The ‘Own Nothing, Control Everything’ Strategy for Multifamily Properties

Posted on Jan 11 2016 - 3:56pm by Lance Edwards
Lance Edwards. President, First Cornerstone Group, LLC.

Lance Edwards, President, First Cornerstone Group, LLC.

BY LANCE EDWARDS— Perhaps you are hesitant to get involved in multifamily property deals because you think that you have to own the property. You do not have to own the property.

The important thing to keep in mind is to have control and access of the property. Let’s take a look at an example of how this can be done in the paragraphs below.

There is a property that has low occupancy and is need of $50,000 of moderate rehabilitation. The rent needs to be increased but it cannot be increased until some cosmetic work is done. The owner is out-of-state and is not really in touch with what is going on.

So you have an opportunity. Yes, it needs $50,000 of capital and you could come in and buy this property. Since their property has been allowed to deteriorate, it is worth less than what the owner owes on it.

What you want to do is gain control of this property. You are not going to buy it, you are not going to own it, you are going to get control of it. This is done by putting in place a five-year triple-net master lease which stipulates that you are the master tenant.

As the master tenant, you get to operate the property. You can make all of the repairs and you run the property. You sublet it to the tenants that you choose and it is for five years so you can turn the property around.

At the same time as when you put in the lease, you are going to put an option in place to buy the property. Let us say that your option to buy was for $1 million. What you do to rehab the property is going to make the property worth more than $1 million and if it is worth $1.3 million that means your option is now worth $300,000.

You are going to reposition the property which means you are going to rehab it, raise the rents and raise the occupancy. You are going to raise the income and increase the value to $1.3 million. You then have the choice of buying the $1.3 million property for $1 million and have $300,000 in equity.

Only at that point in time would you own the property. The rest of the time you just control it. You own nothing other than your option but you control everything. You are the master tenant and you have the option.

The multifamily property arena has many opportunities for many different types of players. Working with multifamily property deals is not limited to owning the property.

The “Own Nothing, Control Everything” strategy can allow you to take advantage of the great investment opportunities available to you in multifamily properties.