Master Lease Option

“Great spirits have always encountered violent opposition from mediocre minds.” – Albert Einstein

One of the perceived barriers to entry into the commercial real estate arena is the lack of capital. One really interesting tool to negotiate this barrier is the master lease option (MLO). While I am not advocating this as a zero down method, it is certainly a less intensive way to start.

The master lease option is the “Big Brother” to the sandwich lease in residential real estate investing. The principal is the same: you lease the property from the current owner and then turnaround and sub lease the property out. A master lease option is different from seller financing in that the title is not actually transferred. Instead, the lessor (the owner) rents the property to the lessee (you, the investor), and you in turn rent it out to all the tenants in the property.

So Why Would a Seller Do This Strategy?

Great question!

The common wisdom on this philosophy is that buyer’s motivation is necessary and is the core lynch pin. If you want to join me in the quest for a master lease deal, check out the advantages we can offer to the seller:

  • The management headache will become ours in a very short order. This deal can close very quickly relative to a financed transaction.
  • More flexible on option price we can offer more because they are flexible.
  • More default protection. Because this is a lease it will be a easier to take the property back – especially with an arbitration provision.

Okay it sounds great right? What are the risk if you’re a seller?

  • Counting on the performance of the MLO operator: why will they do a better job than you?
  • Forgoing the sales …read more