Short Leases

All Land is Not Equal In Palm Springs CA

Short Leases:

A leasehold parcel of land means that you do not own the land you are only leasing it from the actual owner. Even if there is a structure on it, that you hold title to, the lease payment only entitles you to the use of the land – subject to the terms of the lease - and not actual ownership. (When you own the land this is called “Fee Simple ownership”)

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In Palm Springs, Cathedral City and parts of Rancho Mirage California up to 50% of land is lease land. This is important when looking at property because land value can’t be factored into the value of the property. Typically this means that the price of a home located on lease land will look more attractive than the same home built on fee land, where you do have to factor in the value of the land.

All leases are different and terms and conditions must be checked carefully during the buying process. One major provision in many leases is that “leasehold improvements” are sometimes made permanent fixtures to the land. You may not remove them at a later date without the express consent of the leaseholder. In some cases this may extend to other improvements such as landscaping, awnings, trellis, and gazebos – anything permanently attached to the “leasehold improvement”.

The most important provision in the lease is the start and end date. The end date of the lease needs to be 35 years or longer from the date of your purchase. The reason is that banks granting you the standard 30-year mortgage product want the lease to have a five-year pad on it beyond the life of the mortgage. If a lease has less than 35 years on it we refer to it as a short lease and you cannot get a 30-year mortgage on it. Often times this means that the best rates are unavailable to you. Potential buyers, if you wanted to sell, might not qualify as the shorter the mortgage the higher the payment.

IMPORTANT: Not all lenders will loan on lease land – some who will, will not loan if the lease is short. If you need

assistance identifying a lender to help you with a loan on lease land please feel free to contact me. If you are purchasing on lease land it is crucial that your lender know how to process these loans. I have the resources to get you to the right loan professional. Please see my website www.PSagent.com for even more information on lease land issues.

Other Considerations with Lease Land:

-If you are financing the purchase the value will only be figured on the structure and not the land itself.
-What are the terms for lease land payment increases?
-What, if any, are the preset renewal terms and conditions
-Homeowners insurance does not factor in land value so this is unaffected
-You will be paying property tax on the value of the land. The IRS has ruled that the person who enjoys substantial use of the property pays the tax.