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What is a Rec Lease?
The original 99 year lease on the common recreational facilities in Hollybrook was owned by the developer and was payed quarterly by the unit owners. Over the years the lease owners offered the condo owner's to buy the rec lease back from them back for a lump sum payment. Most of the unit owner's took advantage of the opportunity and bought the leases back and didn't have to make the quarterly payments ever again.
About 10% of the units (191) are still encumbered by the original lease and the unit owners still pay. The current payment is approximately $715.00 per quarter (breaks down to $238.00 per month). The original lessors have either sold or donated the remaining leases to non-profit or private organizations. Most of these are managed by one management company and are not being offered for sale at this time.The payment amounts of these leases are adjusted every three years based on the inflation index.
Units that are sold that still have to pay the rec lease normally costs between $20,000 and $30,000 less than units that do not. This means that if you are getting a mortgage you would need to borrow up to $30,000 less. If you did have to borrow this extra money, let's say at 6.5% for 30 years, the additional payment would be $196.00 per month. Also the 20% minimum down payment requirement by the association would be $6000 less
The disadvantages are that the rec lease is ongoing while a conventional mortgage can be paid off in 30 years or less. There is no guarantee that any of the lessors will offer the owner to buy them back for a lump sum in the future. The County Tax appraiser will assess the value of the apartment the same as the apartments that have the rec lease paid off. In addition it can take a bit longer to sell a unit that still has to pay the rec lease. Finally, the rec lease expense can increase in proportion to the rate of inflation while a fixed mortgage cannot (although adjustable rate mortgages can).
If you do not have a lot of disposable cash, or want to keep the extra cash for other investments, or if you intend to get a mortgage, and want to get a nice apartment in a first class Golfing condominium at a very low price, buying a unit that still pays the rec lease may be a good solution for you.