Land Leases & Condos

1 Reply

Hi All,

Just did a walk through of a condo that is located on a land lease set to expire in 35 years. Additionally, I learned that 90% of condo owners, in this building, actually are renting out their units. It is a Class B asset in a Class A neighborhood and if underwritten conservatively throws off 9% Cash on Cash return.

Curious if anyone on the forums has dealt with buying a condo unit in a building that sits on a ground lease? Additionally, I would love advice about what to watch out for when dealing with the HOA.

Thanks for your advice it is very much appreciated!

A few things to wont get a conventional loan on the place. You will typically have 1 or 2 local banks who will issue mortgages on the property. You can get a list of those banks from the listing agent. The terms will be worse than what you would expect, typically with rate, but Ive also seen shorter amortizations.

Appreciation tends to be non-existent in these.  If there is any, it will often trail the inflation rate....and they often can be depreciating assets.

You want to look at if there is a history of the land lease being extended when the lease is nearing it's end.  Often they are extended, but obviously at much worse terms, which drives your condo fee considerably higher when the renegotiation happens.  You also want to see when those renegotiations do happen, as it might be in the near future and not necessarily further out when the lease is expiring.

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