Home Buying in Phoenix>Question Details

Jane Seymour, Home Buyer in Tempe, AZ

What is a land lease and why on earth would anyone pay it?

Asked by Jane Seymour, Tempe, AZ Mon Apr 12, 2010

I've noticed the term land lease on a few listings around Scottsdale. I don't understand why anyone would pay it in addition to an HOA and their mortgage. Can someone explain what it is and is it advantageous to pay it or something? Thanks.

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Jane,
The benefit (right now) is the pricing and location. Most of the Scottsdale land leases are in very good locations, where everyone wants to be. The pricing is very low, especially now, however the lease will always be there, will not, more than likely go away and you can't control price increases on the lease. Someone that wants to pay cash for the unit and then left with only the HOA and Lease fee to pay may find it beneficial. They are hard to get rid of and are on the market forever. Hope this helps. Stephanie Weiss
1 vote Thank Flag Link Mon Apr 12, 2010
We do see a lot of land leases in Scottsdale. Basically, they are as the name states, a residence where you do not own the land, you lease it.

I am not a fan of them at all. It is very difficult to get financing on a land lease property, they seldom see much appreciation and you don't own the land. Like you said, you pay for the house, you pay HOA's and you pay a monthly lease payment that is often expensive.

The land lease idea was popular a few decades ago. For some it still is as it allows you to buy a property at a relatively low price. However, the lease payments do not make it truly inexpensive and when its time to sell it will probably be pretty hard to find a qualified buyer.

We never let our buyers buy land leases. Never!!!
Web Reference: http://www.urbanteamaz.com
1 vote Thank Flag Link Mon Apr 12, 2010
Dear Friend,
A land lease is a type of financial arrangement in which the ground under a structure is leased, rather than sold to the builder, meaning that the land and the structure are owned independently. There are several reasons to enter a land lease contract, but it occurs most commonly when a real estate investor wishes to retain a piece of land, but not necessarily put energy into developing it.

Michael Pittman
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1 vote Thank Flag Link Mon Apr 12, 2010
Sounds like Land Lease is what you're doing when you buy a Condo or a Townhouse.
0 votes Thank Flag Link Wed Jul 3, 2013
In looking in to a beach house in Newport Beach which includes a land lease but the home itself is relatively low for the beach and prestigious area. The question on land lease has helped me understand this better.
0 votes Thank Flag Link Wed Jul 3, 2013
Dear Jane:

I agree with you. I would not pay it. Leasing land, to put a building on top of land one does not own.

The land is valuable. However, if you notice the Indians on the reservation lease their land for the freeways, Scottsdale Community College, Walmart, offices etc. It is good for the seller. Also it is good for the buyer if the land is valuable enought for its location to warrant the added expense. The market sets the price.

But for me, for a personal residence, I do not like a land lease.

Regards, Jeff

Jeff Masich, Realtor®
Arizona Homes and Land
http://ArizonaHomesLand.com
480-556-0940
JeffMasich@ArizonaHomesLand.com
HomeSmart Real Estate
0 votes Thank Flag Link Mon Apr 12, 2010
Look at it this way Jane - you only pay for the structure itself (the house) when you buy it, you don't pay for the land (you don't buy) but you lease it. If you had to buy both (house and the land it sits on in a single transaction), you would have to pay much more upfront.

Land leases are misunderstood. In many cases, for some people, it's the only way to be able to afford to live in certain areas. The only negative is you need good monthly cash flow to pay the monthly lease. The secondary negative is that every 30 years years or so, the lease amount can change, usually to a higher amount.

But as one of my colleagues previously mentioned, they are easy to buy, but hard to sell because most people don't understand it and only look at the monthly cash outflow - which can be hard to come by these days. As well, some lenders may refuse to mortgage your property on a land lease for the same reasons.

Best way to figure it out is to calculate your monthly mortgage payment plus the land lease, plus the HOA fees and plus taxes. Would you be comfortable with the monthly payments? And how does it compare with a traditional purchase in a different but comparable location?

Richard Bazinet - John Hall & Associates
602-300-7007
0 votes Thank Flag Link Mon Apr 12, 2010
Why on earth would anyone pay it?

If you want to buy, you pay it.

Why would you pay a condo fee in a condo? Why would you pay real estate taxes? If you don't like it, don't buy.

Here are two extremes with land leases. At the low end, a lot of property in Baltimore, Maryland, is on land lease. It's a small amount and you can actually pay a lump sum of money and eliminate it. Some people choose to pay the lump sum. Other people choose to pay the small amount every year. But if you want to buy particular properties in Baltimore, you pay, one way or the other.

The other extreme (kind of) is found in many mobile home parks and manufactured housing developments. You own the mobile home or manufactured home. However, the land is owned by the operator of the park. Sometimes you receive a lot for the land lease. For example, one property I sold last summer was a manufactured home. The land lease included road maintenance, snow removal, leaf removal in the fall, all outdoor maintenance (lawn mowing, for example), on-site management, a club house, a pool membership, outdoor basketball courts and a tot lot, a guard (gated-community type) in the evenings and at night, monthly community parties, and more. It also included the property tax that the individual owners would have to pay if they owned the land their homes sat on. In this case, if you added up everything you got, it worked out to be quite a bit less expensive than if the individual homeowner had to pay it him/herself.

But in either case--a situation like in Baltimore or in a manufactured home development like I described above--you pay it if you want to live there. If you don't want to pay it, find some other place to live.
0 votes Thank Flag Link Mon Apr 12, 2010
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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