Sell building and Rent Land?? - Posted by John SirJohnathon Grounds

Posted by John SirJohnathon Grounds on July 12, 2001 at 17:43:54:

Joe,

Great example. Thank you. I hadn’t thought about the term of the lease, but 25 years makes good sense.

Thanks again,

John “SirJohnathon” Grounds
www.jrgholdings.com

Sell building and Rent Land?? - Posted by John SirJohnathon Grounds

Posted by John SirJohnathon Grounds on July 10, 2001 at 22:56:39:

Hello All,

Time for me to jump back over to this board for a question. I have been spending all my time over on the MH board, but doubt that is the place for this question.

Here is the scenario. I am back down in Indiana going through one of my rentals where the tenant just split. Luckily at least she left it clean with no back payments. I am thinking…“how can I make this more profitable this time around?” As I sit in the drive, I think about how I need to get across town to sign the contract on the new mobile home park we just purchased. That is when the lightbulb went off…and where my question comes in.

The place in question is a small cabin type of property. Living room, Kitchen, breakfast nook, bedroom, closet, and bath. Approximately 24x24 square. Nothing special, but it rents for $325 and I bought it for $3,000. It is currently on a city lot. (btw…my city has NO zoning, permits, etc.) I am thinking about selling the building, but keeping the land in my name and continuing to rent it. I would sell on terms, and carry the note the full term. Market price for the home with the lot is around $25,000 (I did work on it) Lot appraises for $5,000. Net gives me a $20,000 sales price, which I would carry for a 10% note rate, 10 years and rent the land for $75/month. This would put my total net income near the same as current. This is basically a “Lonnie Deal” in disguise.

Anyone see any problems with this?

Thanks,

John “SirJohnathon” Grounds
www.jrgholdings.com

This is very common where I live. - Posted by SCook85

Posted by SCook85 on July 11, 2001 at 09:48:42:

Ground rents is how we refer to them. I would estimate that 30-40% of all the homes in Baltimore city have ground rents on them. The leases are 99 years and automatically renewable. There is also a provision in the lease that gives the right to the improvements owner to redeem the lease and buy the ground. The terms are set by law if not disclosed within the lease itself.

Yes it can be done. I believe that St. Louis is the other city in the country that has a lot of ground rents.

Steve

Re: Sell building and Rent Land?? - Posted by Nate(DC)

Posted by Nate(DC) on July 11, 2001 at 24:02:28:

I think it’s a great strategy. Especially with the owner financing, which overcomes one of the main objections to a ground lease - that it’s hard to get a mortgage. Then if you decide you want to cash out later, you’ve got a ready and willing buyer for the leased ground. Heck, you could even owner finance that to him later and make even more money…

NT

Re: Sell building and Rent Land?? - Posted by Joe C.

Posted by Joe C. on July 10, 2001 at 23:28:59:

John,
I follow your posts on this and the MH Board and highly enjoy and respect the advice you give. I know of a man that does just what you are contemplating. He owns all the land around a small lake in CT. In the fifties, pre-zoning, he started leasing small lots for cottages on the lake. He would give up to a 25 year lease, with built in rent increases of course,if someone wanted. My uncle leased such a lot and built a small summer cottage. I spent many days each summer with my cousins at the lake. As time went by more and more summer residents wanted to sell there homes in town and retire to lake but had to upgrade their cottages. This required more investment and the need to borrow money. The owner offered to extend the leases to 99 years if someone wanted, so they could borrow, invest and hope to resell these fancier cottages. Today the waterfront homes being built there replacing the cottages are selling for $150k-$250k and are still on leased land. In June I visited the one my cousin built to replace my uncle’s ‘cottage’. The land owner in his 80s now, also owns hotels in Florida now and spends his winters there.

My point is, it’s do-able. Long term leases will probably be more attractive to buyers and give them the incentive to maintain the structure and assure it’s value appreciation, because they will see the benefit of that appreciation.

Just my .02
Joe C.

Thanks !! - Posted by John SirJohnathon Grounds

Posted by John SirJohnathon Grounds on July 12, 2001 at 17:45:25:

Steve,

Thanks… do you have a copy of the lease that is used? I will of course run it by my “attorney” prior to use. :wink:

John “SirJohnathon” Grounds
www.jrgholdings.com