What is a Master Lease and How Can Investors Use It to Scale?

Abstract

What is a Master Lease? A master lease is an agreement where a property manager leases a building from an owner for a negotiated price and then subleases the building to other tenants. Types of Master Leases There are generally two types of master leases: Fixed Master Lease - the lessee agrees to make monthly payments to the owner regardless of profits or tenancy. Master Lease Terms Typically, a master lease contract lasts for a year. Pros of a Master Lease Save Costs A master lease can help save on payroll, marketing, maintenance, and more costs. Motivated Property Managers In a master lease, the PM is also more motivated to lease out your units because they could lose money if the property has vacancies. Cons of Master Lease Although expenses can be reduced significantly, the property's net operating income could be lower because the total gross rent is discounted at about 20-25%. For example, if the market rent is about $3,000/mo, then the master lease would be about $2,400/mo. Notable Companies Using Master Leases Master leases are low margin, like traditional property management, and risky business for property management companies, which is why most property management companies have not adopted this business model.