Master Lease on small to mid multifamily

5 Replies

BP investor, I have been looking at a few small(5+) to mid (30+) units and have come across something called a Master Lease. in the present research that I have conducted, the Master lease looks like a hit run for the investor. In these few deal the original investor has little to no management or maintenance cost as the tenant covers all of these. Any one have experience dealing with these. What should I be looking for in these deals. What concerns should I have.

Tony,

Could you explain what you mean by Master Lease? 

My introduction to master lease was when I did a shared living environment with seniors; five suites and s shared living, dining and kitchen, so I can’t wrap my mind around your concept?

@Tony Karns Master Lease as I understand it is a form of owner financing. The seller is the lessor and you, (the buyer) the lessee. You take on all the responsibilities and get the rewards, and remit money to the lessor. It is an installment sale to avoid a huge capital gains tax hit by the lessor. Make sure you have a RE attorney involved otherwise you may be eaten by wolves!

As far as I know, there are 2 types, a Master Lease- where you rent the entire place and sub-lease to others and hopefully collect a monthly spread.  You own nothing and are on the hook to make your payment to the lessor whether your subs don't pay or you have a vacancy.

Master Lease Option (MLO) is basically the same but you have an option to purchase at a set price for a certain amount of time.  You still own nothing  but have the exclusive right to buy and pay consideration for that right. 

Neither is a good idea if the place needs a lot of work.  You own nothing.

So Steve  the few properties that I have seen this on so far are meet the first description you provided ex, One of the properties is fully leased out as a rehab facility, the tenant covers everything. the current owner appears to sit back and collect a check monthly  with very minimal management or work at all.
The properties that I am coming across the are this way are very much updated. Everything looks good on the top ,but I am wondering what am I not seeing that I should be looking for? I am also curious to find out why sell something that is more passive that what 99.9 of investors really achieve in their quest to create passive income.
Originally posted by @Steve Vaughan :

As far as I know, there are 2 types, a Master Lease- where you rent the entire place and sub-lease to others and hopefully collect a monthly spread.  You own nothing and are on the hook to make your payment to the lessor whether your subs don't pay or you have a vacancy.

Master Lease Option (MLO) is basically the same but you have an option to purchase at a set price for a certain amount of time.  You still own nothing  but have the exclusive right to buy and pay consideration for that right. 

Neither is a good idea if the place needs a lot of work.  You own nothing.

Originally posted by @Tony Karns :
So Steve  I am also curious to find out why sell something that is more passive that what 99.9 of investors really achieve in their quest to create passive income.
Originally posted by @Steve Vaughan: a Master Lease- where you rent the entire place and sub-lease to others and hopefully collect a monthly spread.  You own nothing and are on the hook to make your payment to the lessor whether your subs don't pay or you have a vacancy

So Tony  already answered.  They aren't selling. You will own nothing but a job.  You will be working for a rent spread.