Land lease COOP Vs RENT.. Is it too late?!

Why didn't your lawyer tell you the building was under land lease?

Go look at the financial statements and they should tell you in the Notes when and how high the lease rents are reset.

@Crescent. They don't have an drastic increases at all unless of course they renegotiate In the next few years . My only concern is how difficult will it be to sell in 4 years as that will be a bit closer to that 30 year mark. It's a lot nicer then where i' am renting now and the the nice apartments in the area all have maintenance of almost double....From looking on this site however, it seems the apartments are not appreciating at all and in some cases are all being sold for less then they were 6-7 years ago...

I don't think 36 years left on the lease is any big deal. The real problem is the market for people willing to buy land leases is smaller. Hopefully you are getting in cheap because you have to assume you will get out cheap.

Not sure how you signed a contract w/o knowing there was a landlease. You need a new atty. The notes in the financials should tell you when the ground rent resets occur and how they are determined. If they are not pre-set at a fixed amount (e.g. 10% every 5 yrs), it could get ugly. Some ground leases have fair market value resets which could soar when land values are high.

@REmom.. My attorney did tell me. I just figured it wasn't a big deal because there was over 40 years left. Then I read comments on this board and it seems they are worse then I had thought. It will be far less then paying rent for a similar apartment. And there aren't any crazy increases anytime soon. I just worry about wether I wil be able to sell it in 4-5 years.

You'll be able to sell it - there is a buyer for everything. The real question is, how long to sell it and at what price? I owned a land lease coop for two years - I knew it, and I took the risk becuase it was a nicer unit that I could have afforded otherwise. When I sold it, it took over a year to sell, and it certainly traded at a discount to similar co-ops that did not have a land lease. I have no regrets, but it sure was illiquid when it was time to sell.

If the seller has already signed you are SOL. Unless, of course, there was a time-of-the-essence clause in the contract and the seller missed the deadline. Otherwise you are stuck unless you are willing to walk away from your deposit.

I don't personally think a five-year own window is an issue in your case - banks generally stop lending on land-lease buildings when they have fewer than 30 years left on the lease and it sounds like you will be selling before that becomes a problem for your future buyer. But I'd make sure to sell before the 30-year mark just to be safe.

Yes, it's too late. The contract doesn't let you escape because you didn't know something you should have known and could have known.

Please identify the co-op. It's not credible that its maintenance could be half that of a comparable apartment, especially in a land-lease co-op, unless there's an extraordinary amount of commercial income to offset the usual expenses.

Assuming that that $x in rent savings holds out for the 40 years, how much are you paying for it? Compare to a 40-year annuity, not to a bond where your principal is returned at maturity.

In a steady market, the value of a land-lease co-op's shares goes down every year. To use the annuity analogy, compare the cost of a 40-year versus a 35-year. Then you need to subtract NYC's high transaction costs for RE, spread over only five years.

Given the very little info you've provided, I don't see how it can work out.

@tommybaluk - you're obviously not in danger of the land lease running up in the period that you plan to hold the property. That being said, land lease properties do take longer to sell because of the type of ownership (smaller pool of potential buyers). It all depends on how strong the market is when you go to sell it. We're in a strong market right now. How long had it been on the market before you went into contract? Check out the building's sale history and see how long it took similar units to trade in 2009/2010.

I'm surprised neither your broker nor attorney told you about it though... Did you know before signing the contract?

Hope that helps!

@NWT Ok so it looks like i' am gonna have to deal with the situation then huh. The RE agent actually told me that the last few people who put offers in didn't get the apartment because of being unqualified.. I found out in the "Minutes" that it was because they had found out about the Land lease. So they lied to me.. Is that misrepresentation? When I read that I did more research..
As bad as it seems, right now i' am paying rent. I figured over 4 years rent will cost me almost 20,000 more than it would cost me to pay my mortgage, plus my rent will most prob increase every year The coop includes all Utilities including electric, gas, water, heat etc. I figure my tax savings from mortgage interest over the 4-5 years will offset my closing costs buying and selling and small flip tax.
My only worry is i'm paying the same price the seller did almost 7 years ago, but she did a considerable amount of work to the place. A similar 1-bedroom sold on the same floor for 5% more this year but they have an updated kitchen which is the only thing my apt is lacking. I also have a Front/park view and they face the back. How much harder will it be to sell in 4-5 years as that will leave 35-36 years left on the lease. Thanks for all the info everyone.. This is my first RE transaction and trying to learn on the go.

"The RE agent actually told me that the last few people who put offers in didn't get the apartment because of being unqualified.."
The RE agent will tell you anything to get the deal done, to get you out the door and get the commission in their pocket.

"Is that misrepresentation?"
In the legal sense, I'm not sure. In every other sense, I'd say yes.

"plus my rent will most prob increase every year"
Maintenance charges only go up too (although by varying amounts and frequency, which may be less or on par with rent increases).

"The coop includes all Utilities including electric, gas, water, heat etc."
That's good. Actually, hard to find these days.

"How much harder will it be to sell in 4-5 years as that will leave 35-36 years left on the lease."
No one will know for sure. It will be harder than it is now, most probably. If your potential buyer is looking for something short term (say, 10 years), they might feel they have to avoid your unit because their sale will be that much harder.

:)

Tommy:

1. you are not the victim of a fraud

2. if anything your attorney failed to adequately explain the
negative aspects of buying in a land-lease coop

3. but then again you might not have properly questioned him
about those risks since you didn't consider them important

4. dont beat up on yourself

5. we all make mistakes

6. just accept the fact that you MIGHT HAVE made one and do your
best to make the right decision going forward

When is the next ground rent reset and how is it determined? If there is uncertainty regarding the ground rent amount, especially if it could be disputed and is liable to interpretation, you will have a hard time selling your unit even if there is sufficient time available on the ground lease.

Tommy,
As noted in many other posts, buying in a land lease is not necessarily bad. If the terms of the lease are good, you may be saving money in the end. Most land leases sell at a discount to other similar properties, often at 20-30% discounts. In most cases (though not yours), this is offset by higher carrying costs (the ground rent portion of your maintenance). If you are like most buyers and will be financing, you will save by not paying interest to the bank on the extra 20-30% you did not require. You may also be able to live in nicer place than you could otherwise afford (since you do not need as much in down payment), and can use the funds in different ways (invest, renovate, etc). Plus, in many ways you are more liquid, as you are technically less indebted, even if your property is not.

In the end, if you are financing, you are either paying the bank or the land-owner. If you are a cash buyer, the math does not quite work the same, and instead you have to weigh paying now vs. opportunity cost of being to invest your money (at potentially higher returns).

Thanks for all the info... Hopefully I don't take much of a loss after 4-5 years.