In this week’s Ask The Broker, we clear up the confusion about Leased Land Communities.
Real Estate Broker, Kathy Sperl-Bell of Active Adults Realty in Delaware, tackles questions about how land leases work in Delaware. It is a question we hear often and Kathy clears up the confusion many have about land leases, where you own the home but rent the land it sits on.
How can you tell when searching for Delaware properties if they are a land lease community? Kathy tells you precisely where to look when searching for homes to find the type of ownership. Plus find out more about what may be included in the lease, how rents are calculated, and the advantages and disadvantages to land leases.
What can you tell me about leased land?
We get so many different questions about leased land, where should I begin?
First, Not All Leases Are The Same
Just like not all Condo Communities or Homeowners Associations are the same. In all cases, you need to read the fine print before you sign on the dotted line.
In a leased land community, you purchase a home but you pay rent for the land. The home could be a modular home or a manufactured home. It could even be a stick-built home. Depending on the community and the amenities and services that are provided, the lot rent could be hundreds of dollars a year or thousands.
The lot rent may or may not include use of a pool or other amenities. It may include maintenance or it may not, just like an HOA or a Condo association. There are so many variations, but we make sure to know the answers, or at least the questions!
How often can the rent increase?
The lease amount can go up each year, typically tied to an index, like the Consumer Price Index. In some communities, the lot rent can also be adjusted based on an appraisal of Market Value. We know of some cases where that caused lot rent to almost double.
In Real Estate, we know that land appreciates, while improvements (The House) depreciate
If you are buying a home as an investment anticipating future appreciation, I recommend that you stay away from leased land communities. It’s a lifestyle decision not an investment in real property.
If you’re not concerned with your estate, and you find a nice home in a great location at a reasonable price you can afford, then why not? To purchase the same size home but own the land, the cost could be almost double. Even an average lot in a new home community today is valued at $100,000 or more.
Even if the lot rent is $5,000/year, that $100,000 invested would pay for at least 20 years of rent.
How do I know if you own the land or not in Delaware?
When you perform a home search on our website, under the property details look for the Ownership field. If ownership says “Fee Simple” you own the land. If it says “Leasehold”, you do NOT own the land.
As I was preparing for this video, I realized that there is way too much to cover here so I am working on a detailed article or two on this important topic. Please check back on our blog or Like us on Facebook so you can easily know when they are published.
I will also show you how to search homes for sale and determine if they are on leased land or not. In the meantime, do not hesitate to contact me if you have a specific question or need clarification.
Have a question you want to be featured in our Ask The Broker series? You can now submit your questions directly by visiting our Ask The Broker sumbmission page.
When you are ready to buy a home in Delaware, look to the agents Active Adults Realty to help you! You can contact us at 302-424-1890 for a consultation and also download our free Buyer’s Guide here.