We’ve been talking about sub-surface rights. Next comes surface rights. In Florida, a house is usually built on a cement slab on the surface of the land described as a lot. Sometimes it extends below the surface and into the air above the surface, but the land had to support it, or support what was supporting it. Thus, surface rights are often sold without conveying any other rights. Neither the builders nor the occupants mind much if they don’t need other rights.
As a practical matter, a lot of building are constructed on land that isn’t owned by either builder or occupant; it’s leased. The great Astor fortune was created because of land leased in New York City where many of those tall skyscrapers were built on leased land.
Speaking of leases; Harding’s diagram included a number of leases on a building: In the lease hierarchy, first comes the land upon which a building is situated. A net lease on free and clear land beneath a major building leased by a financially strong tenant is one of the safest long term investments in real estate. The tenant on a net lease pays for everything including taxes, insurance, maintenance, and improvements.
Quite often the lender who is financing construction on leased land will pay the land owner to “subordinate his lease” to the new loan. Thus, if the loan is foreclosed, he could lose his land. He normally only agrees to this if he is paid for his risk. So he makes more money without investing any more.
The way that risk is rewarded in the house business is when someone lends money at a high rate of interest to a fixer upper who may or may not complete the project. Another way is when a wealthy individual guarantees a loan at the bank so the entrepreneur can get the money needed for a project. Without spending a dime, the wealthy guarantor earns money by taking on risk that might be ruinous to the entrepreneur, but merely a nuisance to a wealthy person.
I can’t stop now; the best is yet to come. Next time.
