Master lease versus paying cash

[Matt Evans]

Hi everyone, I have a newbie question about pursuing a master lease option on a commercial property versus just paying cash for it.

Briefly, the property is pretty inexpensive, hopefully we could get it for around $125k, which we have the cash to do (it wouldn't be just shaking out the couch cushions, but it's also not raiding our retirement funds or anything like that). We'd be buying it for the purpose of launching an outdoor recreation business there.

One piece of advice we've heard is to think about doing a lease option rather than buying outright to limit how much of our assets we're putting at risk. With a little Googling I understand in the commercial world that's called a master lease, and I think I understand the basics of what it entails and the potential advantages.

What I'm not so sure about is whether or not using one (if the sellers agreed) would actually be reducing our risk. Like any new small business, there's a decent chance it will fail, and I can see that if that's the case we might wish we hadn't put so much money into the property so we can just give it back to the seller and bail. But this business would be totally location-dependent, we could never pick it up and move it. So it seems even riskier to me not to have it totally under our control because if it does succeed it seems like there's a real risk either in bad luck - the seller gets hit by a bus, disappears, whatever might cause a complicated legal situation - or bad faith such as the seller seeing the success of the business and engineering some way to back out of the option so he can take it himself.

Also, this business would require at least some physical improvement to the property. I doubt we could get the seller to pay for it since I understand he or she is in some financial distress. It seems logical to me that it wouldn't make sense to pay to improve property you don't yet own, but from what I've read that's often the point of a master lease in increase value.

Anybody have any thoughts about whether pursuing a master lease would actually reduce our risk exposure?

Thanks!

Matt