Submitted my first letter of intent on Master lease with option

[Samson Kay]

I'm excited. The seller has already stated that he would entertain a Master lease.

After walking down the property and neighborhood I decided that this was the perfect storm for this strategy! A subrenting building (23 units) with room for rent increases. A motivated out of country investor. A Negatively cash flowing building. A building with only minor cosmetics needed on the interior.

Here are some of the numbers:

Current NOI/Projected NOI = 55000/108405

Expenses = 95,648

Asking Price = 1.05 Million

Market Cap Rate for the area = 12-14%

The asking price is really high considering the negative NOI. But I believe that the seller was using the building to report a loss on his more profitable investments. Which is why he decided to keep the rents so low.

Wish me luck!

[Samson Kay]

The majority of my money will come in cash flow I think. I will gross rough 4-5k per month after raising rents to market. The terms would be over 30 months.

Where the market ends up in the next 30 months would determine my exit strategy. One of the following:

1. Market rents achieve enough profitability to exceed the 1.05M asking price for a 65% LTV. At which point I will acquire commercial financing and close the deal. And officially take title.
2. NOI achieves less than desired but enough to achieve higher than Market value of the property after 30 months. At which point I sell my option to purchase at 1.05M to another investor for a small profit.
3. I'm completely wrong and can't achieve the NOI I want. So I allow my option to expire.