Master Lease Options

5 Replies

What is a good premium to offer on a master lease option? I have read in place 10% but I think this may be a little high for apartment complexes. Does anyone have any suggestions and what basis do you use for determining what to offer? Thanks

@Isaac White I just did a Master Lease on a large apt community in Cincinnati. Help me understand exactly what you mean when you ask about the premium?

The premium is the cost paid to the owner for the option to purchase their property. In stock market parlance it is called a premium because that is what the owner of the stock (or in this case the apartment) is paid as a result of giving the buyer the right but not the obligation to purchase. Can you email me with the details of your deal and do you know of any other which are available? As a investor say for instance you pay the owner 1K dollars for the option to buy his apartment community at anytime within the next year. In return you get the right to use the property and pay the agreed upon and terms anytime within that year. Is that clear?

Yep, got it. I gave him a down payment of 20% to enter into the agreement. And, nope, don't know of any exact properties that are looking for master leases right now but if a seller has a large pre-payment penalty than that usually opens up the conversation to master leases.

A Master Lease Option on an apartment building is where you

1. lease option on a master lease

2. Lease payment is NOI, which you have for 3+ years

3. your job is to turn it around, as in paint, carpet, raise rents, , decrease management expenses, etc.

4. Now you hopefully have increased the NOI and can either sell the option for a profit or get financing and buy it.

5. you pay very little for your option, and hopefully it is something you can turn around quickly.

Why do a master lease with the 20% down payment when you could easily set up a trust or do a land contract with the same amount? Unless you planned on flipping the property?

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