Oct 11, 2024
A growing trend has grabbed the housing market, one that allows property owners to sell off some sweet equity and still stay in their home sweet home: the sale-leaseback.
From a 10,000-foot view, the sale-leaseback process is simple: You sell your house to access its equity and lease it back from the new owner, just as the name implies. In other words, you go from owner to tenant.
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It’s also a growing practice among businesses, though sale-leasebacks can often include other assets. And overall, it’s a booming sector. The real estate advisory firm SLB Capital Advisors reports that in the second quarter of 2023, sale-leaseback volume shot up 8.3% to $5.2 billion.
Zoom in, though, and you’ll find there’s nothing routine here for the average homeowner.
Sale-leaseback arrangements attract distressed homeowners who have nowhere else to go for financial help. One residential sale-leaseback company, EasyKnock, says its services are designed for the “16% of Americans whose credit score makes them unable to access their home equity through conventional loans.”
Yes, but: Is a sale-leaseback the right solution for them? Or anyone? The evidence is mixed at best.
The dark side of sale-leasebacks
EasyKnock links to an article that discusses bad credit, which defines it as those with FICO scores between 300 and 579. That’s high-risk territory and often points to an inability to manage debt responsibly.
What’s more, sale-leaseback customers are susceptible to rent increases and late fees. During the pandemic, Texas homeowner Lester Shreffler was forced to leave the home he’d purchased in 2007 after he fell behind on rent payments to EasyKnock, one of more than a half dozen companies in the space. He was only given a few days to move out.
NPR investigated hundreds of Texas sales EasyKnock made dating back to 2018. It found that the deals “cost some people tens of thousands of dollars in equity and that the vast majority of people do not buy their houses back.”
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Shreffler ended up being a plaintiff in a 2021 lawsuit against EasyKnock. And in a separate suit filed by a Texas couple, an arbitrator ruled the company was owed $153,000 for a breach of the lease. (Curiously, the company’s Oct. 2 press release ran as an “article” in media outlets as a public victory.)
To be fair, EasyKnock has earned overall high marks, with 4.3 out of 5 stars based on 246 reviews on Trustpilot. But it’s also been called out on the Reddit subgroup r/RealEstateAdvice, with comments such as “company full of liars and crooks stay away” and “Worst. Company. Ever. Pushy pushy until you sell to them then they disappear.”
Regardless of the outcome of the lawsuit, Shreffler’s eviction seems strange given that EasyKnock co-founder Jared Kessler claims to have started a housing nonprofit, The Stay Mission, “to fight evictions and foreclosures for everyday Americans” per his LinkedIn page.
So who gets to stay, exactly?
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3 alternatives to a sale-leaseback
Times are tough for many American homeowners, especially with soaring property taxes and mortgage payments. But the following options for getting cash out of your home are often less risky and more effective.
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Home equity line of credit (HELOC). With a HELOC, you’re under no obligation to use the available funding, meaning that it’s much better suited if you need a financial cushion or a short-term loan. Think of it as a credit card-type account where what you take out is secured against the value of your house. You’ll only owe what you borrow, but you do have to pay monthly interest.
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Refinancing. If the Federal Reserve continues rate cuts at its November meeting, as the market seems to believe will happen, mortgage rates could continue to drop. A 30-year mortgage now averages 6.32%, which is decent compared to 7.79% in October 2023. That would put more homeowners in a position to refinance at a lower interest rate and turn some equity into cash.
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Reverse mortgage. A home equity conversion mortgage (HECM), the most popular type of reverse mortgage, is offered through the Federal Housing Administration. But there’s a catch: You must be 62 or older to get one, own all or a considerable amount of your property and not be delinquent on any federal debt. You essentially borrow money against your home and don’t make monthly mortgage payments until you no longer occupy the home. But keep in mind, the money you borrow, plus all interest and monthly fees can add up quickly. And be sure not to fall for common scams from contractors or those who target veterans with “special deals.”
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Lou Carlozo is a freelance contributor to Moneywise.
