Traditional home ownership involves owning both the house and the land where it sits. But on land lease deals, you’re only buying the house and not the land. In most cases, you enter a land lease paying for the lease of the land, possibly as part of an HOA fee. The most popular form of land lease communities is a trailer park where mobile or manufactured homes are built, there are many such parks locally, particularly in-land. Other forms include condominiums and vacation homes, sometimes in beach communities. Locally there are such homes in La Jolla and Pacific Beach. Buying a home with a land lease is not for everyone. Before considering this option, it’s important to understand its benefits and drawbacks.
Advantages of homes with a land lease
You get the following benefits when you enter a land lease deal.
- You can own a home in a neighborhood where you typically can’t afford to buy. Homes on leased land cost a lot less than other properties in the same area, primarily because you’re only buying the house and not the land. In some leased land communities, homeowners have purchased their properties without a mortgage. This is particularly beneficial if you want to buy in a pricier location, such as a beach or a resort community.
- With the money that you save from buying a home at a lower cost, you can enter into other investments and grow your wealth.
- A leased land community often features several amenities, including swimming pools, clubhouses, tennis courts, private playgrounds, and more.
- A leased land community typically has a homeowners’ association, which looks after the upkeep of common areas and, to some extent, your home’s exteriors.
Disadvantages of homes on leased land
Buying a leased land home presents certain drawbacks, as well.
- Unlike in traditional homeownership, you build equity only on the house and not the land. This could be disadvantageous in the long run because home value appreciation usually comes from the value of the land and not the home, which depreciates over time.
- While you can buy a home for much less in a leased land agreement, almost always, you also need to pay for the lease of the land, which can increase with inflation.
- Having a homeowners’ association can be beneficial, but it also means paying annual HOA dues, as well as contributions to major repairs or upgrades of community properties.
- You enter the risk of losing your equity once the lease expires. Normally, land leases are good for 50 to 99 years, but you might be buying property on a lease that’s expiring soon. If the terms of surrender stipulate that all improvements on the land (including the structures built on it) must also be surrendered, you will lose ownership of your home.
- It’s more difficult to obtain financing for leased land homes, especially in cases where the lease is expiring soon.
When is buying a home on leased land a good idea?
If your priority in home ownership is to be part of a community rather than to develop equity, then a home on leased land could be perfect for you.
Likewise, if you prefer to own your home instead of renting one, but are faced with budget constraints, then a leased land deal may be the way to go.
Are you considering buying a home on leased land? If you need advice and guidance, contact me at your convenience.