Lease Option Agreement

I am considering a lease option on a turn-around MHP. At first the deal was going to be owner financed with 10% down with a 5 year note. Now the seller wants to just do a Lease Option, so they don’t have to go through a long foreclosure process (and spend money) if I fail to turn the park around. Purchase price is currently $250K, with 38 total lots, 11 currently paying lot rent only at $275 a month. There are 8 abandoned MH that probably are not habitable and will need to be demolished. The rest of the lots are vacant but ready for a MH. The way chattel financing currently is, I will have to purchase MHs and owner finance them. I will be running some test ads to determine the market for such a home.

My question is how to structure the lease option to be advantageous for me (buyer). I had submitted my original offer to include 6 months without a mortgage payment with an option to increase the 5 year term to 10 years. Now the seller wants to do a lease option with a term of 24 months and shorten the time without a payment. I mentioned to him that it would be really difficult to turn this park around in that amount of time. Even if I put in eight additional homes in the MHP, no bank will finance this at 50% occupancy. There is no way to sell off any portion of this MHP to lower the number of lots. I am willing to take a shot (gamble) at this MHP because I know the area and it is close (within an hour) of a MHP I currently own. But as Frank has taught us, we need to always think of our exit strategy. I don’t want to be in a position of improving the MHP, but not enough to have a solid exit strategy.

MHP info: 38 lots, 11 paying $275 (at market rate), public water, not sub-metered, water paid by MHP, septic tanks, expenses about 40%.

Things with the lease option I am considering: 1. have a stepping lease payment, 2. have all of the lease payment be applied to principal, 3. have a clause in the lease option for an extension if I am unable to secure financing after the 24 months (I don’t think they will agree to this), 4. having a clause to convert the lease option after 24 months to owner finance.

What other options or what have you done to facilitate a lease option for a MHP?

Should I just move on to another deal?

Thanks for any and all suggestions. Don’t worry about offending me, I have thick skin.