I wasn’t really looking for another rental property, I have 4 single family homes which I’m managing myself. Along with having a full time job, a farm with lots of grass to cut, the desire to continue being a full-time father, husband, brother and friend, I felt like my plate was getting rather full.
But, No! I’m a glutton for punishment, or at the very least, I struggle with FOMO (The Fear of Missing Out). That’s right the fear of missing a good opportunity when it presents itself..
But, this property, came with a unique set of circumstances, one which I hadn’t ever dealt with in the past, this property offered an opportunity for a Sale Leaseback Agreement.
Some would ask, what is a Sale Leaseback Agreement and what value is it to a buyer?
I’ll try to articulate that.
A sale leaseback agreement is when the seller agrees to sell the property with a caveat that, they will lease the property back from you; the new buyer, for a certain period of time.
Most often, this happens because the seller is building a house, or going through a divorce, or some other life circumstance and their next property is not ready for them to move in.
So, rather than rent an extended stay hotel, an Air B&B, or stay on uncle Mort’s couch, they agree to lease back the very property they are selling.
My Sale Leaseback Agreement story is a little different and by sharing it, I hope to shed some light on the fact that literally EVERYTHING is negotiable in Real Estate. Did I say literally everything? I meant to say ‘indisputably’, everything.
If you want to throw your Uncle Mort in the deal, that’s negotiable. Can’t guarantee the outcome of that, but yes, everything is ‘literally and indisputably negotiable.
If you want to learn more Real Estate Negotiation Tools check out this post at TheClose.com
So, here is how my leaseback agreement went
As I was walking the property before I had it under contract, the owner happened to be sitting outside on the porch. She had a bad leg, and it was a lot for her to get around, so she just stayed put while I inspected.
We got to talking about Kids, Grandkids, mostly about anything not related to the house. It was when I asked what her future plans were, when I sensed a tugging on her heart.
She got emotional, she had lived here a long time, and it was evident she didn’t want to move, she was instead, being forced to move!
So, I suggested a Leaseback agreement
I felt bad for her, she had a hard way to go, and now she was being forced to sell the place she really loved. And then there is me, just looking to make another investment. Truthfully, It made me feel like my priorities were a bit out of whack.
“Would you consider selling and becoming my tenant”?
There was a pause, followed by a sniffle, followed by a tear, then another, then another. She couldn’t believe that was an option.
It was one of the first times as a real estate investor, that I truly felt like I solved someone’s problem. And, it was rather gratifying! If I were a traditional buyer, who was planning to move in, she would have been forced to live in that 400 square foot double-wide she was planning on going to.
But instead, we agreed to the deal and I proceeded with the close and the acquisition of the property. After the closing, she signed a lease agreement with a few unique caveats in it, such as:
She would be responsible for any tenant improvements
I bought the property as is, which she was obviously used to and liked. I put language in the leaseback agreement that stated she would be responsible for any tenant improvements.
If she wanted to gut the bathroom, paint the kitchen cabinets, or replace the windows, it would be on her dime. I did not want to become responsible for un-necessary aesthetic fixes to the house, just because now, someone else was paying.
She was ok with the specifics of the Tenant Improvement clause.
She wanted to be a Tenant at Will
Since she wasn’t sure what her longer-term plans were, or if her health would allow her to maintain the home, she asked if we could sign a lease agreement on a month to month basis.
I happily agreed, so we placed a tenant at will clause in the lease agreement which left the lease expiration ‘open-ended’.
She covered the cost of the landscaping.
I discovered during our ‘kid/ grandchildren conversation’ we had when I was walking through the property, that her grandson owned a landscaping company.
I asked who maintained the grass when she owned it, and she mentioned he did, so I politely requested that she continue using his services, at her expense. And, since he didn’t charge her for his services, she eagerly agreed.
She was a great tenant for 2 years before her health deteriorated to the point where she had to move into an assisted living home.
This Sale Leaseback Agreement was a win for her because my buying the property afforded her the capital to eventually move into and afford an assisted living facility.
It was a win for me, because I was able to buy the property for LESS than the cost of a Tesla Model S, and could sell it today for the price of a Tesla Model X Plaid. A nearly 20% ROI in 3 years.
But, I’ll keep it, as I’m lucky to have another ‘husband and wife’ tenants in their 60’s who treat the property as if it were their own! All in all, the entire situation was a positive one. My experience with the former tenant and our Sale Leaseback Agreement taught me a few valuable lessons;
- Sometimes real estate investing is about more than profits, sometimes it’s truly about making life better for someone in need.
- Real estate is a multi-dimensional asset, which can be leveraged against, provide a huge tax savings, and a if structured correctly, be a cash-flowing machine.
If you want to learn other valuable lessons investing in Real Estate can offer, please visit my friends at Spark Rental.
Off to look for another real estate deal, and maybe another Sale Leaseback Agreement.
Jim started his real estate investing career in 2005 and enjoyed 3 good years before the Financial Crash of 2008. Jim’s been a steady equities investor for over 20 years, but really didn’t realize the power of dividends until 2015. Since then, he’s adopted an ‘if it doesn’t produce income, its not worth investing in” motto. Jim works in a sales and marketing position and has knowledge in SEO, Blog Writing, Website building, and growing a digital brand. If you’re looking to build your online presence, feel free to reach out to Jim.