Finance
February 2, 2024
SLB, as-is, HELOC, short sale—if you’re in the market to buy, sell, or borrow against a home or real property, do you know what your options are? Terminology is usually the first hurdle to conquer in understanding legal agreements, and that includes the realm of real estate.
Before you sign on any dotted lines on a purchase agreement or real estate contract, be sure you understand the different types of real estate transactions out there, and which ones to explore for your particular needs.
#1: Sale-Leaseback Transaction
Relatively new to residential real estate, sale-leaseback (SLB) contracts are a way for homeowners to convert their home equity to cash without having to move.
There is a wide variety of sale-leaseback benefits. Rather than working with an individual private buyer, an investor and service provider purchases the property. Then, at closing, the transfer of deed is accompanied by a lease agreement that provides:
- The seller with the right to remain in their home as long as they choose
- An agreed-upon monthly rent rate, often with a lock for up to five years with no changes
- Limits on future increases—essentially a guarantee of no extreme rent hikes
#2: Traditional Sale
A “For Sale” sign in the yard, an open house or two, and viewings for any and all potential buyers—a traditional sale is what most folks expect in terms of selling and buying a home.
Although it’s the most common type of transaction for residential real estate, traditional sales are like pulling into the “full service” lane at the gas station. Both parties pay real estate professionals, like real estate agents or a real estate transaction broker, for a package of start-to-finish marketing and representation work that’s appropriate for first-time buyers and sellers.
#3: As-Is Sales
With an as-is sale, a home or real property is sold with no warranty or intent to provide repairs or changes during negotiation. Listing a home “as is” is often interpreted as a flag for houses in need of drastic repairs and updates—potential money pits—but an as-is listing may simply indicate:
- An inherited property with heirs who live elsewhere or have no interest in fixing it up
- Owners who need a quick sale due to a job offer or family distress
- Older owners moving to senior facilities without resources to update their home
#4: Short Sale
A short sale happens when a property is sold for less money than the current owner still owes on their mortgage, and it can only happen with the lender’s pre-approval. It may occur due to factors such as:
- An owner in severe financial distress
- A drastic fall in property value
- The impending risk of property foreclosure
#5: Cash Flow Investment
With a real estate cash flow transaction, an investor is purchasing a property that can be leased out, and making the decision based on calculating how much cash the property can be expected to bring in each month.
While the transaction itself may fall into one of the other categories listed here, depending on how the target property is listed for sale, the decision-making process prior to putting in an offer or purchase agreement and closing the sale will be different. The investor will consider factors including:
- Current and anticipated monthly rental income
- Ongoing property maintenance costs
- Costs of current and anticipated major improvements and repairs
- Local rental market trends
#6: Turnkey Investment
“Turnkey” refers to a rental investment where the property is fully functional and ready to lease (or continue to operate with current occupants) with no further investment needed.
#7: Vacant Land Acquisition
Buying undeveloped land is a little more “wild west” than either residential or commercial real estate. It’s often done as an investment paid upfront rather than financing, so closing this with a real estate transaction broker may be a simpler exchange of cash for a transfer of deed.
#8: Property-Backed Debt
A home mortgage is the largest single debt most Americans will take on. Over time, however, ongoing payments, home improvements, and property appreciation can provide significant home equity that can be leveraged through separate debt transactions:
- Home equity loan, also known as a second mortgage
- Home equity line of credit (HELOC)
- Cash-out refinance
- Reverse mortgage (limited to homeowners age 62 and older)
Key Takeaways
Listing your property with a real estate agent—or engaging one to find your dream home—isn’t the only avenue open to you. For instance, if you want to stay in your home but need to free up cash, a sale-leaseback is a plan that doesn’t include taking on new debt or dealing with real estate agents. Before you decide on any real estate transaction, consider your options and find the best fit for your property condition and potential, financial needs, and timeline.
