If you’d like to invest in real estate, but you can’t afford to buy property – don’t despair! Think about renting from owners who are saddled with ‘inconvenient property’ and negotiating the right to sub-lease their property to others. This is Master Leasing - the leasing of a property from an owner and then sub-leasing that same property to a tenant. I believe Master Leasing is the most economical way to get started in the real estate business today. It is a way to produce an immediate income stream without large amounts of capital.
Master leasing is an incredible tool, which can benefit both owners and investors.
It will lose an owner less than he is losing with a vacant property and it will insulate him or her from dealing with sub-tenant occupants. Master tenants are not agents of the owners, but rather entrepreneurs who are professional landlords. This gives a master tenant the flexibility to tailor a lease to the specific needs of each owner. They do not offer a ‘one size fits all’ solution, as do most property management companies. Since they are not agents working for the owner, the owners cannot be held vicariously liable for any of the actions master tenants take with their sub-tenants. This alone can reduce the owner’s liability dramatically.
Master tenants can build great income streams by leasing and sub-leasing properties. They get to ‘test drive’ properties that they might later have the opportunity to purchase. Some properties have physical, locational or neighbor issues that won’t be discovered until after a tenant is first acquired. Leasing and sub-leasing the property initially could save you a lot of grief and money that you could better use elsewhere.
Master leasing can provide many of the benefits of ownership without many of the risks. A long-term lease, which is secured to the property, will control the sale and/or refinancing of that property. It also buys you time to build trust with the owner and perhaps negotiate a purchase with owner financing when that owner eventually decides to sell.
As a master tenant, you will not usually be liable to replace large property components, like roofs or furnaces. Every dime that you pay to the owner can either be expensed as rent or amortized over the term of the lease. Rental income derived from master leasing is passive income, as defined by the IRS, and not subject to self-employment tax.
Most people don’t realize that many of the bundle of ownership rights to a property can be transferred through a lease. Nelson Rockefeller once said, “The secret to success is to own nothing, but control everything.” Master leasing allows you to do exactly that and allows you to maintain your day job while you are getting started in the real estate business and building income.