At Fourandhalf.com, we love using social media and internet marketing to help property managers successfully build their businesses. We also like to introduce new ideas and opportunities to our clients and partners. Innovation is exciting, and we like sharing up-to-the-minute tools and tips anytime we can. Today, we’re talking to Matt Fonk, who is a broker and property manager at Cavalier Estates, in Tampa, Florida. He has found a way to increase his income outside of the traditional fee based property management business model. Most of his business comes from a “master lease.” We asked him what exactly a master lease is, and why it works so well for him.
Matt told us a master lease is also called a sandwich lease. In this type of lease, a property manager will lease a property, long term, from an owner and maintain the right to sub-lease it to any other entity or person, which would of course be an occupant or a tenant. As a broker, Matt needs as many tools in his toolbox as possible to create income on the properties he manages, and this one happens to work reliably well.
Matt is not the only one who promotes the idea of a master lease. David Tilney, an expert in property management and tenant/landlord relationships, says that a master lease is a great way for property managers to become landlords without taking on any debt or investing a lot of money. In his article “Master Leasing: Creating Cash Flow Without Capital,” he says: “I can’t think of any other situation where you can produce a good income stream without a capital investment.”
How Does the Master Lease Work?
So, you might be wondering: How does this method work? If you have a client with two similar houses that are on the market for the same amount of rent, would a master lease or a fee based lease earn more money for a property manager? Matt says a master lease will always be more profitable than a fee based lease in the long term. When a property manager has a master lease in place, there is rental income to be gained instead of income that comes from a W-2, which counts as employment income. You should certainly talk to your tax advisor to make sure there aren’t any rules in your state to consider, but as a broker Matt knows that he can earn more money with his long term master leases than he would make performing property management for a fee.
David Tilney recognizes that it can sometimes be challenging for property managers to create a positive cash flow for the owners they work with. With a master lease, the property manager is sandwiched between the owner and the sub-tenant, which is a profitable position. You negotiate a lease with the owner that is tenant-friendly so that your interests are best protected, and the lease you negotiate with your sub-tenant should be more landlord-friendly so that your investment can produce the maximum amount of income.
Matt finds a huge benefit in becoming the landlord and taking the property owner out of the equation in a master lease. “I control the deal,” he says, which is not always possible with a fee based property management contract.
As always, please contact us at Fourandhalf if you need help in advertising your property management business.