There is a new kid in town in the residential real estate market, and this new arrival is going to require some ’splainin,’ as Ricky Ricardo might have said.

Groundly has entered the residential real estate world – it has several houses on the market in the Greater Nashville area – with a mission “to make home ownership more attractive in Nashville.”

There is no argument that the Groundly concept allows home prices to be lower, but that is all the buyer owns – the structure. Sticks and bricks, no dirt. Groundly owns the land beneath the home.

There are always conspiracy theorists and self-proclaimed experts who begin every critique with “they are just trying to make money.” Of course, they are, so are the companies that the snow-driven triumvirate of bread, beer and milk.

Companies that are not profitable do not last, so it is a given that Groundly is trying to make money.

With that behind us, the question is how to they make their money?

“Introducing Groundly the new way to buy a house by separating the home from the land it sits on through a modern ground lease reducing the upfront cost,” the company explains. “Groundly customers can save up to 30% on their down payment and 7% on their monthly payment.”

One example of a Groundly listing is a home for sale that the group purchased for $1,268,900, and the listing agent represents that it is a $1.3 million home – close enough – but the new list price is $895,000, $373,900 less than it paid for the property. So they buy high and sell low, a model that fails in most industries. Here is the difference:

It is a requirement of the sale that the land be leased in order to purchase the house. Although listed for $895,000, a person could not bring a wheelbarrow of cash totaling $895,000 and buy the structure without leasing the land for a period of 55 years.

In this case, the ground lease would start at $21,384 ($1,782 per month) for the first year and increases 2% per year. To save having to open the calculator app, the first-year lease of $21,384 times 55 years is $1,176,120, and that doesn’t take into account 55 years of 2% increases.

Mike Garretson, veteran loan office with Wesley Mortgage, determined a $300,000 mortgage at 6.5% on a 30-year amortization schedule would have a monthly payment of $1,896, or the equivalent of a Groundly lease after a few years of 2% increases, meaning that the Groundly buyer could afford the $895,000 plus $300,000 or $1,195,000, whereas Groundly bought the home for $1,268,900. Until the latter years of the lease – when 10-12 years of the 2% increases have accumulated – the slight advantage goes to Groundly. After that, perhaps not so much as the new buyer would be saddled with the higher lease payments.

Albert Einstein is quoted as having said, “The most powerful force in the universe is compound interest.” That’s how Groundly makes its money. At the end of 55 years, whichever tenant, aka homeowner, left standing will rid itself of the lease for a mere one $1.

As this is a relatively new concept, there has been some concern that it would be difficult to obtain financing on these properties, but both Fannie Mae and Freddie Mac have approved land lease-type purchases, so financing is not an issue.

In its promotional material, Groundly discloses that the homeowner is responsible for all expenses associated with the property including property taxes and insurance. With lenders scurrying to make mortgages more affordable, Groundly’s hope is that this program makes homeownership more affordable.

Sale of the Week

Belle Meade Highlands continues to lead the way in upper-end sales, as 136 Alton Road closed in mid-storm last week for $4.095 million. Listed by veterans Scott Knabe and Adam Burke, both of Compass RE, the 6,276-square-foot home includes six bedrooms, five full bathrooms and two half bathrooms.

136 Alton Rd

The owner had purchased the home in 2022 for under $3 million and added a gunite pool and spa along with numerous upgrades to the gourmet kitchen, open floor plan, sound and security systems.

Jacey Cook, also of Compass, represented the buyer in the sale.

Richard Courtney is a licensed real estate broker with Fridrich & Clark Realty, LLC and can be reached at richard2richardcourtney.com.