How to structure lease purchase offers

How do you figure out what to offer a park owner on a lease purchase deal for a park? How do you figure out other terms like how long, how much rent if any to apply to the park and other terms?

I have come close (well, maybe like halfway) a couple times getting a Park under a lease w/ option, but the deal always ended up falling through on terms or issues with handling / repairing park owned homes.

It’s fairly customary for a lease w/ option to be about 2-3 years in duration as a starting point, with the lease around 70-80% of the monthly net (depends on park size, geography, etc). This assumes the current owner operates the park the same way you will, which isn’t often. If your expenses will be higher due to their deferred maintenance then it becomes a more difficult conversation.

Your option price should follow the standard guidance used on this forum and in the MHU Due Diligence Manual. Typically Sellers will expect a premium in option price to make it worth their while, especially if it’s a well run Park in a good market.

The ideal scenario is for the Park to be fully leased with Tenant Owned Homes, but have the very easy-to-fix value add items, such as 1) below market rents that you can raise; 2) utilities not being passed along to tenants. You can invest to do these things and get your return and increase the value of the Park to justify your option price. Leasing can also help the Park establish a track record of financials in the event that the Seller has been operating the Park as a cash business and it would not qualify for any financing.

When you start looking at lease w/ option as part of a turnaround Park the economics rarely make sense in my opinion. I would never invest to bring in homes under a lease agreement, or want to be responsible for repairing tenant homes. What happens when the lease ends and you have 10 homes in the Park? Now you’re a Lonnie Dealer and have to pay lot rent for 10 homes. Ouch!

Be aware you should expect to make zero dollars straight leasing in most cases - lease w/ option is purely a means to get an opportunity to purchase a Park at a reasonable price under certain circumstances.