I have found a really good property to STR. It is a multi unit development that has operated as Guest Homes for over 30 years. The property is owned free and clear by the current owners and they just want to get out of the business.
I am looking to do a Master Lease with an option to purchase. Issue is that the property needs some serious updating. I want to upgrade the rooms and build a pool.
Here's my issue, what happens if I do not have the money to purchase the property after the lease expires and the seller does not want to renegotiate? Do I lose the value of the renovations and I just have to walk away?
Investor · Cleveland, TN · Member since 2016 · 279 posts · 187 votes
2y
@Ade Brown "Here's my issue, what happens if I do not have the money to purchase the property after the lease expires and the seller does not want to renegotiate? Do I lose the value of the renovations and I just have to walk away?". Yes. They would then be free to walk away and put it on the open market at current value, including whatever renovations and upgrades you added.
If you're not sure you'll have the resources to purchase at the end of the lease, can you write something into the lease that would allow you to sell the property? That way you would have a contigency so that you could profit from your endeavors. Keep in mind that the more unique a property is the longer it will typically sit on market, so make sure you're not pushing deadlines if you decide to sell.
Another thought, could you work out some type of owner financing? That way the property would legally be yours with a mortgage vs theirs with you having a lease & option.
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
2y
I like the owner financing idea. You could also get an option against the property and add in the value of your upgrades to the property. That way if things don't work out you would have to be paid for the upgrades to remove your option.
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
2y
Sounds like a boutique hotel in the making! If this would be a great value add commercial property, were you could double the value in a brief time, it would be worth learning how to raise money and purchase the property. I would suggest owner financing because it'll be pretty hard to find a bank to lend on that type of a property.
Investor · Cleveland, TN · Member since 2016 · 279 posts · 187 votes
2y
@Ade Brown Another option would be to find a business partner that can see the value in this and that has the resources to at least flip the property after the updates. You could write them into the lease as a partner where if you were unable to buy the property, then they would supply the funds to purchase, you would then sell and pay them back, plus a cut of the profit. That would give you an out where you could realize the reward for your work, if you were unable to purchase it outright.
Just another thought that came to me. If you go down this route, get an attorney to write up the contract and vet your business partner! They need to be trustworthy and actually have the resources to fulfill the deal.