Condominium Ownership

[moh malekpour]

Brad,

Of all of those please show us one that meets anything like these time terms.

You will find that this is not the case

First, You keep asking show us or tell us as if everyone agrees with you and disagrees with me. Please tell me Who is us?
Secondly, Of course this is not the case and that was my point. I put it down for you to prove my point that it doesn't work that way.

and would be loaning on as in the case of the college land in the other post- is on the improvements built upon leased land

You know better than that. The loan is not on the improvement. The loan is on the real property which is the improvement and the land. You know that the improvement cannot exist without a land unless that improvement is a personal property like a mobile home. so, please don't tell me that the loan on the leasehold estat is on improvement. We Appraise them as real property, the form that we use for them is for real property. That real property is consisted of the land and the improvement. The land of that real property is leased land and the owner of that property has a leasehold title. You cannot record the title of improvement alone and you cannot call an improvement alone a real proerty. An improvement without the land is a personal property and you get a pink slipt title for that. You are mixing mobile home with leasehole estate real property.

If the term of the lease is that short they will not be getting the loan. That simple Moh. Nobody is loaning out money on leaseholds that run for 3 years unless it is a very short term mortgage. Period.

Again, you are proving my point. You asked me how long is long for a leasehold estate and I said the lease term has to be longer than or equal but not shorter than the term of the loan and to prove my point, I asked you what would you do as a lender if you had a loan with the term longer than the term of the lease and the lease got expired prior to payout of your loan but you mocked me by your nasty comment instead of answering my question.
I say it agin, It is not practical to build a home or condo on a 3 year leased land. No city is going to issue permit for a short lease land to build an improvement on it because it is not mortgageable nor tradeable . No body builds a temporary improvemetn on the land as a real property. Sometimes government establish a temporary housing on leased land for 2 or 3 years but they are mostly mobile homes or trailers like those trailers for KATHERINA VICTIMS and at the end, they take the trailers back and land reverts to the lessor[/quote]

 

[Brad Ellis]

Moh,

Again, you are proving my point. You asked me how long is long for a leasehold estate and I said the lease term has to be longer than or equal but not shorter than the term of the loan and to prove my point, I asked you what would you do as a lender if you had a loan with the term longer than the term of the lease and the lease got expired prior to payout of your loan but you mocked me by your nasty comment instead of answering my question.

Then let me end this by "mocking" you again-

I have not proven your point at all. You started all this by appling a loan term to a leasehold- if you look back at the posts you will see that I clearly said that NO ONE had ever determined just how long a lease mus6t be in order for it to result in a measurable leasehold.

So you chime in that it must be longer than the loan.

OK- so tell us this-

If I own a house and rent it out for one year is there a leasehold involved if the land is owned outright by em?, and

If I own a house and have it under a longer term lease for 6 years is there a leasehold involved, and

If I own an inudatrila building and leaseit out for 20 years on an absolute net basis is there a leasehold involved, and

How would you value the leasehold?

Brad

 

[moh malekpour]

Brad,
Please don’t try sophistry. Use a common sense and logic.

You made my point when you indicated on your posts that the leasehold estate would be diminished when a property is rented. My answer was that the fee simple estate doesn’t diminish by renting the property.
.
You again made my point when you indicated that the lender loans on the improvement of a leasehold estate. My answer was that the lender doesn’t loan on improvement, the lender loans on real property.

Now back to your questions:

If I own a house and have it under a longer term lease for 6 years is there a leasehold involved, and

If I own an inudatrila building and leaseit out for 20 years on an absolute net basis is there a leasehold involved, and

How would you value the leasehold?

If you own a house and rent it for 6 years which is unusual and unpermitted in some states. Most residential leases that I know are based on monthly or yearly terms.
In any case when your rent your home, you are the lessor, the landlord of that property who holds the fee simple estate. A lender will loan you (the lessor) money on that rented property because at the end of the lease; no matter if it is on one month, one year or 6 year basis; is going to expire and reverts back to you.
Your tenant is the lessee and holds a leasehold estate on that property for the duration of that lease no matter if the lease is on one month, one year or 6 year basis. A lender is not going to lend money to the lessee or the tenant of your propery based on that leasehold estate because it has no value. A residential lease doesn’t have a clause for the sublease, it doesn’t have a clause that is going to transfer to the lessee at the end of the lease term and it is short term usually on monthly or yearly basis and even if it is on 6 years lease, it has no value. The tenant or the lessee is not making money; the tenant is losing money by paying you the rent.

If you own an industrial or commercial building and lease it to me for 20 years with a clause that let me to sublease that property to others, that leasehold estate has value and can produce income for me after I paid your rent . That income can be extracted from sublease contracts and use it as an income producing lease. Many large shopping centers and malls are leased to one lessee and that lessee subleases each store to retail tenants.
Lenders will lend on that income producing long leasehold estate to the tenant or the lessee of your industrial property based on the income that the tenant leasehold estate can produce by subleasing it to others.
Also if the tenant needs the rented industrial property for his own use and the rent contract shows the long contracted rent fee is significantly lower than the market rent on that property, the different of contract rent and the market rent is considered an income for the tenant or leasehold estate holder that can be used as income producing leasehold estate and get loan on it but the contracts have to be solid, recorded and longer than the term of mortgage.

 

[Brad Ellis]

Moh,

You asked me how long is long for a leasehold estate and I said the lease term has to be longer than or equal but not shorter than the term of the loan

Now you tell me from the last post that there does not need to be a loan on the property for there to be a leashold but above you said there had to be.

So now you have clearly changed your tune. But a couple of other contentions you made trouble me as well.

First you said a 6 year term on a single family home might be illegal in some states. Do you have any examples of that because I have read the laws of several states and have never seen that. I have, however, seen numerous long term leases from 5-10 years on SFRs in several states- so I'd sure like to see that law if you have a reference.

Next you suggest that even though a home is leased out there is no dimunition of the fee simple estate. Now I think we are getting to your point in that you continue to put this into a context of lending vs. the actual legal aspects.

You would be correct that a lender will ask for the value of the fee simple estate under a short term lease because they understand both cash flows and reversions.

You would not be correct in saying that the lease does not diminish the fee simple estate. While it is under lease the lessor has ceded certain rights- one of which is the right to rent out the property- because it is already rented out. So if another potential tenant comes along that the lessor may want to have in the property vs. the one currently occupying it, they do not have that right. If we relate this to the concept of interest, it would be the opportunity cost portion.

Given that fee simple ownership is the entire bundle of rights - intact- any time one of those rights disappears via means other than those reserved for the government- the fee simple estate is not what the lessor holds. He holds a leased fee estate.

The fact that a lender will want the fee simple estate valued is secondary to the actual legal status in place.

Now- just for kicks, take out your last 10 appraisal reports on leased property in which you have valued the fee simple ownership even though what the borrower holds is technically not fee simple. Would any of those actually have a hypothetical condition in them?

Remember that hypothetical conditions are used for purposes of reasonable comparison when one knows the facts in place are different from what the client wants valued.

Actually, I do not even need you to answer; I already know the answer- so it is for your own edification. If you used the HC you violated the certifications on the new form and if you did not, then at least on a technical level, you violated USPAP (not that anyone will be turning you in for that or that any state agency would bother pursuing this).

Finally, in one of your posts you pointed out that what we lend on is the land and improvements, but your own posts contradict that. In your case of native american lands we do not lend on the land at all- how can we if the borrower does not own it? Further- and directly to the point- we do not even lend on land and improvements; rather we lend on the ownership rights to that land and to the improvements.

So nothing is solved here at all. There is no definitive term for a lease that creates leasehold and leased fee estates (or more than one leasehold). The specific estate does not have to have a value to exist nor does it have to be lendable.

Brad

 

[moh malekpour]

Now you tell me from the last post that there does not need to be a loan on the property for there tobe a leashold but above you said there had to be.

I don’t get what you are trying to say. The paragraph that you have quoted doesn’t say anything that there does not need to be a loan on the property for there to be a leasehold. Please make yourself clear.

So now you have clearly changed your tune. But a couple of other contentions you made trouble me as well.

No, I have not changed my tune at all. I still say that if a lender wants to loan on a leasehold, the lease term has to be longer than the loan term and I gave you many reasons for that in my previous posts.

First you said a 6 year term on a single family home might be illegal in some states. Do you have any examples of that because I have read the laws of several states and have never seen that. I have, however, seen numerous long term leases from 5-10 years on SFRs in several states- so I'd sure like to see that law if you have a reference.

Please read the post #21 on this thread. somebody tried to tell you about residential lease in NC but you apparently don’t listen to anyone but to yourself.

In North Carolina a residential lease must be in writing and can not exceed three years.
Most typically a lease is 1 year. Upon experation of the original term of the residential lease the term goes month to month

You would be correct that a lender will ask for the value of the fee simple estate under a short term lease because they understand both cash flows and reversions.
You would not be correct in saying that the lease does not diminish the fee simple estate. While it is under lease the lessor has ceded certain rights- one of which is the right to rent out the property- because it is already rented out. So if another potential tenant comes along that the lessor may want to have in the property vs. the one currently occupying it, they do not have that right. If we relate this to the concept of interest, it would be the opportunity cost portion.

To diminish means to make it less. When the owner of a property who holds a fee simple estate on that property leased that property, the fee simple estate will not diminish. The fee simple estate doesn’t change to less than fee simple estate. As I said earlier, it gets a temporary limitation on that estate till the lease get expired or extinguished. A limitation on the fee simple estate can be created by a lease contract, a mortgage lien, a tax lien or judgment on the property.

Given that fee simple ownership is the entire bundle of rights - intact- any time one of those rights disappears via means other than those reserved for the government- the fee simple estate is not what the lessor holds. He holds a leased fee estate.

The lessor holds two estates: Fee simple estate and lease fee estate. Since the property becomes an income property, the lease fee estate indicates that the property is an income producing property, the fee simple estate indicates the property is owned by the owner

The fact that a lender will want the fee simple estate valued is secondary to the actual legal status in place.

If the owner of the property with a simple estate has rented the property and wants to get a loan on that property and use the property not the lease contract as the security for the loan, the fee simple estate is the primary. that is the estate or the ownership that protect the lender. the lease contract can be terminated at moment notice and doesn't give the lender any protection. The fact that lender require a cash flow for the rented property is for the borrower's qualification

Now- just for kicks, take out your last 10 appraisal reports on leased property in which you have valued the fee simple ownership even though what the borrower holds is technically not fee simple. Would any of those actually have a hypothetical condition in them?

I don’t know what kind of leased property you are referring to. I have appraised properties with leasehold estate and I have appraised properties with fee simple estate which rented out. Which one are you referring to?

Remember that hypothetical conditions are used for purposes of reasonable comparison when one knows the facts in place are different from what the client wants valued.

Actually, I do not even need you to answer; I already know the answer- so it is for your own edification. If you used the HC you violated the certifications on the new form and if you did not, then at least on a technical level, you violated USPAP (not that anyone will be turning you in for that or that any state agency would bother pursuing this).

I know HC and I know the USPAP but what is its relevancy to this topic? Please make yourself clear

Finally, in one of your posts you pointed out that what we lend on is the land and improvements, but your own posts contradict that. In your case of native american lands we do not lend on the land at all- how can we if the borrower does not own it? Further- and directly to the point- we do not even lend on land and improvements; rather we lend on the ownership rights to that land and to the improvements.

This is real sophistry. You said the lender on leasehold estate, in which the land is leased, loans on the improvement. My answer was that the improvement without a land is a personal property and has pink slip title. The lender loans on the real property and we appraise the real property which has an improvement and which is attached to land no matter if the land has leasehold title or fee simple title.