HOW OUR MASTER LEASING INVESTMENT PLAN WORKS

How do you get out of your residential or commercial property even if you don’t have equity or you are underwater – or you’ve had your property on the market for months with no buyers and/or can’t cover your debt? You have to get creative. The best way to achieve your goal is to wholesale if in residential or with multifamily property, use the biggest secret in commercial real estate  – the Master Lease.

Master lease agreements have been around for centuries. A master lease is very similar to a “lease with an option to buy” in the residential real estate market, but with your commercial property. The term lease option is used when referencing single-family homes, but for apartments and commercial property, it is referred to as a master lease agreement.

THE PROCESS

You will sell your property by offering an investor your property with all rights and privileges of owning and operating the property without legal title (but investor does receive equitable title) changing hands – and in return, you receive a down payment in exchange and the investor will manage, upgrade and remedy the issues that have caused financial or material distress, and your only expense are for any major issues associated with infrastructure. At close, you receive a down-payment (commensurate with the severity of the properties needs) and you receive monthly payments to cover the property debt and a small profit while maintaining legal title. The investor is entitled to the property’s cash flow above the master lease payment, all future equity, tax benefits, and day-to-day management above the agreed upon Master Lease price.

Because your price and terms are set, the investor, as well as the cost of improvements covers your monthly debt – and in turn, any upside belongs to the investors. As the Net Operating Income (NOI), improves due to the investment in the property, it ideally increases in value which covers your debt as the owner, with a small profit in time and eventually the investor will exercise their right to buy the property as they improve it through investments made. The seller receives a monthly payment from the investor to cover the lease agreement price to cover what the seller owes. When the property eventually sells, the seller is released from all liability and walks away with all debts paid and a clean slate.

MASTER LEASE – IN SIMPLEST TERMS

The Seller Receives:

  • Easy Lease-sale of the property
  • Lease payments on the equity of the property paid every month
  • Freedom from involvement in the operation of the property

The Buyer Receives:

  • A purchase value involving no banks or lenders or appraisal
  • The cash flow above the lease payment
  • The option to buy at a pre-determined price within a set period of time
  • Any profit above the master lease agreement price

Master lease advantages:

  • No banks required
  • You and the investor can get as creative as you want in deal terms
  • Quick closing, low closing costs, closing as quickly as 7 days
  • Seller can generate good interest income per month
  • Buyer can create cash flow and equity build-up in exchange for the risk

Master lease potential disadvantages:

  • Foreclosure by seller is easy if investor does not perform per lease agreement.
  • Though very rare, it may trigger a due-on-sale clause on the seller’s existing mortgage.
  • Seller may not perform his end of the agreement.

Master lease diligence:

  • A real estate attorney must create the master lease agreement. Real estate law and contract law differ by state.
  • Perform a title search to make sure the title is clear and there are no liens or confirm and address any liens that do exist.
  • Engage the services of a holding company to retain possession of an executed deed and the original document.
  • Record the master lease agreement against the property. *Investor records a Deed of Trust as well.
  • Get an appraisal
  • Investor must have a razor-sharp exit strategy planned well in advance. It should be conservative with minimal to no speculation based on sound research and counsel.
  • Ensure that the mortgage and taxes are paid on time, by having a third party pay them (e.g. title company or another type of disbursement company.)

Master Lease Agreement Summary for Commercial Real Estate

What Property/Owner is ideal for a Master Lease Deal?

  • Owner that is tired and burned out
  • Owner lives out of state
  • Owner is sick or has other personal reasons for selling
  • Wants to Avoid capital gains tax
  • Has Large prepay penalty on loan
  • Has property management problems
  • Has Vacancies over 90 days old

In Conclusion- Investors use Master Lease Agreements to solve real estate owners problems.

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