Net Lease vs Lonnie Deal - Posted by Jeff Ward

Posted by Chuck-NY on June 23, 2005 at 13:02:00:

Lessee will not acquire title until all lease payments have been made. No credit is given until all lease payments have been made. The total rental payments are less than or equal to fair market value. The option price is about 7-15% of total payments. The “alternative” does not exist until it happens. Keep in mind that the Net Lease & Option to Purchase are 2 separate documents. The Net Lease states that they will be leasing the MH for “x” number of payments and does not refer to the Option to Purchase. I have a very good CPA who has been taking care of my business for many years now. He understands the IRS,and I feel very comfortable with him when he does my taxes. Ernest Tew spent a lot of time and money to develop these contracts. My attorney approved these contracts after he & I did a 3-way call with Mr. Tew. I would suggest you personally contact Mr. Tew if you are inclined to go in this direction or if I haven’t answered your questions.

Net Lease vs Lonnie Deal - Posted by Jeff Ward

Posted by Jeff Ward on August 11, 2003 at 16:43:35:

Hello everyone,

I have done 4 traditional Lonnie deals, but for tax reasons and due to the fact that my park will allow leasing vs ownership I have decided to do one of Ernest’s Net Lease arrangements. I have “Get Rich Helping Others” and have read the part pertaing to the net lease but due to my thick head I don’t have a complete understanding. I understand the buyers are still responsible for the mobile home tax, maintenance, & insurance and how the option consideration works. But what happens at the end of the term after all pmts have been made in full. Is anything additional required from buyer to exerise their option. Thanks in advance for you help. Just a quick recap point by point should clarify.


Re: Net Lease vs Lonnie Deal - Posted by Chuck-NY

Posted by Chuck-NY on August 11, 2003 at 20:13:14:

Rarely will I get a lessee/buyer pay off early before the end of the Net Lease. When they do make their final lease payment I give them a bill of sale. More times than not I just get the MH back before the end of the lease. You will need to check with your local and state laws as how you convey ownership. For my area, the Net Lease & Option to Purchase is the only way I do Lonnie Deals.

Re: Net Lease vs Lonnie Deal - Posted by Laura

Posted by Laura on June 16, 2005 at 13:22:03:

Net lease & option to purchase sounds great for taxation and avoiding dealer status but…

Isn’t the IRS going to get upset because:
If the transaction too closely resembles a sale, it could be treated as a sale by the IRS. In the event of an audit, they look primarily at four areas:

  1. Whether the lessee acquires title after making a certain number of payments;
  2. Whether the lessee is given credit for a portion of each lease payment;
  3. Whether the rental payments materially exceed the fair market value of the property; and
  4. If the option price is ?meaningful? or very small in relation to the value.

From Ernest’s option to purchase contract you can,
“As an alternative, the Buyer may elect to pay the purchase price in equal monthly payments, amortized over _________ (___) years at _____% interest per annum. In that event, the Buyer will have the right to prepay all or part at any time.”

So how is this possible to avoid upseting the IRS? Seems like a contradition.