How does the ‘rent back’ work?

Posted on Thursday, July 12th, 2007 at 7:00 pm.

A client of ours asked:

"How does rent/lease back work- one couple is building their dream house, but it's not ready yet? Would we buy the house outright and then they just pay the regular mortgage?"

Our answer: Yes, when you do a rent-back, you take possession of the house (i.e., settlement) and the sellers become your tenants. The rate they pay is almost always the "PITI", which stands for the "Principal, Interest, Taxes & Insurance" - basically all the costs for you to own the home, usually pro-rated daily. The spirit of the agreement is that it should not cost you anything, nor should you benefit from it.

You can see what a sample rent back agreement looks like here: DROdio - sample rent back agreement.

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