Offering on a 5 Unit with outstanding loan, lots of rehab

[Jose Guevarra]

Hi Guys,

I've come across a 5 unit in Cincinnati that the owner partially started a rehab on but, ended up stopping and leaving vacant for about 2 years.  There is water damage to windows and walls which I think is a roof issue.  The boiler and water heater(~$12K) are gone so there will be piping issues.  Structurally the building seems sound it just needs flooring, kitchen, and bath upgrades. The seller says he'd fix the water damage before the sale.  I'd like to put about $50K-$80K to address all the issues and get premium rents. 

The property has $170K 1st loan on it, the owner is asking for about $190K. 

My 1st offer would be to master lease the property with no payments for 6 months. He pays utilities, tax, ins as well for 6 months.  I pay for upgrades up to $80K and put tenants into it.  I should have all repairs and some tenants in there after the 6 month term.  After PM fees, I split the rent with him he gets 40%.  I get 15% equity + $80K equity equivalent.  We then sell after 1 year of steady rent or I buy him out. 

My Second offer(if he doesn't accept first) would be to purchase it at $170K and he repair all the water damage before the sale.  I'm also thinking he should pay 6 months holding costs (~$8000) out of pocket since it will take me that long to get the property back in working condition.  I would finance this with a hard money loan $250K, then refinance in about 6 months when the property has tenants. 

Do these offers sound reasonable?  What else should I know about a master lease?  

Thanks!