What should I expect? What are the pitfalls? I am tad uneasy about not owning the land outright. What happens if the land owner decides to claim it? It is not on a trailer park.
We owned a cabin on USFS land. The risks and pitfalls really depend on who the land owner is and what terms you sign onto.
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I thought an issue was that banks won’t lend in these situations, so you can’t get a mortgage. Which is one reason prices for these houses are low. I would think you would want to read the lease and any other documents extremely carefully, and have your lawyer do so as well.
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Pretty much a math problem…a numbers game.
Land leases are common in commercial real estate but less so for residential (although condos are commonly built on leased land). Depending on your purposes and how long you plan to stay there it may be more difficult to resell simply because residential land leases are less common so the buyer pool may be smaller due to reluctance to enter into one. But maybe you aren’t that interested in resale or the price is too good and all other factors make it attractive.
First question is “how long is the lease”? Longer the better (most start at 99 years). Anything less than 40-50 years would not be good. You could negotiate to extend the lease to 99 years.
You can also negotiate to buy the land and avoid the lease altogether (depending on your finances). Banks will give mortgages for homes built on leased land (with a long lease) but you may have fewer options.
The land lease terms? How much are you paying on per month basis? Usually paid yearly. Do the tax numbers work for you?
How much is the house? Good enough price making it affordable and attractive to you? Does the math work with the lease payments?
Like I said…a numbers game.
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This is the reason for requiring a very long lease. With a 99 or 50 year lease (depending on your age or intended stay) you most likely won’t be worrying about it. In the meantime you may be able to live in a location and/or home you would never be able to afford otherwise.
To answer fully the owner at the end of the lease would acquire the improvements made by the tenant to the property. Usually the terms are spelled out in the lease. But not sure your kids want to inherit a 100 year old house with old plumbing anyways (lol).
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There is an enclave of lakefront cottages on leased land in my town, and the leases are for 20 years. Take it or leave it. This arrangement started 100 years ago by a farmer, and his family still owns the land. No mortgages available. Buyer pool is limited, but there is one, because the cottages sell for $150,000 - $200,000; if they were on their own land, they would cost $900,000 - $1 million.
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In HI, there are quite a few properties on leasehold land. As others said, check terms of lease. As lease gets nearer end of term, people get nervous as the new lease price could be MUCH higher than former term and make wherever is on the land less attractive because of the higher combined price.
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The land is owned by the municipality. Lease expires in about 40 years. it checks that box? It’s not that much cheaper, a little more than half of the regular price. I could negotiate on that. Resale could be a problem since by the time I am done with the house in about 20 years, there’d be only about 20 years left on the lease.
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If the land is not built upon, check closely for restrictions on what can be built.
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So possibly a great deal for someone wanting vacation property/short term and not locked into a huge longterm commitment with huge financial outlay. Sounds like a deal on the face of it. Still need to know the terms.
Again. It depends on your finances and what you desire as a final goal.
In the above example of a lake cottage there are a lot of perks. You can enjoy a location for a certain period of time that you may never be able to afford otherwise.
Same can work for this land–you are leasing land–which means you are aren’t having to pay the taxes, the total value of the land etc. You are renting it. It can translate into an affordable way to get the great location for as long as you desire.
But can you resell it? Or does that even matter to you? You would at resale have 20 years left on a lease which is not very good for a buyer (unless like the lake cottage it has super location value that may attract a certain market.)
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My parents bought a lake cottage on leasehold land. It works great for them; they never would’ve been able to afford their view otherwise. I think of it like a condo with breathing room 
they have a beautiful view and great amenities at a good price. It’s gone up in value the last couple years; parents and alumni often buy them for football weekend places or people buy them as vacation houses. They don’t allow short term rentals, so it’s very quiet most of the time. It’s not for everyone, but it definitely works for them. As far as pitfalls, definitely look at the terms of the lease including allowable increases. My parents pay “hoa” fees that include the land lease and have CCRs like a typical HOA would, so definitely read all CCRs closely as well. See what is included in the lease payments; for my parents it includes all landscape care including grass mowing, mulching, tree/shrub trimming, leaf removal, snow removal, water, sewar and trash. It’s not for everyone, but at their age it affords them amenities they couldn’t get otherwise.
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Do your parents think of resale value? The hardest part for me. Hard to think the house may not have any value at all when the time comes to sell. It doesn’t have to appreciate but I’d like to recoup what I paid into.
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Nope, BUT they have location (on a lake and near a university) on their side. They bought it for $250k in 2022, and similar homes in the community are currently selling for $300k. I don’t think I would’ve “approved” their choice if they were worried about keeping up with traditional home values. What helps is they didn’t look at it as an investment; they’re in their 80s, so they don’t need a good return, just a good experience until they’re no longer able to live on their own. I think each situation is unique, so I would definitely consider your needs, age, property location, comps and desired investment/return.
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Have you talked to a lawyer—that might give you more insight into the pros/cons.
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I think that in chautauqua type communities, the land the cottages sit on is leased.
Many rules for buying and selling.
Is it this type of land lease?
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I believe so. If it is, would the lease continue to renew?
To put it simply…it’ll renew until it does not based on the lease holder. Nobody has a crystal ball. Maybe renewed for shorter terms. Maybe at price increase. Perhaps property sold to someone else. Lots can happen in 40 years. Zoning changes. Market changes. To extend a lease the price may go up depending on market.
Gotta read the lease.
Is this a HOA? Is this an area of many homes where the municipality owns the land?
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I have very limited experience so take this as I stayed in a holiday inn last night. (Meaning consult a professional)
As I understand, the land belongs to the association. Not an individual. The association is governed by a board.
There are very strict guidelines to buying a home.
I am going by the community I know of in Michigan.
The cottages are seasonal. They must close by a certain date and can’t open until a certain date also. The roads are even closed. You must sell your home furnished. The sale has to be approved. Since it’s on the historical registry, the outside of the cottage must stay the same. I’m not completely sure but I think any renovation must also be approved.
The one in Michigan that I’m aware of has been in the news is that you need to be of the Christian faith to buy. (I checked the mission statement, it’s still there, I do think it’s being litigated). As the community I’m familiar with started with the Methodist faith.
I know people who own homes there. They are very happy, they grew up there, their parents and grandparents grew up there. I don’t think it’s going away and buying as long as you don’t mind adhering to their rules, is probably low risk.
It’s not my jam but plenty of other people love it.
If it’s the one I’m thinking of, which has a music festival, they no longer require owners/buyers to be Christian (and there was some DOJ oversight when they dropped the requirement).
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