Tired Landlord, Subject To or Master Lease?

[Cole Swartz]

Tired unsophisticated landlord who wants out on all 9 of current units (4 duplexes and 1 SFH). Properties were acquired in early 2000s on 30 year fixed mortgages. The seller is losing money on roughly half of the units and wants to get rid of them all. This alone is an impressive accomplishment as these units should be cash kings. Landlord manages own properties and has no clue what they are doing. Rents are all substantially below market ($125+ per unit) and that doesn't include that tenants are not charged utilities as is custom in this market. So in actuality, rents are even further below market. Thus, all current tenants have been there a while (I don't blame them, rent is so cheap). $175,000 is left on them as they were originally bought well above market price. Combined market value for the properties is around $190,000. She wants what she owes on them and that is extremely doable.

Monthly Debt Service: $1500

Current Monthly Rental Income: $4,700

Market Monthly Rental Income: $5,325

I normally work with landlords who have free and clear properties so this is new territory. My question is whether I proceed with a subject-to or a master lease?

I would prefer to do subject-to, but my lack of exits worries me. If the loan doesn't get called due, I am golden but obviously not wise to ignore Murphy's law here. If loan is called due, then I do not have sufficient capital to cover the difference nor can I refinance due to my current lack of income as a college student. I have around $30K in liquid capital currently and based on how high above market these properties were originally acquired, I am getting very little initial equity by acquiring these units for what is owed. That isn't anywhere close to sufficient.

With regards to a Master lease, it seems that most master lease are done with the intent to sell the property. Properties are acquired, value is increased by bumping rental income and decreasing expenses, and then sold. The goal here is long term passive income and I would obviously refinance in 5 years or so down the road. My concern is obviously having enough equity by then to refinance without having to bring any money out of pocket. And I don't want to do a lease of longer than 5 years if I don't have to.

I'm curious which route folks here would recommend and why?