Durham home lists for $355K — 25% below market value. Here’s the catch.
A brand-new 1,760-square-foot modern white farmhouse on Nassau Street, just minutes from downtown Durham, is currently listed at $355,000 — about 25% below market value.
It’s an incredible deal in today’s Triangle housing market, where prices don’t budge much.
But here’s the catch: The land is not included.
The three-bedroom, three-bathroom house is on a 99-year ground lease. Future buyers may own the house — but the seller, Groundly, a New York-based real estate startup that launched in the Triangle this month, owns the earth it sits on. They purchased the property for $500,000 on Aug. 7 and are now reselling just the home.
Homeowners pay ground rent on top of mortgage payments, starting at $613 per month and increasing 2% every year. After 55 years, the homeowner has the option to purchase the land for $1, but conditions apply.
“Our concept is simple,” Groundly said in an email to The N&O. “In addition to a traditional home mortgage, a home buyer can use our ground lease product to buy more home for less money out of their pocket.” That makes homeownership “more attainable and affordable,” it said.
Ground leases as a financing product
Ground leases are not new, but they’re typically associated with commercial real estate or community land trusts like Raleigh Area Land Trust and Chapel Hill’s Community Home Trust, which are dedicated to preserving affordable housing.
Ground leases in the residential market are not common, Realtors say. That may change.
As inflation, rising mortgage rates and high home prices keep homeownership out of reach for many across the Triangle, Groundly is among several alternative home-financing solutions to turn up in recent years, promising to help families get into their “dream home,” even if they don’t qualify for a traditional mortgage.
On average, Groundly says buyers can save “up to 30% on their down payment and 10% on their initial monthly costs” using its ground-lease model.
In turn, buyers get a smaller mortgage. They also get to live in a more expensive home than they could otherwise afford.
In August, the company, under the business name Groundly Home Owner LLC, closed on six properties across the Triangle at prices ranging from $514,000 to $1.7 million, tax records show. It now plans to resell the homes for below market rates with ground leases.
Listed with Durham-based West and Woodall Real Estate, three of the six houses are currently on the market.
In addition to the Durham home, there is a custom-built 5,081-square-foot craftsman on Collins Drive in Raleigh’s North Hills for $1.27 million, which Groundly purchased for $1,795,000 on Sept. 6. Initial monthly ground rent starts at $2,295.
The third is a four-bedroom, three-bathroom traditional home in Chapel Hill’s coveted Lake Hogans neighborhood. It’s currently on the market for $505,000, after the company bought it for $699,000 on Aug. 8. Initial monthly ground rent starts at $976.
The company is expected to list its three other properties in the coming weeks under the same conditions.
They include two properties in Durham: 1838 Sandoval Drive, bought for $605,000 on Aug. 29; and 3 Moss Creek Ct., bought for $770,000 on Aug. 31.
The third is in Chapel Hill’s Southern Village at 202 Calderon Dr., a 2,966-square foot home bought for $915,000 on Aug. 15.
The flip side
Many buyers, no doubt, will be tempted. The properties are all in some of the Triangle’s most coveted neighborhoods.
But some local Realtors and lenders have urged caution.
“It’s generally recommended to own an appreciating asset and lease a depreciating asset,” says Samantha Greaves, a broker with RED Collective | COMPASS in Durham. “Conventional wisdom is reversed here.”
Ground leases potentially create “severe marketability problems,” she adds, and concerns for future buyers acquiring financing with conventional mortgages.
“It’s very short-term thinking,” she says.
Nate Haines is a senior loan officer with Chapel Hill-based Robby Oakes Mortgage Team. After reviewing Groundly’s terms, he said he hadn’t seen a ground lease like it before.
Technically, it’s allowable for conventional loans under the government-backed Freddie Mac and Fannie Mae, which supports around 70% of the mortgage market, he says.
“But there’s not really a precedent. We had trouble figuring out if the ground lease itself was usable. We still don’t really have a definitive answer on that.”
In particular, he sees “red flags” with the annual 2% lease hikes.
“A lot of people don’t have 2% annual increases in wages,” he says. “To me, that just sets up people to future affordability problems.”
This story was originally published October 11, 2023 at 12:40 PM with the headline "Durham home lists for $355K — 25% below market value. Here’s the catch.."
