I’m seeing this in a lot of Baltimore listings - what exactly is ground rent? Is it when the building is owned by one person and the land by someone else?
Is this a good investment - to buy ground rent properties, rehab, and resell?
I’m not sure about the Baltimore listings, but yes, you can have two different owners for the dirt and the improvements.
The owner of the improvements (the buildings) pays rent for the lease of the land upon which the improvements are located. This is usually referred to as a ground lease. Sometimes the term of the lease is very long.
It’s used in commercial all the time - “Build to Suit”.
Most of the houses in Hawaii are built on leased land.
If it’s common in the area, FHA will even finance housing with ground leases.
Think of a mobile home park. Someone owns the land, and usually someone else owns the dwelling. The dwelling owner pays lot rent to the dirt owner for the right to keep his dwelling on the dirt. And it doesn’t have to be a whole park. You can do this on an individual lot.
Which owner would you rather be?
Hey,
In Texas, and I suppose in other states as well, there are “mineral rights.” and that is usually, at least with the land I own, divided among several people. So, it is possible to have different owners for the “improvements”, the land, and for what is under the land. And, by the way, the owner for what is under the land has right of access to develop it.
Peace,
Richard
Good point, Richard!
You can subdivide the interests in real estate in many ways. Mineral rights are a separate interest that can have different ownership from the surface rights, water rights, improvements, etc.
You can also have interests divided in time or possession such as leasehold estates, life estates, and remainder interests.
Fee Simple Absolute contains the whole bundle of rights, but these can be divided in almost infinite combinations if you want to.
PS: I have a mineral rights question regarding Texas. I think I will post it on the Legal Forum too keep it in the correct venue. Perhaps you could comment there if you have time.
Is investing in rowhomes with ground rent “status,” for lack of a better word, a good idea?
My fear is if I try to resell the house and it has ground rent, the potential new owner will not go for it because “traditionally” when you purchase you are buying the house and the land (except for a condo or timeshare).
I can’t say if it is a good idea or not. You have to analyze the numbers to determine that.
Whether a new buyer will go for it is another matter.
Is it common in your area to buy houses on ground leases? If so, you might not get much resistance to this. Also, if it is common for the area, then the lenders should understand them and finance the home sale with the ground lease. Most of the time they will want the lessor to subordinate the ground lease to the new financing.
I would think that any buyer resistance would partially be determined by the remaining term of the ground lease, the amount of the ground lease payments, and whether or not the ground lease can be extended and under what terms. It would also be determined by the buyer’s long-term plans for the house.
If the ground lease terms are acceptable, then the new buyer would look at the overall costs of owning the house to determine if it was a good deal or not. For simplicity, that would consist of two components - 1) the ground lease costs, and 2) the costs for the building itself.
I have sold a few houses on ground leases where I retained ownership of the land. I like these ground leases. They provide a reliable income stream with no hassles. Why did the buyer go for the deal? Because the overall payment was less than the payment would have been had they borrowed more money to purchase the lot too. They were motivated to get in with the least amount for a monthly payment. It was a good deal for them, and it was a good deal for me.
Do not even worry about Ground Rent (GR). It is on 50% of all buildings in Balt. You can purcahse the GR at settlement. The title atty will give you the cost to purchase. When you do purchase a bldg with a GR, at settlement, you must pay 3 years of the GR (about $120/year) plus $500.00. If the owner of the GR does not come forward to collect the GR within 3 years, it will be returned to you. NOTE: I would put in your contract to have the Buyer pay the GR so that your money does not get escrowed for 3 years.
IMMY: You do a lot of posts in the Balt area, I emailed you a few weeks ago that I would buy all your assignments in Balt (if the price was right) and I have not heard from you.
Sorry Masoning,
I have not been receiving your messages. I just emailed you regarding this. Thanks for the information on the ground rent - hopefully you and I will get to talk on the phone this week about investment possibilities!