A recently listed 1,760-square-foot modern white farmhouse on Nassau Street, located just minutes from downtown Durham, NC is currently priced at $355,000, approximately 25% below market value. This stands out as a notable opportunity in the current Triangle housing market, where prices are generally stable.
How is it priced so low? One can buy the house but the ground it sits on is not included. The three-bedroom, three-bathroom house is situated on a 99-year ground lease. Despite the absence of land ownership, potential buyers can acquire the house at a discounted rate. The property was acquired by Groundly, a New York-based real estate startup that recently entered the Triangle market, for $500,000 and they are now reselling only the home.
Under the ground lease arrangement, homeowners are required to pay ground rent in addition to their mortgage payments, starting at $613 per month, with a 2% annual increase. After 55 years, homeowners have the option to purchase the land for $1, subject to certain conditions. Groundly’s approach aims to offer homebuyers the opportunity to acquire more home for less money out of pocket, making homeownership more accessible and affordable.
While ground leases are not uncommon in commercial real estate or community land trusts which focus on preserving affordable housing, they are not as prevalent in the residential market. However, this may be changing.
Amidst challenges such as inflation, rising mortgage rates, and high home prices, alternative home-financing solutions like Groundly have emerged in recent years. These solutions aim to assist families in achieving their “dream home,” even if they don’t qualify for a traditional mortgage.
Groundly asserts that buyers can save “up to 30% on their down payment and 10% on their initial monthly costs” on average using its ground-lease model, resulting in a smaller mortgage and the ability to live in a more expensive home.
In August, Groundly, operating as Groundly Home Owner LLC, closed deals on six properties across the Triangle, with prices ranging from $514,000 to $1.7 million. The company now plans to resell these homes below market rates with ground leases.
An X user pointed out the office of Groundly sits on its principal office address in New York. The same exact address can be found in the SEC filing of crypto firm Safehold.
While these properties may be tempting, some local realtors and lenders are advising caution. Ground leases may potentially create severe marketability problems, and concerns have been raised about future buyers securing financing with conventional mortgages.
Information for this briefing was found via The News & Observer, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.