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charlucc

Master lease options

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Has anyone done a master lease option on apartments? If so, I would like to know how the deposits were handled and appx. how much earnest money was required.

Thanks

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Hello, Charlotte, and welcome to The Naked Investor.

The answer to your question will vary, dependent upon your location, the number of units involved, and the terms you negotiate.

Generally, you can expect to receive the deposits if your master lease has you responsible for damages. As far putting down option money, there is no hard and fast rule. Less is best, obviously, from your perspective.

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Thanks but what would be the advantage of a master lease option if you put 20% into it. That would be much like financing with a bank.

 

Because some sellers want some skin in the game. They want some sort of consideration now if you can find a seller who will do 100% than yeah that would be sweet but those are far and between.

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It varies as far as the down. It's usually an 80/20 MLO where the seller carries the 80 and you bring in 20% down.

That's not a lease/option, that's a fully owner financed deal. No way I put down 20% for a mere lease, unless it's prepaid rent.

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Here is what a MLO is:

 

You approach a commercial owner and ask him if you could put the property under a master lease option. He will either carry the note himself or you can take over the payments subject to if he still has a loan himself. Once you take it under the MLO you sublet that lease to take over the rents and use the rents to pay off the new note or the existing note. Whatever you have left is positive cash flow and it is yours to keep.

 

Now how much will the owner carry depends some will do anywhere from 80-90% requiring you to come up with some sort of consideration/down payment/EMD or whatever you want to call it. There are some that will do 100% and you can either do a full owner finance deal or you can do an MLO depending on what the owner wants done.

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Here is what a MLO is:

 

You approach a commercial owner and ask him if you could put the property under a master lease option. He will either carry the note himself or you can take over the payments subject to if he still has a loan himself. Once you take it under the MLO you sublet that lease to take over the rents and use the rents to pay off the new note or the existing note. Whatever you have left is positive cash flow and it is yours to keep.

 

Now how much will the owner carry depends some will do anywhere from 80-90% requiring you to come up with some sort of consideration/down payment/EMD or whatever you want to call it. There are some that will do 100% and you can either do a full owner finance deal or you can do an MLO depending on what the owner wants done.

Sorry, but I must disagree. This is NOT what a MLO is. What you describe here is nothing but a seller carryback and/or sub-2 deal. These deals are done all the time, by the way, but they are not MLO deals. A MLO deal is nothing more than a SLO done on commercial property. You actually agree to "rent" ALL of the units of the property under a Master Lease with an option to buy the property. You then rent the units to your own tenants, usually at more than what YOU are paying in order to get cash flow :-) The theory is that you will increase the value of the property through value plays so that you will profit when it is time to exercise your option to purchase. In general, you have the same benefits and risks of a SLO on a residential property.

 

I have done several MLO's with no/low downs. That, like any other part of a lease agreement, is always negotiable.

 

regards,

 

Bill

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