Sometimes people buy a replacement property that’s subject to a master lease, which means there is a tenant in place that is obligated to pay the landowner a fixed amount of income every month. In this article, we are going to talk about the benefits of a master lease.
Benefits of a Master Lease
The master tenant typically has subtenants under them. The benefit to the owner is that the master tenant really bears the economic risk and responsibility for managing the property and paying a fixed amount of rent each month regardless of the economic ups and downs in the rental market.
Master Leases & 1031 Exchanges
A master lease is often used as a method to make the property less management intensive for the owner and to shift the risk of economic ups and downs onto the tenant.
From a 1031 point of view, many people that have been involved in management intensive properties (like farming or apartment complexes) are seeking replacement properties that are less management intensive and have a more predictable cash flow so that they can have a steady stream of income in their retirement years without all the hassle and responsibilities of day-today management. Instead, those management duties and economic uncertainties are shifted over to the master tenant and off of the owner.
- 1031 Hotline: If you have questions about master leases, feel free to call me at 612-643-1031.
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