business and why would they not just go to estate agents and buy up all the properties in the
windows? If it sounds to be good to be true it normally is!

Some unscrupulous companies have tarnished the image of sale and
rent back by evicting tenants when they did not want to leave. Please contact previous customers of the company and check online for reviews of them to make sure you are not dealing with such a company. Also check to see if they are a member of a recognised association which has a strict code of conduct such as the National Association of Sale and Rent Back (NASRB).

Why would a rent back company throw me out?
The vast majority of rent back companies love having previous owners stay in the properties for the long term as they do not have to advertise for new tenants each year and have periods when their property is empty.

In addition, sale and rent back tenants treat the property with great care as it still s feels like their house and not rented accomodation. They tend to respect properties better than normal tenants and most companies do not want to lose them.

Also, a good sale and rent back company will give some assurances about future increases in rent. For example, they may stipulate that rents will only increase with inflation each year or at the same rate as market rents. This should be in the contract. If not, there is a danger they could increase the rents massively each year to the point where it is effectively forcing their tenants out.

Option to Buy Back
Some companies will also give you the option to buy back your property at a fixed price in the future. This is agreed before you sell and this contract is registered at the land registry. This gives you a legal right, but not obligation, to buy your property at a preagreed price over a set timeframe.

Regulation of sale and rent back
The Office of Fair Trading are conducting a study that will determine whether existing consumer laws can keep homeowners adequately informed and protected, and could recommend that sale and rent back is fully regulated. Any further protection will be great for reputable companies and rent back customers.