As reported in the OC Register, 6/22/10

What to consider if purchasing a home on leased land:

     
  • How much time is remaining on the lease? What happens to your interest in the property at the end of the lease term? The length of the lease could also affect your ability to finance and sell the home.
  • What are the terms of the “surrender clause?” Check the terms of the surrender clause if the lease will run out while you still own the house.
  • How much do you have to pay every month for the land lease? How often does it adjust, and by what amount? 
  • Are you better off renting? “The two are similar in many ways, including a payment of monthly fees that are determined by another party.”

.Some ways to discern quickly if a property you spot may be on leased   land:

  • Steep homeowners’ association (HOA) fees, more than in nearby areas.
  • Homes are closer together than usual and are extremely similar to one another.
  • In a typical neighborhood, there are homes with pools. In a leased-land community, individual homes will not have pools.

Advantages:

  • You buy the home for less because you’re not purchasing the land.
  • Leased-land homes are often better than apartments for people with kids and pets.
  • You can live in a pricey area you wouldn’t otherwise be able to afford.
  • The community might have such amenities as club houses, a pool or tennis courts.
  • Property taxes are usually lower.

.Disadvantages:

  • The risk of losing your equity when the lease expires, depending on the terms of the surrender clause.
  • The resale of the home probably will be tougher than selling a traditional home.
  • Leased-land properties are often part of an HOA, which means extra monthly fees that can rise annually. The HOA can also levy a special assessment for major community property repairs or upgrades, resulting in an unexpected bill. 
  • A traditional home can be a good hedge against inflation, but a leased-land property is not. In a leased-land community, your monthly lease payments and HOA fees will probably go up  at least by as much as the rate of inflation, while your home’s value will decrease with the approach of the end of the lease term.

Your thoughts and feedback on this topic are greatly appreciated. Please feel free to post your comments.

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