As a new investor I’m considering doing commercial and residential sandwich lease. But my challenge is, how do I get away with not having to come up with the security deposit payment? any help is appreciated. Thanx.

Hint #1:

Pick a niche first. Then worry about where the security deposit will come from. :cool

I already did, my niche is lease and then sublease.

Secure the property with a small option consideration. If the owner really has to have money as a deposit, he gets it when you receive your option consideration.

Okay, how about either commercial or residential, which one? Residential means lots of things. Houses? Or multifamily residential? Commercial is terribly abused to mean both apartment investing and office building investing …as opposed to industrial which gets thrown in as “commercial” sometimes.

So, which is it gonna be? :banghead

Actually, I was considering things like warehouse and office spaces to begin with. Then later I’ll do multifamily. But I’m not considering option for now. Just master lease.

Man, you’re working too hard. Pick one; warehouses… or office space. These are NOT the same things. They are each unique in how they are offered, occupied, and contracted.

Well, let’s start with office space.

I second that. Seller gets paid when you get paid. When you make the offer to the seller, be sure to say, “Is that fair?” It’ll be hard for them to say no.

Ok, seriously, how do I structure a master lease deal where I don’t have to personally come up with the security deposit till I find a sublessee?

Okay. You’ve chosen office space. Are you attempting to MLO the entire office complex or just one unit? How many square feet?

If you’re doing just one office, then the seller will have to wait for his option money when you get yours. Otherwise, you need a partner to fund your option. “No down” doesn’t mean no money down. It just means, “none of your money down.”

If you’re talking MLO’ing several units in an office complex, including some occupied units, the seller/manager will have deposits on hand for the occupied units. You could borrow that money out through your management LLC, and give that to the Optionor to bridge the deal financially until you can fill the remaining vacancies. The new tenants will give you more deposits which you can borrow out, and also give to the Optionor as consideration.

That all said, option consideration doesn’t have to be cash.

Maybe just filling vacancies could be considered “option consideration?”

What about managing the project for free as option consideration?

Maybe you could offer a combination of things, besides cash, as option consideration?

This is called horse trading.

So, now that you’ve chosen a niche, it’s time to find a need to meet using the MLO.

Thanks Javipa, but could you please define “borrow out”. Just to be clear.

Yes. You can’t just commingle security deposits on certain sized projects with your personal funds. As a result, the proper way to accommodate this, is to have your business/LLC borrow the funds from the property account and pay interest.

My friend routinely borrows the deposits from his apartment operation through his LLC and pays interest on the money, because he must account for the cash over a certain limit.

Regulations regarding deposits of course change from state to state, and according to the number of units involved, etc.

Thank you Javipa!