Should you buy property on leased land?
Most people looking for a home to buy don’t realize that it is possible to buy a home on leased land. Far from being an uncommon practice, most people assume that when you buy a house you are also buying the land it is built on, but more and more non-traditional home buying options (such as buying a house on leased land) they are available as the economy changes. and the real estate markets continue to struggle.
Here are some things to know about buying land-for-rental property, as well as some pros and cons to help you decide if this is a viable path for you on your homebuying journey.
When looking for homes for sale, you can tell if the one you’re interested in is on leased land if the ad says something like “manufactured home” or “leasing interest.” Also note the word ‘association’, which will be used to describe areas of the property that you have not explicitly purchased yourself. The price of a home on leased land will also be much lower than the median market price for other similar homes in the area. Leased land properties are typically built together and rarely have amenities like a private pool attached.
Land mortgages are obtained for rental properties, but the monthly payment is likely to be lower because the original purchase price was cheaper. One fee you wouldn’t normally have to pay for a traditional home is a ground lease fee, which will vary by property. You may also find that some leased land properties have massive homeowners association fees that are used to cover the care and maintenance of the leased land areas.
If you are considering buying a property on leased land, it will be beneficial to develop a summary of your budget for a regular property and for the rental property. When you jot down the savings and additional fees for both, you may find that one is a step above the other when it comes to benefits and price (and it may not be the property you think!). Be reasonable when it comes to assessing your financial objectives in property purchases, leased land, or otherwise.
You’ll also want to find out from the landlord or real estate agent how much time is left on the lease. Typically, you want to look for properties with a long-term lease, since you won’t have to worry about changes that will occur if the lease ends while you’re still living there. If the lease is shorter, you may find it difficult to obtain a mortgage and finance your home. If the lease expires soon and you decide to buy the property anyway, make sure you know what will happen to the property when the lease ends.
Buying a home on leased land could be a good financial decision, but consider your options before you rush.