Are there more cons or pros to master lease agreements?

Question

What is your experience using the master lease agreement? Is it a better way for new investors with little to no money to break into commercial real estate investing? Where to find multi-family apartments that are causing problems for the seller?

John Warren · Answer

@Tony Marcelle everyone has a different path, but I think it often makes sense to 1031 exchange smaller properties into commercial deals. You can also look to partner if you want to jump straight to larger deals. No matter what though, commercial real estate is a capital intensive sport. You need capital not just for the down payment, but also for all the unexpected expenses that come up when you own larger properties. There is a reason that banks don't give 3.5% down loans on apartment buildings!

Tony Marcelle · Answer

@John Warren I was thinking something with 5 units to start. I can find off market multi-family homes like duplexes and triplexes. Isn't it better to target small apartments that are already occupied with tenants? That would save me the problem of having to buy the property then have to hope I can fill vacancies from scratch. My purpose is to buy and hold these properties for passive income.

John Warren · Answer

@Tony Marcelle depending on the size of the property you may look on your local MLS with realtors. You also will eventually want to network with brokers who specialize in the types of properties you want to buy. Every area has an active group of commercial brokers who handle the majority of the transactions. Lastly, you will want to look off market, although this is a long term game. You won't send out a few letters and get a screaming deal in most cases.

Tony Marcelle · Answer

@John Warren Those seem like reasonable options. Where is the best place to start looking for these multi-family homes?

Tony Marcelle · Answer

@John Warren For those new investors wanting to get into commercial real estate investing, what route should they go to purchase commercial real estate?

John Warren · Answer

@Tony Marcelle I have always thought a master lease option strategy was really cool, but it can be challenging in today's market to utilize this strategy. Most sellers can get rid of their property pretty easily no matter what condition the property is in. Even vacant properties that require a full rehab can be sold for a decent price here in the Chicago market, so there isn't much incentive for sellers to do a master lease option deal.

Are there more cons or pros to master lease agreements?

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