Leasing back to a seller in a turnkey rental sounds like a perfect scenario for a short sale situation. In actuality, this isn’t the case at all. It’s rarely the easy road that one may think they are taking. It’s full of potholes, rocks, and washouts. Here are a few things to keep in mind.
These people are human beings; human beings who are often hurting and extremely emotional since the short sale was due to impending foreclosure. It may seem like a kind act to offer to rent them this house (and it really is kind), but you must keep in mind that this was THEIR home until just recently. They worked with the bank who was trying to take their home away from them to help you purchase what they probably worked very long and hard for. It may start off graciously with everything running smooth, but this can be a short lived situation that eventually ends in bitterness and resentment.
You must also take note that once you enter into that short sale contract with the bank lender that you are legally obligated to abide by their rules and contingencies. These may be placed strictly on you, or between you and the seller. Read over all of your paperwork very carefully. Many lenders will specify quite clearly that you CAN NOT rent the house back to the previous borrowers. It is always best to follow their stipulations so as not to risk getting your short sale cancelled or get faced with serious charges for breech of contract.
There are many ways to find renters with no sentimental attachment to your new property. You can place ads previewing your home on websites to see what kind of feedback you get. You can pass out flyers or talk with neighbors to see if they know anyone interested. (This is a plus, by the way. Most people would love the opportunity to help pick their neighbors). Keep the names and numbers of interested parties and leads. When you finally do reach closing, you’ll have a plethora of possible people to rent to right at your fingertips.
In conclusion, don’t take what appears to be an “easy” route. If it’s too good to be true, most of the time it is. Ina worst case scenario, renting to short sale sellers could leave you legally, emotionally, and financially broke.