{"id":6884,"date":"2021-08-12T15:54:11","date_gmt":"2021-08-12T20:54:11","guid":{"rendered":"https:\/\/www.realtyhop.com\/blog\/?p=6884"},"modified":"2023-04-27T16:16:11","modified_gmt":"2023-04-27T20:16:11","slug":"land-lease-buildings","status":"publish","type":"post","link":"https:\/\/www.realtyhop.com\/blog\/land-lease-buildings\/","title":{"rendered":"The Problem With Land-Lease Buildings"},"content":{"rendered":"

You\u2019re in the home-buying process and looking for potential properties in your price range. For the average New York family, that means your budget would be around $799,999<\/a>. As you scroll through the list of available properties in your area, you find a sun-soaked one-bedroom with updated fixtures and generous closet space. It\u2019s everything you\u2019re looking for, and somehow the asking price is $150,000<\/a>. You\u2019ve found a hidden gem!<\/p>\n

Come to find out, this unit resides in Carnegie House<\/a>, a land-lease building. What does that mean for you as a homeowner?<\/p>\n

What Is A Land-Lease Agreement?<\/h2>\n

Land-lease agreements, also referred to as ground\u2013lease agreements, are situations in which you own the property on a piece of land that you do not own and instead lease from the land owner. While this type of ownership is common for commercial real estate, it\u2019s less common for residential buildings. Typically, a prospective buyer purchases a unit or share of the building from the owner or cooperative board, and that owner or board owns the land underneath.<\/p>\n

Some residential units have land-lease arrangements. A popular example is a mobile home in a trailer park, where owners lease their land from someone who owns the entire plot of land and then owns their individual manufactured home.<\/p>\n

There are two kinds of land-lease agreements: government and private. In a government land lease, a government agency owns the land, and property owners do not pay property taxes<\/a>. They make \u201cPILOT\u201d payments that go toward neighborhood development. Private land leases apply to every other situation, where a private owner negotiates the terms of their lease with the building and then charges the individual unit owners monthly ground-lease payments. The remainder of this article discusses private land lease agreements.<\/p>\n

NYC Land-Lease Buildings<\/h3>\n

Some homes in New York City<\/a> are part of land-lease buildings. When you purchase these units, you will have lower mortgage payments but higher than normal monthly fees. The land\u2019s monthly rent gets divided by all unit owners in the building, and you pay that on top of any other building fees. See below<\/a> for a list of all the buildings in Manhattan that RealtyHop knows have land leases.<\/p>\n

Land Negotiations<\/h3>\n

Since someone else owns the land, the building has a rental agreement with the owner. The land and building owners must negotiate the terms of their rental agreement, just as a renter<\/a> would with their landlord. Most building and land owners renegotiate their agreement every 50 to 99 years.<\/p>\n

After a negotiation, your monthly fees could increase due to a higher land rental price. If you consider purchasing a land-lease property, make sure to inquire about when the lease term expires, as you will not have control over how much your fee increases.<\/p>\n

How Owning Property in a Land-Lease Building Affects Your Monthly Payments<\/h2>\n

There are a fair amount of land-lease buildings in New York City, with most consolidated in Manhattan. The Excelsior<\/a> is another example of a land-lease building, and we can see how your monthly expenditures compare to that of a non land-lease building by looking at the listing pages and monthly cost breakdown.<\/p>\n

The monthly mortgage payment comes from our mortgage calculator<\/a>, assuming that a homebuyer spends 20% on their down payment and has a 6% interest rate on their mortgage.<\/p>\n\n\n\n\n\n\n\n\n
Building<\/td>\nExcelsior, 303 E 57th St<\/a><\/td>\nConnaught Tower, 300 E 54th St <\/a><\/td>\n<\/tr>\n
Unit<\/td>\n#9F<\/a><\/td>\n#28G<\/a><\/td>\n<\/tr>\n
Purchase Price<\/td>\n$450,000<\/td>\n$695,000<\/td>\n<\/tr>\n
Monthly Mortgage Payment<\/td>\n$2,158.38<\/td>\n$3,333.50<\/td>\n<\/tr>\n
Maintenance & HOA<\/td>\n$3,611<\/td>\n$1,461<\/td>\n<\/tr>\n
Total monthly payment<\/td>\n$5,769.38<\/td>\n$4,794.50<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Considering the above table, we can see that the total amount you will pay each month living at The Excelsior costs $5,769.38 while living at the non land-lease building, Connaught Tower, costs $4,794.50. That $974.88 difference costs you an extra $11,698.56 per year, and that could increase should your building\u2019s lease expire.<\/p>\n

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*Photo Contribution: RealtyHop<\/a>, Connaught Tower<\/em><\/p>\n

Benefits of Land-Lease Purchases<\/h2>\n

The following situations may be to your benefit should you decide to make this kind of purchase.<\/p>\n

Lower mortgage payments<\/h3>\n

Your mortgage payments will be lower thanks to a low purchase price. This means you can potentially buy a piece of property that you could not if it was under a regular ownership agreement. You may be able to afford a property with an extra bedroom, outdoor space, amenities, nicer finishes, etc.<\/p>\n

Additionally, you may be able to purchase a property in an area you could not previously afford.<\/p>\n

No property taxes<\/h3>\n

You will not pay property taxes as you don\u2019t actually own the land. This will save you money that you can put toward the other costs of owning property. If you live in an area with high property taxes, you avoid this relatively high charge.<\/p>\n

Learn more:<\/p>\n