Lease Purchase vs. Purchase benefits

The current owner of the park I am purchasing is going to carry the note with minimum down. The current owner

Would like to shelter as many capital gains as possible or defer them. I assume if I buy the park outright the seller will

Realize the gain at the time of closing even though he is carrying the note? Having said that, is there a benefit for myself the

Buyer to close, take title to the property with the seller carrying the note; rather than doing a lease/purchase and taking title when the purchase agreement is executed? Being that the down payment is minimal, wouldn’t closing and taking title give me the tax deductions that wouldn’t be obtained while leasing?

If the down payment is the same (other than closing costs in a purchase) in both a lease purchase and a outright purchase, which option would be most beneficial to the buyer?



Buy it and have him in the position of note holder. The biggest risk to the master lease with option concept is if the seller refuses to go forward with the final sale. Even though they are legally bound, and the risk is minimal, if the seller dies during the lease, for example, their heirs could claim that they were not mentally competent when they entered into the lease, etc. Nothing is more risk-free than having the title already in your name. The main reason we do master lease with option deals is when the park cannot afford a note payment in its current state, or does not have the material necessary for a bank loan until the turn-around has been enacted. With the seller carrying the paper, and the park already in a position to afford the monthly note payment, there’s no reason not to go forward with the purchase.

Yes, if it is a ‘sale,’ the seller will be taxed on the gain, and you will receive the ongoing depreciation. If it is a ‘lease purchase,’ it is not (yet) a sale, and so there is no capital gain for the seller, and he keeps the ongoing depreciation (although you capture the depreciation on any improvements you might make to the property - new homes, plumbing upgrades, etc.).

If the cash out of pocket is identical for you as a ‘sale’ vs. a ‘lease’, then structuring the transaction as a sale, rather than a lease, is most beneficial for you. But usually the cash at closing is different. We always make three offers on a property:

  1. A full price offer. We structure this as a lease option

  2. A lower price offer if they carry-back the note

  3. An even lower price offer if they want all cash at closing, and we have to go through the brain damage of finding a bank willing to provide a mortgage

Usually the amount of cash we have to come up with at closing increases as you move down this list, so it’s generally less cash at closing for a ‘lease,’ than for a seller-carry ‘sale.’

Best of luck,



With respect to L/O and ‘full price’ - can you ellaborate? Surely the ‘full price’ has to make (eventual) sense when comes time to exercise (if you choose to).

My thought is, if you just offer full price, the numbers may not make sense when comes time to exercise and all your effort to increase NOI may go in vain.



Great, exactly my plan but wanted to make sure I wasn’t missing something with all the talk about lease/purchase deals I have read. However, I do understand the benefit of the lease/purchase when the park needs help in order to obtain financing. Thank you all again for the help.


Hassan -

Well, I’ll pay any price for a MHP, as long as I get to name the financing terms after the seller mentions price. I’d pay $1 trillion dollars for a MHP. I’d finance it $1/year for 1 trillion years at 0% interest. (:smiley:

I always like to help the seller get his number. It’s just that if it is a really hight number, my offer might be $25,000 lease option consideration up front, and $25,000/year for 5 years. (Perhaps that allows me to earn $100,000/year for 5 years.) Then I exercise the option, and the seller has to finance the balance at 3% fixed for 30 years.

Every deal is different, but if you think creatively, you can make any price work with the right financing. Some sellers like that. Some just want cash on the barrelhead. But the more offers you make, the more you expand the pie, and the more likely you are to strike on something that works for both parties.

To your continued success,


Thanks for clarifying Jefferson,

Funny - I gave the same example you qouted to me daughter sometime back asking her if she would pay $1M for a house worth $200K to which she adamantly replied “No!”. But, of course, she withdrew her quick answer after I show her the power of terms.