Until recently, unless you dealt with commercial real estate, there was no reason to be familiar with the term “sale-leaseback transactions.” Long a staple in the commercial real estate market, they give businesses the opportunity to free up capital while continuing to operate out of their existing locations. Now, however, proptech companies have begun to bring this transaction type to the residential market, providing homeowners with a similar opportunity to gain liquidity without the disruption of moving.
EasyKnock, a pioneer in the residential sale-leaseback space, has taken this concept and tailored it to help meet the financial needs of homeowners and offer them a powerful alternative to traditional financing methods.
This deep dive explores the evolution of sale-leaseback transactions from commercial space to residential real estate, the logistics involved, and the benefits they offer to homeowners.
What Is Sale-Leaseback? A Comprehensive History
Sale-leaseback transactions started in the commercial real estate space as a strategy for businesses that needed capital to access their real estate property value without having to sell it outright and relocate. In a typical commercial sale-leaseback, a company sells its property to a buyer, usually a real estate investment trust, an institutional investor, or a private buyer. The company then leases the property back from the buyer. This arrangement allows the business to convert its real estate equity into cash, which can be used to pay down debt, fund business growth, improve cash flow, and other purposes. Meanwhile, the business continues to operate out of its existing location, allowing it to seamlessly serve its customer base.
Innovators in the residential real estate market like EasyKnock recognized the potential of this model and began to explore the ways that sale-leaseback transactions could be applied to residential real estate. With around $32 trillion in home equity tied up in American homes, combined with unstable economic conditions and strict guidelines for traditional financing options, an alternative solution was long overdue.
The residential market came with its own challenges. For example, homeowners have emotional attachments to their properties. Unlike the cut-and-dried, numbers-driven world of commercial real estate and business, there was a need for a more personalized and empathetic approach that considers the sentimental value of the property and addresses the homeowners’ specific financial challenges.
EasyKnock was founded in 2016 and became the first company to introduce sale-leaseback programs specifically designed for residential property owners. The company has since expanded its product line to include variations of sale-leaseback options and other equity release solutions to provide its customers with a personalized experience.
EasyKnock’s Residential Sale-Leaseback Transactions
EasyKnock has quickly become a leader among its peers. One of the factors that makes the company successful is its ability to tailor its products and services to individual homeowners’ needs. EasyKnock’s residential sale-leaseback programs, Sell & Stay and MoveAbility, provide homeowners with the financial flexibility they need to attain their financial goals without the barriers that come with traditional loans and mortgages.
With the Sell & Stay program, a homeowner sells their home to EasyKnock, receives a lump sum payment, and continues living in the property as a tenant for up to five years. Sell & Stay is best for homeowners who need to convert their home equity into liquid cash but want to stay in their current home. They have the option to repurchase the home later or authorize EasyKnock to sell it on the open market when they’re ready to move.
The MoveAbility program is designed for homeowners who need cash to purchase a new home. This program allows homeowners to convert the equity in their current home to secure the necessary funds for a down payment or closing costs for a new property without the pressure to sell their current home immediately. The customer can lease the abode back for up to 12 months while finalizing the sale of the new property. After the customer moves into their new place, they can sell their previous property on the open market with EasyKnock.
The Logistics of a Sale-Leaseback Transaction With EasyKnock
There are several steps to EasyKnock’s residential sale-leaseback transaction process, each designed to ensure that the customer’s financial needs are met while allowing them to stay in their current home. Here’s how it works:
Initial Consultation and Estimate: The process begins with an onboarding call, where an EasyKnock specialist contacts the homeowner within 24 hours of their initial inquiry. During this call, the specialist goes over some questions to assess the homeowner’s credit, current financial obligations, and long-term goals. Unlike traditional equity release products, like home equity loans, EasyKnock doesn’t use homeowners’ debt-to-income ratio to determine eligibility.
Once it’s determined that a sale-leaseback program is the right fit for the homeowner’s needs, the specialist provides an estimate, which includes the estimated purchase price of the home, the cash amount the homeowner can expect to receive, and the monthly rent amount to stay in the home. If they are satisfied with the estimate, they receive a nonbinding letter of intent to review and sign, which indicates the homeowner’s desire to proceed and start the due diligence period.
Leasing and Due Diligence: After the LOI is signed, an account manager is assigned to the homeowner and guides them through the closing process. To begin the leasing aspect of the transaction, the homeowner completes a rental application.
A title search is then conducted to confirm that the property title is clear and that the sale can proceed. A local third-party appraiser evaluates the home and determines its market value. Following the appraisal, a local third-party inspector will inspect the home and provide a condition report, along with a list of any necessary repairs.
Closing and Continued Residency: Once the due diligence process is complete, EasyKnock provides a purchase agreement for the homeowner to review and sign, which outlines the final purchase price and customer payout. This document may contain adjustments from the initial estimate based on the findings from the appraisal and inspection.
Finally, the homeowner and EasyKnock close the sale, following the typical closing process for a home sale. Within two to three days of closing, the customer receives their cash proceeds and transitions into their new role as a tenant. They then remain in their residence under the terms of the lease, with the flexibility to repurchase the home or direct EasyKnock to sell it on the open market at any time during their lease.
Consistent Customer Support: Throughout the duration of the sale-leaseback process, EasyKnock provides ongoing support to help the customer remain comfortable and informed. The company assists with any questions and guidance on the next steps.
EasyKnock, as landlord, takes on all the responsibilities one expects from a traditional landlord-tenant relationship, which removes much of the burden of homeownership. EasyKnock pays for homeowner’s insurance (which is surging in price nationally), HOA fees, and local real estate taxes. Further, EasyKnock is responsible for all maintenance and repairs associated with the habitability — which can save customers in expenses.
The Benefits of Residential Sale-Leaseback Transactions
Residential sale-leaseback transactions offer many benefits for customers, which make them an attractive alternative to traditional methods of converting home equity like home equity loans or refinancing. Here are some of the key advantages:
Financial Flexibility Without Debt: One of the most appealing benefits of a residential sale-leaseback transaction is the ability to utilize home equity without taking on additional debt. Unlike a home equity loan or line of credit, which requires monthly repayments and accrues interest, a sale-leaseback transaction provides cash upfront with nothing to repay.
No Need to Relocate: For many homeowners, the thought of moving can be stressful. Sale-leaseback arrangements allow customers to stay in their homes and avoid the upheaval and expense of relocating. Customers enjoy peace of mind knowing that they can continue with their everyday routines, keep their children in the same schools, and stay close to local amenities.
Cash for Immediate Needs: Sale-leaseback transactions provide homeowners with immediate access to money, which can be used to address pressing financial needs. EasyKnock’s sale-leaseback programs have helped customers pay off outstanding medical bills, fund an education, weather a divorce settlement, plan for retirement, navigate job loss, prepare for assisted living, and much more.
Flexible Exit Strategies: EasyKnock’s sale-leaseback model offers customers the flexibility to buy their home back or direct EasyKnock to sell it on the open market at any point during their program term agreement. This is important for customers who want to regain ownership of their property in the future or who need time to make long-term financial decisions. The option to transition out of the lease also gives the customer peace of mind, knowing that there are multiple exit strategies, depending on their evolving needs.
No Negative Impact on Credit Scores: Since a sale-leaseback arrangement isn’t a loan, it doesn’t negatively affect the customer’s credit score. In addition to that, EasyKnock also has a partnership with Piñata, which offers a credit reporting and rewards program that reports all on-time rent payments to the credit bureaus. This is helpful for those who may have credit issues or are concerned about maintaining a good credit rating.
A New Era in Homeownership
Residential sale-leaseback transactions are quickly gaining popularity as a revolutionary financial solution for homeowners. By applying the traditional commercial sale-leaseback model to the residential real estate industry, EasyKnock has changed the game, creating an impactful tool that helps to empower homeowners to take control of their financial destiny.
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