Valued Add (Capital expenditure) with a Master Lease with Option

[Ade Brown]

Hi all!

I have found a really good property to STR. It is a multi unit development that has operated as Guest Homes for over 30 years. The property is owned free and clear by the current owners and they just want to get out of the business.

I am looking to do a Master Lease with an option to purchase. Issue is that the property needs some serious updating. I want to upgrade the rooms and build a pool. 

Here's my issue, what happens if I do not have the money to purchase the property after the lease expires and the seller does not want to renegotiate? Do I lose the value of the renovations and I just have to walk away? 

[Michael Baum]

Hey @Ade Brown, it sounds like you will have a hard time making this work in the end.

If I was the owner, I wouldn't allow you to sell the property.

You would take the risk and if you couldn't make it, take the hit.

What I am also curious about it what they want down. Is it like 75% or something?

I would have to ask myself if I can't afford to buy this project, how can I afford to remodel it and then buy it.

Will the owners want the increase appreciation? Not from your remodel, but from general appreciation over time.