One of the best ways to lower the price on a piece of real estate is to participate in a land lease. The land lease fee gives you the opportunity to get more out of the actual domicile by giving up some of the rights in the land. Here are the basics about the land lease fee and how they might possibly be advantageous to you as a buyer.
What is a land lease fee?
A land lease fee is money that you pay in order to reside on a certain tract of property. Most people think of a house and the land that a house is on as the same entity, and they are really two completely separate things. In most home sales, the land and the home are rolled up into a single price, because the land is being purchased as well as the domicile. However, there are many types of sales and buyers that a land lease may benefit.
What is a land lease?
In order to understand what a land lease fee is, you must understand what a land lease is. Because of the binent domain principle, private individuals never really own land. Ownership of land in the United States is really just a perpetual lease, and this land/property transaction is traditionally done together to avoid confusion. However, a lease that is not perpetual is handled as a separate transaction from the transaction for the domicile, and this process is known as a land lease.
What are the limitations of a land lease?
Lenders may not loan money to buy a property that has less than 40 years on its lease. For the most part, the land lease must be equivalent to the loan term plus 10 years. If the land lease does not outpace the term of the property, then a buyer may actually end up owning a piece of property that is on land that is not his. This can cause a great deal of conflict that no reputable lender is willing to underwrite. Land leases may also limit the ability of the property owner to sell the domicile itself, and of course buyers cannot sell the land at all.
Properties also depreciate more quickly if the land and the house are not purchased together. Property values can actually decline down to the cash flow of rent for the property, which is well below any market sale price that would be equitable for a buyer.
What are the advantages of a land lease?
The land lease automatically decreases the total amount of money that a buyer needs to live on a property. Because the buyer is not buying the land, only the domicile is included in the assessment of the sale price. This is also a tax advantage, because land that is leased is not subject to the same kind of tax burdens as land that is purchased.
What makes land leases attractive to different buyers?
Looking over the advantages of the land lease, there are many reasons that it might be attractive to many different types of buyers. The first buyer who might be attracted to a land lease is a buyer who needs a low maintenance property. If the buyer does not own the land, then the homeowner’s association (HOA) that does will usually take care of the upkeep. However, you should check the terms of the HOA that you choose before committing to any agrebent.
Other buyers may need a bit of leverage in order to buy a certain type of property. Because the land lease fee may be cheaper upfront, buyers can spend more of the money that they have for real estate on the house itself. This is incredibly advantageous on properties that do not have a great deal of landspace, anyway, such as condos and townhouses. If there is not a significant yard space on the property, then there is no reason to pay for it.
Buyers may not want the responsibility of selling the land. Many buyers with mobile homes may lease land and move their domicile there for a limited period of time. When the buyer wants to move on, then they move on without the hassle of having to sell the land to someone else. This saves money on property taxes as well as maintenance while the property is not being used by that particular buyer.
If you feel as though the government may step in with an binent domain claim, then you do not need to own the land. binent domain is a concept that gives final ownership of the land to the government, not the private entity. Properties that are near to major thoroughfares and in the crosshairs of major developers may be ripe for an binent domain claim, a claim that would uproot all of the property owners no matter what.
2 Point Highlight
If the buyer does not own the land, then the homeowner’s association that does will usually take care of the upkeep.
binent domain is a concept that gives final ownership of the land to the government, not the private entity.
