There are many reasons why a seller would accept a master lease option (MLO) offer. The first and most important is that your offer creates value for the seller and not just YOU. Here are a few other reasons that I have found that sellers will accept a MLO offer.
Tired of Operating
The “burned-out landlord” is one of the most common reasons is see seller accepting an MLO. They just don’t want to operate the asset anymore. They bought the property thinking self-management would be easy. It’s not.
Also look for “accidental owners.” These are people that have inherited property that they may not know how to operate. Unfortunately, this often occurs after a death in a family. One family member was the operator of the property, and their death puts other family members in a tough position. They are now landlords and may not want to be. An MLO offer may be a way for you to help a family or seller in a time of need.
Capital Gains Tax
If a seller gives you an MLO deal, then they will not have to pay capital gains tax until you close your option (purchase the property). This may solve a major problem for them. Note: If a seller shares in any of the cash flow, they will be taxed for that. They will be liable for taxes on any rent payments you make to them if there is an interest rate involved.
Needed Repairs
Distressed deals that need some work are a good fit for MLO offers. The seller may not want to put in the time or money to fix up a property but would be willing to give it to you with a monthly payment that will allow you to cash flow. You could use that cash flow to do the repairs to the property.
Who Gets What?
The Seller Gets:
1. Easy sale of the property that does not need a loan
2. Lease payments on the property every month
3. Relief from having to manage the property
You Get:
1. A purchase that doesn’t involve banks, lenders, or appraisals
2. All cash flow above the lease payment
3. An option to buy at a pre-fixed price within a set period of time, no matter how much the property value has increased
MLO Advantages:
1. No need for a bank or lender to get the deal done
2. No limit to what terms you can negotiate
3. Quick closing, as quick as seven days, and low closing costs
4. Seller can generate good interest income per month
5. Buyer can create a good amount of cash flow and equity build-up
Use these points to not only understand WHY a seller would accept a master lease option offer but to also CREATE an MLO offer that will get accepted!
For more information like this check out my free articles and videos at www.realestateraw.com.
Best of luck!
Bill Ham
