Master Lease Option Apartment Building Purchase

[Ricardo R.]

Hi everyone, I am looking to purchase an apartment building and after much searching I have come across one in which the owner is willing to do a Master Lease Option on. Here are the terms: 

1. Purchase price: $335,000
2. Down payment: $70K
3. Amortized over: Over 30 years at 5%
4. Balloon payment in: 7 years
5. Option to by at any time through out the 7 years. 

My question has to do with the terms, do these seem like good terms for an MLO? - The Seller wanted to sell but after finding out that they would get a huge tax bill is now willing to do a MLO but they also need a big cash infusion. Is there any thing here were I could possibly get better terms or are these already decent terms? 

Also, does anyone have any points for the Master Lease Option, my main concern has to do with the amount of money down and my exit strategy. 

[Neal Collins]

@Ricardo R. The seller has basically spelled out Seller Financing terms already. Taxable events are triggered when the seller receives profit from the sale. Without getting overly complicated on several different fronts, even if the seller was entering into a MLO with a downpayment, the IRS would treat that as an installment sale and if the $70k downpayment represented profit above their basis, then they would trigger a taxable event upon the receipt of the money.

If their motivation is more on the tax side of the equation, I would keep the conversation going in the same direction with the terms they have outlayed with the only difference being you take title when you give the downpayment. The rest of their equity is secured by a first position Trust Deed or mortgage on the property with monthly payments made. If they want to completely defer capital gains then they can receive interest only payments without having the loan amortize, or conversely, if they want a higher monthly payment and to spread the capital gains taxes out over many years they can amortize the loan.