Master Lease

Making money and profits in commercial real estate require an investor or owner to control a property. The most common way of course is ownership. Some investors purchase the property at least not right away. Instead, they can choose to master lease the property.

Scenario and Potential Solution

Example: Let’s say you are looking at a multifamily property that needs quite a bit of upgrading.  The investor could offer to purchase the property , but perhaps you do not have the ability to acquire the financing and maybe the owner does not want to sell the property using a land contract or a mortgage deal.

Continuing with the property example, this property let’s say is not cash flowing to pay expenses , property taxes, and mortgage payments. The current owner wants to turn this money losing property into a profitable property.

However, they don’t want to spend the time and effort it will take to bring the property up to speed. The investor offers a master lease on the entire building and then guarantees the owner a steady income with no hassles. In return as the investor you retain the right to upgrade the property and the manage the property so you can increase the Net operating income.

Generally master leases give the lessee terms of 5-15 years, with an option to purchase at an agreed upon sales price down the road. During the period of the master lease, the investor would pocket the delta between what you pay to operate the property to include lease payments to the owner and the lease payments collected from tenants.

This becomes a profitable venture if you upgrade the property and increase the NOI as discussed above. Obviously your goal is to collect higher rents than what you are paying to the owner of the property.