Master Lease With Option to Buy

17 Replies

Greetings BP,

I finally got a seller to agree to a Master Lease with option to buy anytime within 2 years. No details yet just a verbal agreement before I actually present him with the proposal. He needs to sell ASAP and even willing to do seller finance with 25% down which I do not have at the moment.  

Property  

11000 total square foot with four apartments fully rented with a large storefront that can be split into two. Commercial space is 4000 square foot plus two car garage that is currently rented. Commercial space needs work, floor, sheetrock, and ceiling, etc. There is a section that needs full rehab and that can be split into two apartments, working on the details in regards to utility set up for the section mentioned. one section needs a new roof, needs new windows and some other TLC. 

Gameplan

Seller wants roughly 130K and wants to leave the landlord business in two years. If the seller wants a down payment for the option, I will try to have him wrap it into the sale price. 

I plan on offering him what he is currently getting monthly but that would leave me with no room for cash flow in order to rehab?

I am not sure how to structure this deal.

After all expenses, roughly 15K, seller gains about 15k profit annually.

Seller only pays insurance, taxes, and fuel (oil due to the area). Natural gas is coming soon to the area.

I wanted to offer the seller a little more than asking so that I can negotiate monthly cash flow. 

A member here on another post  @Brian Gibbson suggested to another member to include repair addendum. I think that basically wraps the repair cost into the loan after borrowing from the seller. 

I appreciate any feedback.

Best regards,

Nick

1 - BTW, it should be 4 separate contracts.  Each building should have a separate lease agreement...and a separate option to buy agreement.

2 - How exactly are you getting an option to buy here, if there's no option consideration?  Is he just giving your the right to buy the property?

3 - Also, you shouldn't be responsible for doing ANY repairs, since you aren't the owner, and won't be until you exercise your option...if you ever do.

4 - "I wanted to offer the seller a little more than asking so that I can negotiate monthly cash flow."...       Sorry, I'm not following this one at all.

5 - Actually, this doesn't sound like a good candidate for a Lease/Option.  This does however sound like a Land Contract deal.

Hi @Joe Villeneuve

Thanks for the feedback. This would be my first investment deal and please excuse me if I am not making much sense here.

The buildings are joined together while the commercial space stretched across the two buildings with one deed.  

How exactly are you getting an option to buy here, if there's no option consideration? Is he just giving your the right to buy the property?

The option to buy would be within two years possibly 6 months to a year extension. Please correct if I'm wrong, would that considered as the option? I don't want to make a downpayment. He is willing to listen to whatever proposal I structure.

I wanted to offer the seller a little more than asking so that I can negotiate monthly cash flow."... Sorry, I'm not following this one at all.

I want to make the deal more appealing if push comes to shove. There are 4 rented apartments and I would like to get some of the cash flow to help with repairs. I would rehab what needs to be rehab, bring in additional cash flow and increase the property value before exercising my option.

This is making even less sense...actually, it's making a lot less dollars.

I could go through all the items here one by one to tell you how you're going in multiple directions on this one.  I figure I would just summarize it by saying this isn't a deal for doing a lease option...and certainly not the way you're trying to do it.  What you are trying to do is a combination:

1 - Lease

2 - Land Contract

3 - and "gift" to the seller.

This is NOT a Lease Option opportunity.  This IS a perfect Land Contract opportunity though.

Consideration MUST be exchanged for an option to be valid. To save a grand, you could lose 20. Don't do a bunch of work for nuthin'.

Don't work on / improve property you don't own. I agree with Joe that this should be a form of seller financing, I just don't deal with LCs out west. Here we have a hybrid CFD/LC where you are the registered owner of record while paying it off. Need it in your name, though. Land Conracts stay in seller's name until satisfied.

What state is the property in?

Hi @Steve Vaughan

Thanks for the feedback. The property is in PA. I think I am missing something huge here. To clarify, lease with the option to buy would be a better fit if the property don't require any work done?

I am new to this, can you clarify "Consideration MUST be exchanged for an option to be valid"? 

What would be the best scenario to utilize a lease with option to buy?

Originally posted by @Nickea Bennett :

What would be the best scenario to utilize a lease with option to buy?

Pretty houses, usually with low equity. Otherwise the seller would just sell conventionally.

Consideration is money. If no money is exchanged, no deal happens. 

Originally posted by @Nickea Bennett :

I was on the phone with a friend of my brothers and they told me I have a good deal. The lease option is a good fit. 

 Well why didn't you tell me you'd be getting  on the phone with a friend of your brothers? Had I known they were getting involved...

 I (and probably Joe, too) would have saved our combined 30+ years of LO experience and not suggested you actually own real property you improve substantially.  A lease option is rarely a good fit for a no money down rehab property but good luck. I hope it works for you and your friend knows how and what to record to protect you.

Originally posted by @Steve Vaughan :
Originally posted by @Nickea Bennett:

I was on the phone with a friend of my brothers and they told me I have a good deal. The lease option is a good fit. 

 Well why didn't you tell me you'd be getting  on the phone with a friend of your brothers? Had I known they were getting involved...

 I (and probably Joe, too) would have saved our combined 30+ years of LO experience and not suggested you actually own real property you improve substantially.  A lease option is rarely a good fit for a no money down rehab property but good luck. I hope it works for you and your friend knows how and what to record to protect you.

 Come on Steve.  Don't you realize that "Everybody" knows this will work?  Just ask him/her.

I really want to meet this person named "Everybody".  They are used all the time as the foremost expert on all there is, and yet I find "Everybody" could be the least knowledgeable person I have never (thank God) met.  

@Steve Vaughan

Hi @Steve Vaughan

I do value both your opinions but at the same time, I cannot limit my self to one source. I have been reaching to numerous people with different experiences for clarification including BP. 

I am new to investment, therefore, the jargon is unclear at times. What makes sense to me is what you just mentioned, "A lease option is never a good fit for a no money down rehab property but good luck"

I am taking that into consideration as well and I appreciate your time and knowledge that you shared. 

What is a bit confusing is that there are articles here and on the net in regards to acquiring commercial real estate using ML with little to no money down. They give an idea of what property to look for and what kind of sellers to approach. Based on my research, the property would be a good fit if it already bringing in cash flow, occupancy is down, poor property management, and need some repairs that would increase the value. So it can be a bit confusing. 

Originally posted by @Nickea Bennett :

I was on the phone with a friend of my brothers and they told me I have a good deal. The lease option is a good fit. I will be moving forward with this deal. Thanks @Steve Vaughan Vaughan and @Joe Villeneuve for your feedback.

They made things much clearer and understandable. I will own the property in 3 years max.

 OK...I'll (and I bet @Steve Vaughan) will bite.  Since BP is a great place to learn for all, regardless of your experience, can you tell me what they said...and how they "cleared up" your misunderstanding of this?  You can never stop learning...from anyone. 

Originally posted by @Nickea Bennett :

Hi @Steve Vaughan

I do value both your opinions but at the same time, I cannot limit my self to one source. I have been reaching to numerous people with different experiences for clarification including BP. 

I am new to investment, therefore, the jargon is unclear at times. What makes sense to me is what you just mentioned, "A lease option is never a good fit for a no money down rehab property but good luck"

I am taking that into consideration as well and I appreciate your time and knowledge that you shared. 

What is a bit confusing is that there are articles here and on the net in regards to acquiring commercial real estate using ML with little to no money down. They give an idea of what property to look for and what kind of sellers to approach. Based on my research, the property would be a good fit if it already bringing in cash flow, occupancy is down, poor property management, and need some repairs that would increase the value. So it can be a bit confusing. 

 I'm going to send you to the ultimate source of knowledge and experience on SLO...she literally wrote the book on it.  Her name is  @Wendy Patton .

You can find a ton if info from her, and others, on through this link:  https://reiclub.com/authors/Wendy%20Patton.html