Posted by Mary in CA on September 04, 2005 at 11:55:24:
OIC. Hmm. I was hoping for a solution to overpriced property in hot markets like ours. Oh well.
Thanks.
Mary
Land Lease technique questions - Posted by Mary in CA
Posted by Mary in CA on September 03, 2005 at 20:49:00:
In “Real Estate Investing from A to Z” author William Pivar talks about buying building and leasing land from seller (w/option to purchase at end of land lease) . . . . seems like a technique that might work in my non-cash flow area, but how?
E.g. an office building on market
Assume as purchase
Assessors land ratio 30% land 70% improvements
Price $1,000,000
Gross Rents $38,400
NOI $ 20,352
Debt Svc $39,500
CF - $19,148 (negative)
How would a building purchase w/land lease work?
Since you’re not owning the land is the building discounted? (It would revert to land owner at end of land lease if you don’t exercise option - 20 yrs or whatever - so should be worth less than outright purchase with land.)
Do you use tax assessors ratio of land v improvements; therefore $700k for the building or would it be discounted?
What kind of rent would you pay for the land? A straight return on value?
Any feedback would be welcome. All hypothetical at moment as I’m musing over offer on this office building.
Thanks,
Mary
Re: Land Lease technique questions - Posted by Brian (UT)
Posted by Brian (UT) on September 04, 2005 at 11:07:26:
Mary
The key is whether it will cash flow, in most cases it will not and there is no real advantage to not buying the whole package because most land holders are going to want some form of fair market rent for the land.
This concept worked well in the late 60’s and early 70’s because we were able to split a property into land and improvements. The land investors got a nice stable return. The improvement owners had a built in loss and it was a great tax shelter. However the IRS got the law changed and overnight we gave this up.
Brian