Today, real estate investment appears relatively unattractive due to very high prices in large cities and steadily falling prices in rural areas. In order to obtain attractive returns, it is essential to think outside the box and not hesitate to invest in atypical products such as repurchase agreements. A system still little known to the general public that can offer you high profitability.
How does it work?
The principle of the sale with right of repurchase is for the seller to become a tenant of the property sold and to buy it back at a price agreed from the outset within the limit of five years. Concretely, the seller and the buyer sign a deed of sale as for any real estate sale. The deed has the particularity of including a clause called the buy-back option. This clause specifies the buy-back price and the maximum time the seller has to exercise it. A lease or an occupancy agreement is signed at the same time so that the seller remains in the property.
As the buyer, you collect the rent during the rental period and receive the difference between the buy-back price and the sale price when the seller exercises his buy-back option. You thus benefit from two sources of income, the rents and the resale margin.
What return can you expect?
Because of the buy-back option reserved for the seller and the rental of the property, you buy the property with a discount of about 30% compared to its real value. Depending on the arrangements, the rents can range from 6% to 10% of the sale price. You also benefit from a margin on the purchase between 0% and 10% of the selling price. You can therefore expect an annual return of 6% to 15%. In addition to this attractive profitability, you have the advantage of being protected against the downturn in the property market since you bought the property at a discounted price.
What is the interest for the seller?
The majority of sellers carry out a sale with a repurchase agreement because they urgently need financing and are unable to pay the monthly instalments of their loans. They are sometimes in foreclosure proceedings and risk having their property sold at auction. To solve their over-indebtedness problems, a sale with right of repurchase is often the last resort for these owners who wish to keep their property.
The sale of the property with a repurchase agreement allows them to pay off all their loans and continue to occupy it. As soon as their bank accounts are cleaned up, they buy back their property at the price agreed at the start of the transaction. Thanks to the repurchase agreement, they keep a property to which they are attached and settle their debts.
Under these conditions, the sale with a repurchase option is a successful operation for both parties. The investor has benefited from a profitable investment in stone and the seller has managed to reduce his debt by keeping his property.
However, the sale with a repurchase agreement is not without danger. It is necessary to be attentive to the seller’s ability to buy back his property before committing himself. Otherwise, you risk finding yourself with an eviction and litigation to deal with. Some unscrupulous buyers have sometimes taken advantage of the distress of the sellers to make “rémpéérés” and acquire the property definitively at a discounted price. It is important to respect a certain ethic. The operation being already expensive for the seller, it is necessary that it is beneficial to him.
Before embarking on this type of operation, it is essential to meet the sellers and build trust by discussing the project in detail. It is preferable to be accompanied in your steps by a specialized company.