Bookkeeping for Master Lease Option

[Michael Myers]

Hey guys, interesting situation here. We just got some properties under a master lease option. We paid the lease option down payment and are taking over operation. We structured the contract in such that we realize the monthly loan pay down over the term of the lease option, so at the end of the term we will only owe what is remaining on the in-place loan (our lease option down payment was the difference between the purchase price and what is still owed on the seller's loan).

My question is: how do I account for this in my bookkeeping? Is the lease option money an expense, or do I log it similar to a down payment on an asset? And what about monthly payments: are they simply classified as a lease expense, or is there some funny business due to the split between principal and interest since we are essentially decreasing our final purchase price with each month paid?

Hope you can help! Thanks!