One of the most common questions I get asked is “how do you find master lease option deals?” In this article I will show you how I have found most of my master lease option (MLO) properties.
The short answer to this question is REALTORS!
I will acknowledge that in the single family investment market, most hot deals probably come from your own advertising or from wholesalers that find you the best deals. In the commercial world the game changes significantly. Most sellers of a commercial property, such as an apartment complex, are not going to go out to the road and put up a FSBO sign hoping a buyer rides by and sees the sign. Most of the best deals are not on Loopnet.com either. While advertising such as direct mail and other forms of marketing can work in the commercial world, I have found that the response rate is usually too low to be worth the effort. The response is significantly lower than when advertising for houses.
Commercial realtors are the way to go when looking for a commercial deal. I will admit this does take time. You need to establish a trusting relationship with the agents in your market when it comes to looking for bigger deals. The real magic happens when you can get the same agents to bring you deals where a MLO offer gets accepted. Here are a few tips to help get realtors to bring you MLO deals.
How is the realtor going to get paid? This is the first objection you need to be prepared to deal with. A realtor is going to feel like they won’t get paid if you don’t buy the property with cash at closing. This is not true at all. What I suggest is that you tell the realtor that you will write the MLO documents to guarantee them their full commission due when you exercise the option to purchase at a future date. This is a legal document that can be recorded and this will protect their commission interests in the future. If this is not good enough then try sharing in a little bit of the monthly cash flow. The last MLO I did I gave the realtor a small portion of my monthly cash flow and their full commission at the exercising of the option to purchase. Don’t get greedy and do whatever it takes to get the deal done. Sharing in cash flow is ok because if it wasn’t for the realtor and their deal there wouldn’t be any cash flow at all!
Be a problem solver. The best deal analysis you can do is to be able to tell what the problem with the deal is and solve that problem(s). Maybe it’s a seller problem (burned out landlord) or maybe the property needs fixing up. Maybe the current management is terrible and you need to get new management on the property. Whatever the case may be you need to figure it out and be able to show the realtor how you will solve the seller’s problems and ultimately get the deal closed.
Get the agent on board with the offer. Keep in mind that a realtor has a fiduciary responsibility to present the offer to the seller but they have no responsibility to recommend the offer. This is a really important concept. Most sellers rely on the advice of the agent they hired. You not only need the agent to submit your MLO offer but to also recommend the buyer accept it. The best way to do this is to spend some time with the agent explaining how this is a problem solving offer and how their commission is safe with this type of transaction. You may even need to explain the basics of how a MLO deal works. This way they are comfortable with you and this offer. Now they can help explain this to the seller in your absence. Get them onboard before you make the offer!
Keep in mind that you must solve problems with MLO offers and you must make money for all parties involved. This is the fastest way to get agents and sellers excited about your MLO offer. If it’s not obvious how the seller and agent will get paid then you need to craft a better offer or explain your plan better. Realtors have brought me some of my best master lease option deals and they can be your best source of leads too.