Are you wanting to get into the real estate game but don't know any of the lingo? Parse through this plethora of lessons where you will learn the meaning and specific application of dozens of real estate terms taught by the incredibly successful Michael Burer.
Featured Coaching Excerpt - Notes & Transcript, Part 1
Lesson Nugget: Using a ground lease will lower the amount of capital that you would initially need to build a business on a bare plot of land.
Ground Lease: A lease of the land only. Usually the land is leased for a relatively long period of time to a tenant that constructs a building on the property. A land lease separates ownership of the land from ownership of buildings and improvements constructed on the land.
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-All right, Thrive15, an alternative to lynda.com , we are joined today here with Michael, there-is-no-real-estate-term-too-obscure, Burer to talk about something that you're passionate about, you're excited about. You probably looked it up on the website so I know you want to know. It is called the ground lease.
Now I'm going to read the definition, then he's going to provide an ample example about what this actually means. So here we go. Ground lease: a lease of the land only. Usually the land is leased for a relatively long period of time to a tenant that constructs a building on the property. A land lease separates ownership of the land from the ownership of the buildings and improvements constructed on the land.
This doesn't even make sense to me. Why would you want to just lease the land? Why wouldn't you just buy the land? How can you lease the land?
-Well, you would basically separate the ownership between the land and the building that's on it. So for example, if you were going, a piece of dirt and you wanted to lease it to somebody who's going to build a restaurant there, instead of coming up with the capital necessary to buy the dirt, they could just lease it on a long period of time, and then build the building they wanted.
-Doesn't even make sense, though. What if you built a building, and you didn't own the land underneath it, and then the person who owns the land decides that they don't want your building on it anymore? I mean, how does that work?
-Well, so typically you would have a long term, 30, 40, 100 years.
-An unbreakable deal.
-And it's a long term lease. So it becomes effectively like you own the land, if it's a long enough term.
-Yes. Why would you do this, one? And then, two, what's an example of where this might be common?
-Certain states it's more common in. It's very common, for example, in Hawaii.
-Just the history of how legal title and land worked in that state.
-So people in Hawaii just don't want to sell the land.
-In some areas, yes.
-In Mexico, this is very common too, right? Mexico you can't buy the land, right, as an American?
-Yes. The rules have changed there and you can now.
-[INAUDIBLE] my face, OK. Well, Mike, I appreciate you sharing this with me. But I want to know, if I'm a landowner right now, and I own a piece of land, at what point would I ever want to consider leasing the ground and not selling it?
-Well, it's a very secure investment. So if somebody builds a building on your land, now the security for that lease are those improvements. Meaning if the person stops paying you rent, you can take over the lease, and now you have control of those buildings.
-And why, if I am somebody who is thinking about buying land, why would I want to lease land instead of just buying it?
-It requires less capital. So instead of coming up with all the money to buy the land, you could just lease the land. And it's a way of effectively financing your position.
-Michael, even if I bought you an entire box of those strawberry Pop-Tarts I couldn't appreciate you any more right now for coming in here and talking about ground leases at the fabulous Del Hotel.
-I'm happy to do it.
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