Considering a Sale Leaseback on a principal residence

This idea came to me while away fishing and the more I think about it the more appealing it becomes.

Sale leasebacks are common in the commercial property arena but I can’t recall seeing it discussed with respect to residential property.  I googled “sale leaseback residential property” and was pleasantly surprised to find that some people are already doing it.

Based on what I know, and my own particular situation, here is how it should work in theory.  My wife the Contessa would like to live downtown by the waterfront in Toronto one day. Austin is our only son still living with us, with our other two boys somehow managing to escape. So when Austin eventually, leaves the house will be largely empty. There is a good chance that Austin will move into residence in downtown Toronto when he goes to university in three years.

My mother, who is 92, is in a nursing home close to my house and I wouldn’t consider moving while she is there. Why move, complicate my life further and create unnecessary pressure?

My idea is to sell in the spring if residential real estate prices stay high and the market stays hot. I would negotiate a minimum five-year lease, which will allow me ample time to simplify and de-cumulate, getting rid of a lot surplus stuff accumulated over the years.

My Options

Use some of the cash generated from the sale leaseback to buy a condo downtown. If were lucky and our timing was right prices would weaken  by then and Austin could use the condo as home base when he goes to university. That would save him maybe us is a better word approximately $1,000 plus per month for four years. If he were successful in getting a downtown job after finishing university he could even stay longer, which would make the Contessa happy and as they say happy wife happy life!

I need to do some repairs and plan on re-painting our current house in the spring, which would put it in a good saleable state so the timing would be good to test the market.

At some point, if everything worked out to plan, I would probably sell the downtown condo and just rent when I turn 70 in eight years. This would free me from condo fees, etc. and give me maximum flexibility. Mexico in the winter, cottage in the summer and a home base to operate from.

Profile Of The Perfect Buyer

Find a suitable investor, probably offshore, who has cash and wants to invest in Canadian residential real estate. They are out there. With government bonds offering negative interest rates there should be more than a few investors looking for Toronto real estate, especially now that B.C. is now taxing foreign house buyers. The time might be right to do a deal.

Deal Pluses and Minuses

Pluses:

• I get my money out at the peak of the market
• My wife is very happy
• I eliminate my son’s university residency costs
• I create maximum flexibility for us, but still have a home base in a great location. We would never consider leaving Toronto and our family

Minuses:

• Need a strong lease to ensure that I can stay for the allotted time but I want an option that will allow me to vacate early if I want to.
• I wouldn’t allow the purchaser to encumber or raise debt on the property to avoid any possible power of sale against the property forcing me to vacate earlier than I wish

I recognize it is a sizeable wish list but I think the timing is right to do a good deal. The key is to be patient and make the best deal possible that will deliver on all our needs.

Am I missing anything?

Editor’s Note: On Saturday, our regular real estate blogger from Zoocasa.com looks at both  the pros and cons of the strategy described in Mike’s blog today. 

Mike Drak is an author, blogger and speaker based in Toronto. He can be reached at michael.drak@yahoo.ca. Victory Lap Retirement, co-authored with Hub CFO Jonathan Chevreau, is now available for orders online and on Kindle and Kobo ebooks. The paperback edition has been available in bookstores since early October. This blog originally ran on Mike’s blog on September 9th and is reprinted here with permission.