What are the downfalls and risks to purchasing a condo on leased land. Are there any pros?

Asked by wpdavid949, Santa Ana, CA Mon Mar 24, 2014

What happens to the condo if the land lease is not extended?

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RonS, , Concord, CA
Fri Apr 25, 2014
I think you guys are confusing leased land and leaseholds. As with a majority of condominium developments, the owner of the condo owns a fractional portion or the common areas maintained by the HOA. You do not pay a "Lease payment" and then a condo payment and then an HOA payment (Typically). I suppose there may be some freaky weird development out there that you can actually have to pay for a lease the condo sits on but i've not heard of it in over twenty years lending nationally.

When in doubt, check the CCR's of the association to see if there is actually a lease.
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Beverly Cota, Agent, Anaheim Hills, CA
Tue Mar 25, 2014
There are many more cons on buying a property on leased land then pro's. Cons would be, a high monthly lease payment, difficulty financing, and difficulty selling in the future, since many people prefer to stay away from properties on leased land. Other things to consider would be the lease term. It there is less then 30 years remaining on the lease, then you may not be able to get a loan on the property. Also, the lease payment can go up. You should also check with your accountant, on if the lease payment can be tax deductible.

The only positive would be the sales price, is often a lot less, to help subsidize the high lease payment.
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Kawain Payne, Agent, Seal Beach, CA
Mon Mar 24, 2014
You have some great answers here already, but I will add something:

Make sure your lender will fund a loan on a condo on leased land, as some do not.

Best of luck in your condo buying quest!

Kawain Payne, Realtor/Notary
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Lance King, Agent, San Francisco, CA
Mon Mar 24, 2014
The biggest factor in my view is how much time remaining on lease. Then factor in reduced cost vs condos not on leased land and make your decision.
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Jaleesa Pelu…, Agent, Laguna Beach, CA
Mon Mar 24, 2014
HI there,

Thanks for asking your question on trulia.

Purchasing a home in a leased land community might enable you to own a home that you otherwise wouldn't be able to afford.

However, as other people below pointed out there are a few risks involved.
How much time is left on the lease? If there is less time left than would you like to spend in your home, then that could be an issue.
Also, look into the cost of living on leased land. What are the HOA's for example?

Furthermore, you can not be guaranteed that the value of your property will increae quite as much as it would if you owned the land. In fact, you can risk losing all of your equity. For most people their home is where they invest most of their wealth. A land owned property might be a good hedge against inflation. A leased land property is not, because monthly/ annual leases might go up significantly.

You might find this article interesting:

Are you looking at a particular property?

Have a great day!

Jaleesa Peluso
Realtor at Berkshire Hathaway Laguna Beach
949 395 0960
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Nicole Fedor…, Agent, Santa Ana, CA
Mon Mar 24, 2014
Land leases can be tricky, because you don't own the land underneath your home. If you can afford it, you should always seek properties that offer the land on a purchase-basis, and not a lease.
While the prices of land-lease homes might be enticing, you don't build the same equity in your property.
For example, there is a condo complex in North Santa Ana where units are up for sale at $90,000. However, the land lease on this property is $1000/month, with an annual increase. While the sale prices looks inviting, spending an additional $1000/month on top of your mortgage can make a big dent in your monthly budget!
You would be better off finding a place on owned-land for a slightly higher price point ($160-170k); financially, it would take about the same income and credit score to qualify for the purchase!
Please let me know if you would like any further assistance!

Nicole Fedorchek, Realtor
Tarbell, Realtors
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Thierry Abel, Mortgage Broker Or Lender, Corte Madera, CA
Mon Mar 24, 2014
When does the Leasehold expire?
We lend to "leasehold" land tenure as long as time remaining on lease hold is greater than the term of the new loan by 5 yrs.

In order to get a 30 year term loan, you need at least 35 years remaining on current leasehold.


Thierry Abel
Senior Loan Consultant
All California Mortgage
A Division of APMC
P: (415) 464-8261
C: (415) 378-7508
F: (415) 464-2367
E: tabel@allcalifornia.com
NMLS 304353 - BRE 01380701
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Valerie O'Br…, Agent, Newport Beach, CA
Mon Mar 24, 2014
The advantages appear to be that the condo will be cheaper in price and NO property taxes.
BUT....when you add the land lease costs in you may find that you actually qualify for a more expensive condo and you will own the land... Often between the HOA's and the land lease the costs can be an extra $600 or more depending on where you buy, the complex and the lease costs...
It is best to talk to a tax person about the advantages and disadvantages...Also a realtor can help you make an educated decision....
Happy to help or answer your questions.
Best regards,
Valerie O'Brien
Keller Williams Newport Estates
Tel: 949-478-2892



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Alexander Gr…, Agent, San Jose, CA
Mon Mar 24, 2014
This is a very helpful link: http://www.realtor.com/home-finance/homebuyer-information/sh…
Just send me an email if you have any further questions.

Alex Greer
Loan Officer
NMLS #1056079

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