One of the famous lease deals you will ever come across of is New York’s Empire State Building. That particular building has a current lease which is over 100 years old. The original owner sold it to Prudential Insurance Company. In 1961, it was leased out for 114 years where they offered to pay Prudential $2 million per year. At that time, it was a lot of money and so Prudential agreed. Fast forward to today the payments are still $2 million, but the income is $6 million. You do the math.
You would probably think you can’t put a lease on a building of that size, you are probably right. But what’s stopping you from putting a lease on a 12 unit apartment building. So here is how the master lease agreement works.
You either buy the property from the owner, with a small or zero down payment, and at closing what you will get is what is called equitable title. Not legal title, but equitable title, which entitles you to do all the cash flow, all the tax benefits, you have to take care of the day to day operations of the property and pay all the bills. The best part is, when you sell the property, you get all the profits at the sell price. Basically the terms of the lease are set in stone. Whatever value you can increase on the property during the lease, is yours to keep. What the seller gets is a monthly lease payment from you and even that’s negotiable. This would be ideal for an individual investor who is new, has no credit, maybe a small amount for down payment and does not want to deal with banks.
Playing it smart!
There are two things you must do to make your first commercial lease deal. Firstly, get the seller motivation. Secondly, you construct the offer and the agreement around the seller motivation. In simple terms, here is what happens. The seller gets an easy sale of the property. The seller also gets lease payments, this is the monthly payment agreed upon. He also gets freedom from involvement in the day to day operations of the property. Most importantly, the seller also gets rescued from any personal or financial issues of the property.
The buyer, that’s you. You get to purchase a commercial property with no banks, with no experience, with no credit and possibly a very little amount of money from your own pocket. The buyer also gets less risk. You know why it’s less risk? Because the loan is still under the seller’s name. The buyer also gets cash flow. Any money made after the lease payment is yours to keep, that’s your cash flow. This motivates you to be a better property owner and increase rent. You also get an option to buy, after a certain number of years. The most important thing is that the buyer gets all profits.
You purchase the lease agreement and over time you increase the property value, that increased value and the added profit is yours.
To make a successful lease agreement, firstly you need to unwind your mind of what a typical deal looks like. There is no standard commercial lease deal, they are all different. However, there is one thing that holds it all together, this one thing is considered the glue of the all the deals together, and that is the and that is the actual master lease agreement document.
What type of seller or property is ideal for the lease agreement?
We will look at six signs and you can be sure that one of these signs will probably match up with the property you are currently looking at.
You would ask why focus on problem properties? Let me tell you this, nearly all commercial real estate investors should be good at solving problems, other people’s problems for profit, and a successful leasing document is going to help you do that.
Manish is founder of Business2sell Group of Websites.
Business2Sell.com.au is one of the leading business and franchise for sale listing websites. We work with our business brokers, commercial agents, franchisors and private sellers to help them connect with the right buyers for their opportunities.
With website now functional in Australia, United States, United Kingdom, Canada, New Zealand and South Africa. We have over 18,000 businesses for sale listed, with over 220 Business Broker and Commercial Agent.
I have over 20 years of experience in Web Industry; I have been involved in websites industry since the early years of 1996-97. In my professional career I may have worked for over 10,000+ websites. My Specialty is to build portals or complex online applications.
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