Rent Credit vs Notes - Which Is Better (After Tax)?

I can’t seem to rationalize, purely from an After Tax Cash Flow standpoint, why a park owner would favor selling a home on a note versus doing a rent credit deal?

Note deals burden the park owner with tax on the gains in year 1, and no ability to depreciate the home from a taxation standpoint

Rent credit deals would create no gain on sale, and would allow for depreciation

The only thing favoring note is transferring insurance and property taxes to the owner. Those costs are significantly outweighed by detriments of note deals; the tax on gain and inability to depreciate.

I am presuming both would be taxed as ordinary income

And don’t forget that, if the tenant does not pay, you are faced with a foreclosure (which can cost thousands in legal fees and take months) vs. a simple eviction if you merely rent the home.

Many operators were on the brink of abandoning the classic rent-to-own model before the SAFE Act and Dodd Frank entered the scene, simply because of the foreclosure problems. I was at an eviction court hearing a while back in which the judge dismissed all of the foreclosure cases because he did not fully understand the process and was afraid of getting the court in trouble. Renting is easy to understand and easy to follow the rules.

Thanks for your quick response Frank