Re-position under a Master Lease?

Question

Hello BP, looking for thoughts on structuring a master lease...here is the situation

Have a potential on 16 unit multi  --  this multi needs some significant work (although mostly cosmetic, looks like a dumb but it is actually a hidden gem).  The current owner 80+ wants out; however, also wants too much money based on the fact that occupancy is 30%.  The property has always been self-managed, he has not had the energy to fill nor are the ones he has great.   In truth the units (all 2/1) I have an average of $3,250 updates to each unit required to maximize rents.  Other significant update items are outside the building...paving / curb appeal.

If I can position a Master Lease (with ultimate purchase price (so really Master Lease / Option),  the flexibility that provides could allow me to pay a little more; however, even without putting initial money up for the purchase I will be investing rehab / re-position monies.

So my question:  is this fairly standard with a Master Lease?  With the right documentation/agreement I assume I would be able to lock it down even though when it comes time to execute on the option that strike price agreed upon upfront will be 50 or 60% of the actual re-positioned value.

I suppose this could happen with any seller regardless but I am also concerned given his age and ill health, what if at the time of purchase his interest in in probate or held by surviving family?  I won't do it unless I am sure everything is iron clad and will not be questioned or delayed in any way...there always seem to be issues with family and estates

Thoughts?

Thanks, b

Steve Vaughan · Answer

I'm doing the same type of thing with a 93 yo seller on 4 duplexes. He wants his heirs to inherit them.  But...they don't need much work. I've never been a fan of investing large dollars into something I don't own.

I would try for an extendable 3 yr option with 3% consideration, but not the master lease or sinking your time and money into it.

If you do the MLO to take headaches off his plate, let him pay half or something, raising the strike price whatever he puts into it maybe. The majority of your option consideration could be in the form of rehab as well.