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Real Estate

Business Models

Buy & Lease Back Agreement

Let’s say you own a building, in addition to owning the company that occupies that building, but then you sell the building to an investor and become the tenant. This earns you a lot of cash and provides the new property owner with reliable rental income.

Considerations: parking, signage, utilities, insurance, ingress/egress, and renewal options!

Is it worth it?
Unless you’re trying to grow into new locations rapidly, this usually isn’t the best long-term play.

My suggestion – Refinance the property and pull out the appreciated value then buy another property.

Walmart is an example of a company that strategically implemented the sale and lease back business model.

McDonald’s has increased their profitability through land leases.

Land Lease

Why buy the building when you can just own the land beneath the building? Doing it this way you can make the owner of the building on your land lease to you. This creates substantial dependable income.

Benefits – you generally don’t have to do much with the building. Any issues they have are their own. So you just collect a check.

Sometimes you can even put a time limit on whoever builds on your land so that in say, 100 years, you get the building on top of your land. 

Quite the multi-generational play!

Land Lease

Why buy the building when you can just own the land beneath the building? Doing it this way you can make the owner of the building on your land lease to you. This creates substantial dependable income.

Benefits – you generally don’t have to do much with the building. Any issues they have are their own. So you just collect a check.

Sometimes you can even put a time limit on whoever builds on your land so that in say, 100 years, you get the building on top of your land. 

Quite the multi-generational play!

McDonald’s has increased their profitability through land leases.

Master Lease

Let’s say you lease an entire office building containing 10 individual offices.

You can make a profit by leasing out all the smaller offices for a greater sum than your master lease amount. So if your monthly master lease amount is $10,000 and you rent each office for $1,500, then you will make a profit of $5,000.

Building owners like this because it “fills up” their property relatively quickly and gives them less oversight because you essentially become a mini version of the building owner.

A word of caution –  You get one thing wrong (e.g. parking) and you’ll have a lot of trouble filling up your units.

WeWork tried out the master lease business model. It didn’t end well.

Continue your real estate insights journey

This image contains a little model house and two wooden houses alongside a pile of coins and keys. There is also a male hand handing a set of keys to a female hand

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Updated on 6/7/2024