Home Equity

Residential Sale-Leaseback: Definition, Benefits, & More

By Tom Burchnell
What is a Sale-Leaseback

Updated May 22, 2023

Home equity is the largest source of wealth for the average American. But many of them have a significant portion of that wealth locked into the value of their home, leaving them illiquid, especially in the event of an unexpected major expense.1 

HELOCs, reverse mortgages, conventional mortgage financing, or outright home sales were among the more conventional options paths available to homeowners. However, in recent years, the residential sale-leaseback has become the favored option for many homeowners that want to convert their home’s equity without moving. 

But what is a sale-leaseback transaction, and how does it work? This guide will cover the definition, advantages, and more. 

What Is a Residential Sale-Leaseback? 

A residential sale-leaseback program, also known as a rent-back agreement, is a dual-part contractual agreement between the owner-lessee and buyer-lessor. In the first stage of the contract, the homeowner sells the residential real estate asset to the buyer. From there, they enter into a follow-up contract to lease the property back from the buyer. 

In other words, the seller becomes the tenant, and the buyer, the landlord, in these types of real estate transactions

Types of Sale-Leaseback Transactions 

A sale-leaseback is a contractual agreement between two parties that allows them to negotiate and agree to the terms of the deal as they see fit. Either side can add stipulations or addendums that the other must agree to before the deal is finalized. As a result, there’s contractual play in the joints in every individual leaseback.  

However, most contracts will follow one of these two frameworks:

  1. Direct sale-leaseback – This is the most traditional model, in which the homeowner sells their property to a buyer and then leases it back for a set time period. There are two types of direct sale-leaseback transactions:
    • With the option to repurchase – Also known as a leaseback option, the homeowner has the right to buy back the home at a later date.
    • Right of first refusal – If the buyer decides to sell the property in the future, the original homeowner has the claim to repurchase the home.    
  1. Deferred sale-leaseback – This is a short-term sale-leaseback agreement where the homeowner sells the home and agrees to a temporary delay of the leaseback for the home—typically between 1-12 months—so they can keep living there until they’re ready to move into their new home. If the resident was still in the home once the deferred period ended, they would then begin to pay rent to the buyer in order to stay longer.   

How Does a Residential Sale-Leaseback Work? 

In a residential sale-leaseback, the homeowner will agree to sell their home to a buyer. The seller will remain as a renter for an agreed-upon time in exchange for rental payments. To that end, the details of the arrangement—such as payments, lease duration, and so on—are stipulated immediately after the sale concludes and the property changes hands.

Residential Sale-Leaseback Example Use Case

Let’s say Dan has a 3 bedroom 2 bathroom home in Los Angeles worth $2.5 million that he owns outright. Dan wants to leave the state and build a larger home in the midwest. But he doesn’t have the cash on hand needed to purchase the new property and then pay for construction, and he doesn’t want to live elsewhere until the property is move-in ready.

A residential sale-leaseback is an optimal solution in Dan’s scenario.

In this case, Dan would find an interested buyer willing to purchase the home and then lease it back for the next two years (or however long Dan needs for his midwest home build). After that two-year period concluded, Dan could then move to his new home. 

What Are the Benefits of a Sale-Leaseback?

A sale-leaseback program can be mutually beneficial for both the seller-lessee and the buyer-lessor compared to a loan.

For the Seller-Lessee 

  • Improved cash flow – If you need cash to pay for an investment or an unexpected emergency expense, a sale-leaseback option will convert home equity into cash, saving you from moving or taking out a loan. 
  • No property maintenance and upkeep – Depending on the terms of the leaseback, once the homeowner becomes a tenant, they’re no longer responsible for maintaining the home. That burden shifts to the new owner, who’s now the landlord. 
  • Financial flexibility – Both parties must agree on the terms of the deal. A leaseback provides flexibility to the homeowner, often allowing them to decide:
    • How long they want to lease the property
    • How much they’ll pay in rent
    • Whether they have the option to buy back the home at a later date  
  • Potential tax benefits – In some instances, both the seller and buyer may receive tax benefits or write-offs from the arrangement. For instance, if the homeowner is self-employed, they may be able to deduct rent payments as a business expense. 

For the Buyer-Lessor 

  • Guaranteed tenancy – For the home buyer that views the property as a rental investment for a passive income stream, a leaseback ensures that they’ll have guaranteed tenancy and a steady source of rental income. There’s no need to fix up the house and then search for trustworthy tenants. After ownership is transferred, the original homeowner will remain there until the contract expires.  
  • Tax implications – Depending on state laws, when it comes to sale-leaseback tax treatment, the buyer may be able to claim various tax deductions for owning a rental property.
  • Time to prepare – Whether the buyer plans to flip, rent out, or live in the home, most new owners will eventually want to renovate and put their personal touches on the property. Construction, interior design, and permitting take time. The leaseback period allows the new owners to plan and execute improvements at a more reasonable pace.

Are There Risks Involved with Sale-Leasebacks?

Much of the risk depends on the terms of their contractual agreement. If they don’t clearly spell out both parties’ expectations, roles, and responsibilities during that time period, it can create conflict and confusion. 

Generally speaking, sellers lose out on the equity in the house they may have spent years building up in exchange for access to capital. They’ll need to make rental payments, and the buyer will become their landlord—at least for a time.  

Buyers, on the other hand, have to become landlords, which may be inconvenient for those that would prefer to move in immediately. And, as discussed above, there’s always the risk of a failed sale-leaseback. 

Before entering into a sale-leaseback agreement, both parties must weigh the sale-leaseback benefits against the potential risks involved and consult with an experienced broker or attorney before proceeding. 

Who Is a Good Candidate for a Residential Sale-Leaseback? 

If you need or want cash but want to stay in your home in the immediate future, you are an ideal candidate for a residential sale-leaseback. Common reasons why homeowners do a leaseback include: 

  • Non-conventional financing candidates – If you have bad credit, nontraditional income types, or a high debt-to-income ratio, applying for a conventional loan or financing may be difficult. A sale-leaseback helps individuals who might otherwise be excluded by banks or lenders convert equity into cash.  
  • Early retirees – You need to be 62 years old in the US to perform a reverse mortgage. So, if you retire early, a leaseback would let you live off your home equity at a much earlier age.2  
  • Financial opportunities and challenges  – There are dozens of reasons why a person may need cash fast. You may want to invest in a business opportunity, start a company, pay for your kid’s college, or cover an unforeseen medical expense. Residential sale-leasebacks provide a much-needed windfall without having to move out.  

Convert Your Home Equity to Cash with a Residential Sale-Leaseback

Whether you want to invest in a new business, pay off debts, or cover a second mortgage, a residential sale-leaseback is an appealing option that could help you reach your financial goals. 

It’s the best of both worlds—you convert your home equity into cash and get to stay where you are until you’re ready to move or repurchase. 

So, as you shop around for the right leaseback program, find one that works for you, not the other way around. 


  1. National Association of Realtors. Single-family Homeowners Typically Accumulated $225,000 in Housing Wealth Over 10 Years. https://www.nar.realtor/blogs/economists-outlook/
  2. CFPB. Can anyone take out a reverse mortgage loan? https://www.consumerfinance.gov/ask-cfpb/can-anyone-take-out-a-reverse-mortgage-loan-en-227/
  3. Journal of Accountancy. Accounting for sale and leaseback transactions. https://www.journalofaccountancy.com/issues/2020/jul/accounting-for-sale-and-leaseback-transactions.html

Tom Burchnell
Written by Tom Burchnell
Director of Product Marketing

This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.