Master Lease Agreements w/Option

[David Bardwell]

Who's using this strategy effectively to build their multifamily portfolio? I'm planning to target mom and pop owners with 4-20 units in B- and C areas. Do you have any tips for someone looking to land their first MLA deal, good books, resources?

[David Miller]

I had a deal a couple years ago that fell apart because this structure created too many issues. 

When you quitclaim from yourself to a LLC it is transfer to an entity controlled by you. So while that type of transfer can trigger an acceleration, the remedy is typically just to transfer the property back to you. But regardless you maintain control.

When an owner gives you a master lease with an opton to purchase, the owner is relinquishing some or all control of the property (regardless of how legal or equitable title is held).  If an acceleration is triggered or if there is a default, unwinding or fixing that structure - and the associated cash flow, “down payment” that often comes along with the lease, expenses, liabilities and obligations that go with it - can get difficult and complex and costly very quickly. 

I am not saying do not do it.  Master leases with options can be structured legitimately.  Both parties just need to understand the legal implications and structure the deal accordingly with good counsel.*  

* I recognize that last phrase is self-serving to my profession.  But doing it right on the front end is almost always cheaper and less painful than trying to fix it on the back end when the unexpected happens.