Every owner of real estate is looking to generate cash flows from any piece of real estate that they own. Even better if they can generate passive income via those cash flows from areas of their real estate investments that are unusable or otherwise have little value to their purpose or business operations.
One overlooked and misunderstood vehicle of generating passive income cash flows are cell tower leases, and, if structured correctly, can be a passive income money-maker for decades into the future.
A real estate owner will just have to sit back and cash checks if they understand how to “correctly” structure a cell tower lease agreement; however, if they do not understand, they could actually leave a lot of money on the table and devalue their overall real estate investment.
There are three basic principles of a cell tower lease agreement:
First, the amount of time that a real estate owner is allowing the cell tower company to occupy and use the space on his or her property, otherwise referred to as the lease term. The duration of a cell tower agreement can range from ten to twenty years to over a hundred years in length
While most real estate investors lean toward favoring a long-term lease of their property, a cell tower lease should be the opposite, as the majority of cell tower leases are only committing the real estate owner and not the cell tower company to the overall lease term during that cell tower lease agreement.
As a result, remember, you are exchanging time for rent, so the less you give up in the way of time the greater your return is based upon the cell tower rent you are able to garner.
Second, the amount of space that is being leased to the cell tower company. The amount of space that is being leased can range from a few hundred square feet to ten thousand plus square feet of a property owner’s land.
A cell tower company will always attempt to garner the most space on your real estate as possible, as they both do not want to come back to the real estate owner to negotiate for more space in the future, and they are actually going to do no improvements to the excess space you provide them via the cell tower lease agreement and lease it to wireless carriers effectively making money from your land without improving it.
Third, the defined use of the space being leased by the cell tower company. This is what exactly is being provided in the way of use for that particular cell tower company. That is what can they do inside that space not only today, but going forward.
A cell tower company or wireless carrier will desperately try to get the real estate owner to allow them to freely modify, alter, upgrade or add to the cell tower and the wireless equipment without having to get the consent of the landlord. The cell tower companies never want a real estate owner who is leasing their land or building to them to have any oversight on what actually goes on their property, or, more importantly, the ability to renegotiate the cell tower lease agreement based upon not only the amount of space being used by the value or utility of that space to the cell tower company and or the wireless carrier today or going forward.
There are benefits to a property owner by entering into a cell tower lease agreement. Cell tower ground lease agreements allow a property owner, especially a commercial real estate owner, the ability to optimize their real estate without significant capital requirements and generate passive income.
A cell tower ground lease is not the perfect arrangement for a property owner, but, if structured correctly, can be beneficial for a property owner not only in the short-term, but also the long-term.
