I’m in the process of purchasing a small park. I plan on putting 25% down And I was planning on doing owner financing for the balance.
However yesterday the seller came back to me and said that after consulting with his family, he decided to structure it as a lease rather than a standard contract. He will hold on to the deed and the title to the property until the last payment is made And at that time the title will be transferred to me.
I’ve never heard of such a thing. Is this common?
It sounds like a master lease. Essentially you are running the park and making a payment to him (like a mortgage) and you still keep whatever the profits are. However it usually gives you an out at a predetermined point if the park is not working out and he’s not having to go through foreclosing on you if you don’t pay. Could still be a deal but I would definitely have the contract with all of the terms drawn up by a lawyer.
This is rent to own, basically, using a master lease and land contract.
What’s your incentive to invest in capital improvements and infill when you don’t own the land? I guess the good news is you could fill the park with sex offenders and felons and then walk away.
I personally wouldn’t want to deal with a seller that isn’t sure if they want to sell versus lease. One day they will decide they’d like to screw you and end your lease. Guess who keeps the 25% down payment?
It’s very typical in Midwestern states to structure a land contract where the deed remains in the seller’s name until the land contract is paid off. Also very common to have and the deed prepared and held with a trusted title company or attorney and once land contract is paid off, the deed is transferred to you. I’ve done this on two different properties and its worked out fine. You will want to have a good attorney review the land contract with you and make sure you understand all the terms and what you are agreeing to.
There are serious potential tax issues to be explored with your CPA