Purchase and Lease-back

[Dustin B.]

Working on structuring a deal and would like to know how others may have done it/experiences. Have a family I am working with, they are looking to buy something larger for their family, pay off some debt and I am looking for another rental.

With today’s market, obviously it’d be difficult for them to get an accepted offer on their next place while holding a contingency on selling their current house. In order to remove that contingency, they’d likely have to sell, pay realtor fees, find a rental, move, try to time out a lease, get accepted offer and move again.

I would like to provide a “solution” by buying their house and renting it back to them for principle, interest, tax and insurance. This would help them remove contingency, pay off their debt, have downpayment up front, avoid realtor fees, avoid renting/lease, moving twice and they can end a m2m lease for when the time is right. I would then get a complete turnkey rental at a below market rate in an appreciating area - creating a win-win for both parties.

My question now, is how much of a "premium" should i add to the monthly PITI to set as a rent amount. I'm completely fine with not necessarily profiting until they move but also aware I'll have to report the rent as income. Property tax, insurance and depreciation would cover a decent amount of that ‘profit.' Also, not sure if I should try to define a "future" rent amount of rent exceeds 12mo?

Has anyone structured anything similar before? How have you handled this?