Seller Financing Advice

[Monica Davies]

Hi guys!

I own a 4 plex and a duplex, and am working on, in Brandon's words, building my "stack" and trying to get an 8-plex. I came across a seller, who was interested in seller financing his 8-plex and the numbers look good.

I was ready to go under contract, but he is now unsure. He wants to serve a church mission and leave for 2 years, which is why he wanted to sell. But now, he wants to hold and have a property management company run it for 2 years while he is gone, then come back and 1031 exchange it into a large home for himself, to avoid the significant capital gains.

Is there a way this deal can work for both of us? What about a lease option? I've never done one before.

[Isaac White]

If he is going to be absent and have third party management which will take a portion of his profits you may suggest a master lease with the option to purchase the property in 2 -3 years. With this type of financing he will still receive  monthly or quarterly payments, avoids the capital gain he was attempting to avoid and you get to purchase a property and operate it with the option to buy it at the end of the term. It is the same as a lease option on a single family or small multiunit but you lease the whole complex. Some examples of famous master leases are the Empire State building which was on a 100 year master lease. Another option is to have him (seller)carryback a portion and finance the remainder with a loan.