I've found an old drive-in site that could be reopened very easily, but the owner wants to "lease" us the property as opposed to sell it to us. If we entered into a lease, I would want the option to purchase the property at the end, or have a portion of our payments applied to a fixed purchase price.

I've searched around for some information on "lease/purchase" contracts, and they seem like a very large "rent-to-own" deal.
Am I far off in the "rent-to-own" comparison?

As I understand it... The existing owner still "owns" the property, I would have control of the property with a smaller payment than an outright purchase, he (the existing owner)still makes a monthly income, and at the end of the lease, I would own the property.

What am I missing?

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It pays to ask questions up front and never take anything for granted. In real estate what goes on the document is usually the last word. Since this type of document is public record, you may be able to read samples at a county courthouse to get an overview of what is customary.

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The existing drive-in property, in it's current state resembles a small junk yard. About 20-30 old junk cars scattered across the property, and other assorted scrap metal & junk. The concessions/projection building is still standing, but is in a very bad state of disrepair. The existing box office/ticket booth has fallen down and it's remains are overgrown in a thicket of vines and weeds. All of the parking ramps are still in place, as are some of the old speaker poles. The screen tower is gone, but the foundations are still in place. The septic system for the drive-in is currently shared with a 3 bedroom rental house (which was once the owners residence)and more than likely I would need to install a new separate system.

We already have all of our concessions/projection equipment, and will only need to replace the AW-1 platter to get up and running. The AW-1 still works, but I'm not willing to bet a full field of paying patrons on it.

The existing owner is willing to offer us a 25 year "lease" on the property. I would more than likely have to replace both the ticket booth and the concessions/projection buildings and erect a new screen at my own cost, and hope to recover the expenses during the life of the lease. I've checked the county tax assesors office, and the land for the drive-in is valued at $39,000.00 (that's what the current owner pays taxes on).

When this old drive-in closed back in the 70's, all of the highway road frontage was sold off to another business, and I would have to aquire a minimum of 50 feet of highway road frontage to get proper zoning in place. I have met with the owner of the business currently on the edge of the highway, and he said he is willing to sell me the necessary road frontage I need to get the place open.

The current owner is in his late 70's, and has several grown kids. One of his daughter's is hospitalized and he was hoping to use the income off the lease to pay for her care after he is gone. My worst fear is that once he is gone, his kids could sell the property out from under us, leaving us with the debt of the improvements and nothing to show for it. He's afraid of the capital gains taxes if he sells it out right. If I owned it, I'd rather sell it, pay the small amount of taxes on the profits, and invest the dividends and live off the interest.

We are heading to Orlando/Kissimee, Florida this Sunday to spend a week at the "United Drive-In Theatre Owners Association 2002 Conference" and will be speaking with other owners and operators from around the country. We hope to gain some knowledge from the other owners, and get their input on this situation as well.

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Barry Floyd
Floyd Entertainment Group
Nashville, Tennessee
(Drive-In Theatre - Start-Up)

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First of all, based on what you are saying the value of the property is basically in the land, not the buildings. Land is not depreciable so that the owner has at least some tax basis in the land. Capital gains are computed on the difference between the owner's tax basis for the asset and the sales price. In the sales contract you would then allocate the majority value to the land. You take a deed (would require some down money e.g. 10 or 20%) with the owner holding the mortgage. Each payment would comprise some interest and a payment of princple. Under the installment sales rules for capital gains taxes, each year the owner only recognizes that portion of the gain as the amount of the principal payments bears to the total principle purchase price. By speading the payments out for ten to fifteen years, the capital gains tax bite is minimized.

Dont do a lease if you have to significantly improve the property.

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The closer this thing comes to reality, the bigger the lump in my stomach becomes. My wife and I know the risks involved, and are willing to take them to get the theatre open. My family (parents & sisters) are already preparing for us to be in bankruptcy court.

Everything we would do involving this property would be highly contingent upon several issues.

1.) Traffic & Zoning Approval
2.) Acquiring the necessary road frontage from the other business owner.
3.) Bank financing approval
4.) Septic System approval

My family says there no market for drive-in's anymore, but I feel much differently. The area we're looking to open this theatre in is very underserved for any type of entertainment. There is a small run-down indoor theatre on the other side of town and is hardly ever busy.
They do no advertising whatsoever, and from the looks of the theatre no maintenance either. We would be the closest drive-in theatre to the greater metropolitan Nashville area.

The existing buildings have no value per say, as they are crumbling and falling to the ground. The only benefit his land has to offer us is the fact that the ramps are already in place, and maybe a few of the locals know there was a drive-in theatre there at one time.

Our dilema is.... how much of a lease are we willing to pay just to gain his existing ramping? The county has the lot (9 acres) apparaised at $39,000.00 - the market value of the lot is closer to $60,000.00. We've repeatedly asked to buy the property, but he is not willing to budge. We have been advised by an attorney, that if we do deside and go with a straight lease to form an "Limited Liability Corporation" and enter the lease agreement and pay the lease payments through the protection of the corporate veil.

He asked me to throw out a number of what we'd be willing to pay "per month" for the lease of the land -and we offered somewhere between $500 - $600 a month. He counter-offered with $1,000.00 a month. Then he offered to take a percentage (25%-30%) of the net profits as payment for the lease. I wasn't really interested in the percentage offer and have pretty much dismissed it as an option. We would possibly consider $700 - 750.00 a month, but no more. Keep in mind, we will have to pay for the improvements to the property from our own pockets.

If we go with the lease/lease purchase, I want to do it on a fixed 10 year lease with 3 five year renewable options like someone else mentioned earlier.

Would we be better off to go ahead and proceed with the negotiations with him, or look elsewhere and build our own ramping?

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