Seller Lease Backs

Over the years I have often been asked this question when trying to help people in foreclosure.  “Can’t you buy my house from me, then we’ll just rent it back from you?”  I have always answered no, as this arrangement, known as a “seller leaseback”, is a bad deal for all parties.
At first it seems like a good deal for the buyer, because the property can be obtained for well below market value, and you already have a tenant that appears willing and eager to pay their rent.  However, relief often turns to resentment in these situations and the sellers soon stop paying their rent and taking care of the property, once they realize it no longer belongs to them.
Furthermore, the IRS casts a suspicious eye on these transactions, and both parties are likely to be audited.  These transactions have been used to hide assets and change the appearance of ownership, so the IRS will likely take a close look at your finances and tax returns if you enter into this type of arrangement.  The IRS may choose to “reclassify” the sale and leaseback, which could result in the buyer losing a great deal of money and being immediately foreclosed upon by their new lender.
Finally, if the seller subsequently files bankruptcy, the bankruptcy could decide the seller leaseback was an attempt to hide assets.  The court could confiscate the property to satisfy secured debt and tax liens.
From your standpoint, you may be thinking you’ll get to stay in the house and that’s all that matters.  But once you realize the house isn’t yours anymore, how will you feel? 
The bottom line is this: Seller leasebacks are a bad deal for both parties.  You may decide to accept an investor’s offer to do this, but think carefully, read the fine print, and do so only as a last resort. The reality is, very few people end up buying their houses in these deals, and believe me, the investors know it.