Before you buy in Baltimore understand ground rent.

The first time I heard of ground rent I had no clue what it was and since most of my business was outside of Baltimore City I really didn't need to know. In the last couple of years many investors and real estate speculators have been buying up many of the properties in Baltimore City without understanding the concept of ground rent.

Ground rent is a form of real estate ownership where the land is owned by one entity but the real property is owned by another entity. This information should be disclosed by the seller prior to buying the property. The amount of ground rent is stated in the original property lease documents, is paid biannually and can be redeemed by law if requested.

The purchase price of the ground rent is determined by taking the annual ground rent and multiplying it by the redemption rate usually between 0.04-0.12 depending on the year the lease was created. For example if the annual ground rent is $150 and the lease was created June 1, 1977 the redemption rate would be 6% and the cost would be $2,500 (150/6% = $2,500). Properties with an original lease dated before July 1, 1982 have a 6% redemption rate and all others have a 12% redemption rate.