Day One – MLO Implementation Intensive

9am – 9:30am Welcome & Intros

9:30am – 10am Event Overview

10am – 10:30am The MLO Process Map

·  Bill’s Process …

MASTER LEASE AND OPTION – THE PROCESS

Find the Potential Deal

·  Define Investment Criteria

·  Locate and Research Target Market

·  Implement Marketing Strategies

·  Initial Contact with Broker and/or Seller

Negotiation and Contract

·  Review Financial Package

·  Prepare Preliminary Analysis and Evaluation

·  Submit Letter of Intent

·  Negotiate the Deal

·  Request Materials and Perform Due Diligence

·  Renegotiate (as needed)

·  Finalize Master Lease Agreement and Option Agreement

Property Management and Value Plays

·  Locate and Interview Property Management Team

·  Negotiate Property Management Contract

·  Manage Property Management Team

·  Implement Value Plays to Increase Net Operating Income and Cash Flow

Execute Exit Strategy

·  Surrender the Option

·  Flip the Option

·  Flip the Lease

·  Exercise the Option, Sell Property

·  Exercise the Option, Hold Property

10:30am – 10:45am What is a MLO?

Controlling commercial cash flow property as a master tenant and profiting in the spread.

How it works…

·  First, you get a master lease and option agreement in place.

·  This means you become the “master tenant” of the property and are in charge of the operation and you have the right (but not the obligation) to purchase the property at a pre-agreed price at some point in the future.

·  Next, you increase income and/or decrease expenses to increase the value of the property and earn $ in the spread…

·  Then, YOU pocket the increase in equity when you exercise your option

10:45 – 11:15am Define Investment Criteria

11:15 – 12:15pm Market Research

12:15 – 1:15 LUNCH

1:15pm – 2pm Seller Marketing

1) BROKERS - EXPIRED LISTINGS

This is how this works. Contact three to five commercial real estate brokers. You find their names and their contact information from Google or LoopNet.

When you’ve compiled the list of about three to five of them with their contact information, you call them on the phone and say…

“I represent a company that’s buying multifamily in Dayton. Can you send me info on any active and expired listings you have for 20-unit buildings at/or below $2 million?”

Typically I’ll say between 10 and 50 units at/or below $3 million but you can determine your criteria.

You can also get access to expired listings lists for a fee with services such as RedX.

2) LOOPNET.COM

Now, LoopNet isn’t the best place to look for MLO properties because we want to deal with the seller directly and these properties are usually listed by a real estate broker.

But I like to mine LoopNet for old listings and seller financing listings.

3) FARM LIST

Local title company or ListSource.com.

I typically select the asset class multifamily between 10 and 50 units that were purchased before the year 2005 in 3-5 zip codes.

4) Craigslist

SearchTempest.com Phone and text 10 and 10.

“I am interested in your property on Craigslist. If it’s still available, please email a 12 month P&L and a current rent roll.”

I find that on average about 10% of the sellers I speak with are willing to do a MLO deal.

10 Seller Benefits aka Objection Busters

1) They will have to deal with only a single tenant

This is obviously HUGE for a tired landlord. Why deal with 10-50 or more demanding individuals when they can deal just with you? That’s why many owners prefer to deal with a “master” tenant.

2) They receive a guaranteed, monthly rental payment

You negotiate the master lease payment in advance so that the landlord knows what he’s getting each month even if there are variances in occupancy, income and expenses.

Then what you net is the spread.

3) Easy sale transaction at end of lease and option term

What a relief it is as an owner not to have to search for a listing broker and have a multitude tire-kickers sifting through all of your financials! With your purchase option in place they know that there will be no shenanigans on the back end of the deal.

4) No real estate commission to pay

Hooray! You also just saved him thousands of dollars!

5) Top sales price (fixed during term of option)

Usually you can offer to buy the property for exactly what he wants when you negotiate the option.

Because you and I know that just by increasing the net operating income, the value of the property will go up exponentially giving you boatloads of equity.

6) Hands off in day-to-day operations

Not having to deal with the day to day responsibilities of ownership is a huge benefit for most owners.

And the beauty is that you won’t have to deal with it either by having a property management team in place.

7) No responsibility for general repairs and maintenance

Even though the owner still must pay for repairs and maintenance (you’re a tenant, remember) they don’t have to do the repairs or arrange for it.

8) Continued tax write off benefits (depreciation, property taxes, mortgage interest) during the lease term

This is the BIG one.

And since most commercial owners you’ll deal with are older, they need these tax shelters so this is a big selling point and benefit.

9) Defer taxes (ordinary and capital gains) on sale of property

Capital gains are dirty words to sellers! MLO’s allow them to defer taxes on these gains.

10) Allows time to identify “like-kind property” for a Section 1031 exchange

This is another giant tax advantage. Instead of just having a few weeks to identify a new property for a 1031 exchange, the seller can take as long as your option is in place to identify a new investment.

2pm – 3pm Deal Analysis (Bill)

P&L and rent roll to establish NOI and Value

The Top 10 Ways to Increase Income on Master Lease Options

1. Raise Rents

To find out if the property you’re considering is above or below market rents, check the market rents in your area at Rent-O-Meter or HUD.

2. Charge for Extra Parking Spaces

If you’ve got more than one space per unit consider charging for a 2nd.

You can even get more if you have garages or carports for covered parking.

3. Charge for Storage Space

Consider charging a monthly fee for on-site storage.

My niece works at a luxury high-rise apartment building where they have on-site WINE storage! They charge the tenants about $200 a month for space in the wine cellar.

4. Bill Back Utilities

RUBS (Ratio Billing Utility System)

5. Rent Out the Clubhouse for Parties/Events

Consider renting out your clubhouse or rec room for personal parties and special events.

You can even hold classes there and charge for them such as English as a Second Language or Personal Finance classes.

6. Install Vending Machines Onsite

Sometimes when you’re hungry for a snack you just don’t want to go to the store. Rent or buy vending machines to sell snacks and drinks onsite.

7. Install Coin Operated Laundry Facilities

This is the way I increased income by almost $100 a month on my first 3-unit building.

Every two weeks like clockwork, I had a bag full of quarters to take to the bank!

Look for coin operated washers and dryers at used appliance stores.

Sell laundry detergent and dryer sheets, too!

8. Selling Ad Space in Your Community Newsletter

Put together a newsletter for your tenants and sell ad space to local businesses. You can get $25-$300/month per ad!

9. Add an Onsite ATM Machine

Did you know that you can own an ATM machine AND make big fees from it?

Learn more bout this from my friend Carey Buck who has a great training course on how to do it called ATM Business Blueprint.

10. Install an Internet WiFi Network and Charge for Access

This is my new favorite.

Many people can’t afford internet from the cable or phone company so why not provide it for them for a nominal fee?

Install a simple network and charge $15-$25/month for access!