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Buying a Property on Leased Land

By in Real Estate Guides with 0 Comments

The excitement of finally spotting a dream house in Los Angeles can quickly convert into immense sadness the moment you realize that you can’t afford to buy it.  But did you know that buying a house is much easier when you only buy the home and lease the land where it has been built? Not sure what that means? Continue reading this article to learn the answers to pertinent questions about buying a property on  leased land in Los Angeles, CA.

What Does it Mean to Buy a Leased-Land Property?

Unlike traditional homeownership, a home on a leased land refers to a modern homeownership option according to which you can buy a property and lease that land on which it is constructed. This way, you can own a home that you may not have been able to afford otherwise. Some prospective homeowners don’t consider this a viable option because they only have limited knowledge about it and also because real estate listings usually don’t list many leased-land homes.

In Los Angeles, the value of the residential real estate is so high that even the homes in suburbs exceed the affordable price range of an average resident. Therefore, it is not uncommon to find a property on sale in Los Angeles, CA, that is available on leased-land in the suburbs like Canyon County and Simi Valley. You are likely to find retirement communities on leased lands – such as Trailer parks.

Buying a home on leased land will require you to take out a mortgage on that property. The monthly payment of the mortgage will be way lesser since the price of the house is lower. Remember, however, that you are also required to give a monthly fee for the leased land, which can be a significant amount depending on where the land is located. In case the land you’ve leased is situated in a community of similar properties, you may also be eligible to pay a maintenance fee to the Homeowner’s Association (HOA) to cover up the costs of community buildings, landscaping, installing community amenities, etc.

What to Consider When Buying a Leased-Land Property?

If you have started to consider buying a home on leased land, you should consider the following factors before taking the big step.

  • The Length of a Lease Term

This factor determines your ability to finance the lease to the property on which your purchased house has been built. Typically, a lease must exceed your remaining lifespan to protect your financial interest. For instance, if a lease term of land is ten years and you are looking for a 20 year mortgage plan, you will not only have a hard time getting a mortgage valiuym approved but also face financial loses. A long term lease, therefore, protects you and positively affects the sale price of your home.

  • Terms and conditions of the Surrender Clause

Thoroughly read the surrender clause to see what happens when the lease term ends. If the lease is not renewed on expiration, you may be required to evacuate the land even if you own the house. You should ideally reject clauses that require you to leave behind any part of your house behind.

  • Renting a Home VS Buying One on Leased Land

Think about whether owning a home on rented land is more economically feasible to you than renting a home altogether or buying an entire house. The only difference between the options is that of ownership, hence think about what your pockets can bear in the longer run.

Reasons to Buy a Leased-Land Property

  • By excluding the cost of the land, you can purchase an entire house at a much affordable price.
  • As compared to leasing an apartment or condo, leasing land and owning the house on it can offer a better lifestyle to you and your family.
  • Leased-land communities in good neighborhoods provide you with extraordinary amenities that are hard to find at other places.
  • You are in charge of paying low property taxes because you don’t own the land.

Reasons to Not Buy a Leased-Land Property

  • Owning a home on a leased land property increases the risk of losing your equity at the time of lease expiration because selling a property on leased-land is more difficult.
  • Many properties on leased lands are part of a homeowners’ association (HOA). This means that you will be liable to pay an extra monthly fee even for the maintenance of community-owned amenities that you barely use.
  • Your lease payments and extra HOA fees usually fluctuate based on the rate of inflation, and your home may become less valuable by the time the lease term ends.
  • When the lease expires, and you can’t renew the contract, you can technically move your house to another land. But this is not practical unless you have a trailer home that can be transported.

Final Thoughts

Buying a home on leased land is a tempting proposition, especially because of the low cost. However, to reach a smart decision that you don’t regret later on, make sure you weigh the pros and cons of this housing option before going ahead with it. And whether you decide to buy a home, rent it, or lease land in Los Angeles, CA, don’t forget to contact Pezzini Luxury Homes – a leading real estate company that promises to help you find the perfect home you’ve always desired!

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