Master Lease Option

When you do a MLO on commercial who pays property taxes and the insurance? Is it possible to do a MLO if the property is listed with a realtor and, if so, how is it done?

Master Lease/Option typically means the tenant/optionee pays for everything including taxes, insurance, maintenance.

Without the “option” part, the Master Lease is more commonly referred to as a “Triple Net Lease.” However, there is such things are “net leases,” and “double net” leases. This means that the tenant does not pay for everything, but only some portion or segment of the overhead expenses.

A triple net lease is what Sears might do within a shopping center. They will maintain all or a portion of the rented facilities.

Sometimes, a major retailer will actually develop the project, sell it, and remain as a long term tenant. This is more more for tax treatment and/or limitation of liability.

Yes, you can do this with a listed commercial property, but more than likely you’ll need to start out with an agent that specializes in this field, and then let him find a deal for you.

I was specifically interested in MLO on apartments or mobile home parks. Would the same apply?

Yes, these principals apply to this category.

What do you believe are the strongest motivations for a seller to do one of these with you? Just curious.

I haven’t done one yet because I really, really don’t believe a seller would do one. The gurus say otherwise. What is your opinion?

I like to do a master lease, but can i do a master lease in California while i’m in boston. basically hire a real estate broker in california and do everything through fax and phone, while im here in boston, job market in boston is very tough i do not think it would work here, vacant apartments all over around boston. help please anybody

Consider this. I learned several years ago that nearly every creative finance strategy was born from a commercial real estate deal. Furthermore, the higher the price points, the more creative things can get on the commercial side.

Also consider this. The more expensive the project is, the more interested everyone involved is going to be at getting an agreement.

I think an issue is, attempting to get a ‘mom and pop’ operator to accept some extraordinarily sophisticated financing/control strategy, such as a master lease option, or triple net lease, or even a straight lease of the project. However, if you’ve got a good, well-reasoned solution for a seller who needs out, for whatever reason, then you’ve got a better shot at coming to an agreement.

Another issue probably is that it takes a bit to warm any seller to something that hadn’t occurred to them before. That’s always a problem, especially if what hadn’t occurred to them was accepting 50% of what they were asking. Just kidding!

Which of course is why we should focus on sellers who are already in the ballpark regarding the price/terms we want to close on.

I’m advising a friend of mine who is doing what you’re doing, and I’m getting additional help from an MLO investor I’ll tell you about in a minute. Meantime, we’ve discovered that it’s taking a LOT of talking and exploring to find sellers even half-way interested in this exit strategy.

That said, make sure any agent you’re talking with knows precisely what you have in mind. This will sift out the dolts, and help you focus on winning situations. Also, you’re going to face a lot of resistance from professionals who just want bread and butter deals, and will quickly assume that you’re a seminar junkie who likes to stare at shiny objects when not wasting their time with pie in the sky real estate investing schemes.

Back to the ranch, I’m sure there’s several gurus who explain whom to look for, that would be most interested in these deals, so I won’t explore that here, suffice to say that the most motivated sellers seem to be the ones that are incompetent at managing their property. Otherwise, it’s gonna be a hard sell trying to convince a seller (and his agent) that doing a master lease/option is better than getting all/most of their cash today.

The friend I mentioned a minute ago, is teaching me better how this is done, and today controls over 500 units in 2 states using master lease options. However…it took him about 18 months or so, to get them, and a boatload of car trips and plane rides and rejections… He’s an experienced investor and controls large projects, not 20-unit deals, etc.

Now, consider this… he had to be prepared to solve both existing financing, management and vacancy problems. He had to help the seller modify the loan terms on one project, before it made sense to control the project. As he filled vacancies, he was getting 50-100 dollars more per unit per month in rents, and systematically (theoretically) raising all the rents on most of the units by a minimum of 50 dollars a unit. If he succeeds…

Uh, $50/mo x 500/units = $25,000/mo x 12/mos = $300,000. Not a bad down payment kitty to be putting put away (before taxes of course)…

Frankly, it excites me and exhausts me to think what he’s doing, but I’ve got a live mentor anyway.

Hope that helps.


I would look at Susan Lassiter Lyons, or Wendy Patton for starters in master lease options. I think it’ll pay to learn what they each offer. They are both reputable real estate educators.

My mentor is a personal friend, and doesn’t ‘guru’ himself out, so to speak.

Hope that helps.

Javipa’s mentor is …THE SCHOOL OF HARD KNOCKS…ta…da…!!!