I have a deal I'm trying to put together. It's a SFR that a friend owns and I'm looking to purchase the property. I'd like to look at two options, master lease vs. seller financing.
The basic financials of the deal are as follows:
Purchase Price - $80K
Monthly Rent w/current tenant - $850
**Realistic Monthly Rent - $950
Monthly Taxes - $216
Maintenance - $42.50 (5%)
Insurance - $75
(I'm not accounting for Capex or reserves at this time as to not complicate the deal. I'm working on that with the Seller now as to who handles those expenses in each scenario)
Scenario 1 - I offer the Seller $80K at 5% for 30 years with a balloon after year 5 and I pay interest only payments of $333.33
Scenario 2 - I Master Lease the property for $333.33
With Scenario 1 I would own and take advantage of all deductions including depreciation and I have no cash outlay. Not much cashflow but I'm counting on appreciation and refinancing after year 5.
With Scenario 2 I get all expenses but not depreciation.
How do I account for income and expenses if I don't own the property but rather have a master lease? I can't see using a Schedule E. I guess I would have self-employment income (the rent I take in) and then all of the expenses including what I pay for the master lease?
Can anybody give me a quick review of my deal and how it should be handled or is it even a deal worth doing or do you not have enough information?
I would opt for seller financing. Owning is the name of the game.
You can do what you want when you have the deed.
When you master lease you can not.
@Rob Beland I like Door #1 owning it.
What's your starting offer and walk-away?
Thank you all. It seems like Seller financing is the way to go. The only reason I brought up the master lease was because based on the sellers mortgage balance he may not want to pay it off right away. @Mike Hurney I didnt really have a walk away price until you brought it up. After rerunning numbers Id say im all in and happy at $75K and not paying more than $80K. Thanks for the motivation to set some limits.
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