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Leased land?
Old 08-01-2019, 01:03 AM   #1
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Leased land?

We are in escrow on a property in Palm Springs that is on Indian-owned land. The land lease expires in 2080, so we thought all was well. However in reading the lease agreement, it appears that our freedom is limited as well as there are many costs beyond the monthly lease payment.

We are seeing a real estate attorney but Iíd also appreciate advice from others who have owned or currently own property on leased land. Would you do it again, and if not, why not?
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Old 08-01-2019, 10:47 AM   #2
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There is a subdivision here like that and because the land is leased it has kept the cost of homes low. I wouldn’t do it.
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Old 08-01-2019, 12:49 PM   #3
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Quote:
Originally Posted by Scuba View Post
We are in escrow on a property in Palm Springs that is on Indian-owned land. The land lease expires in 2080, so we thought all was well. However in reading the lease agreement, it appears that our freedom is limited as well as there are many costs beyond the monthly lease payment.

We are seeing a real estate attorney but I’d also appreciate advice from others who have owned or currently own property on leased land. Would you do it again, and if not, why not?
It just really depends. I have seen some of these leases that are from the same agency (even the same state or lake in the case of US Army Corps of Engineer property) that can have wildly different terms. There is no "catch all" and you are wise to seek legal counsel.

Nonetheless, it looks like nearly 1/2 the homes in Palm Springs are on this leased land, so the terms are probably not *that* onerousness...well...maybe...

https://www.desertsun.com/story/mone...ease/87944598/
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Old 08-01-2019, 01:34 PM   #4
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In Hawaii, we have 'lease hold' land. The main concern here is whether you will outlive your lease, and when the leases will be renegotiated (e.g., increased). If the lessor decides not to continue the lease upon expiration, you have the choice of moving the house, or letting them have it. My former room mate bought a house in Kaneohe with lease hold land, and eventually purchased the land. 2080 is most likely long enough for you, so if the other terms aren't too onerous, and the lease cost increases are identified in the contract, it may not be too large of an issue. But it's all in the fine print.
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Old 08-01-2019, 01:56 PM   #5
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If you go into it understanding what it is and look at the terms, leased land can be a great deal.

I have purchased two. First one was a beach house with 25 years left on the lease for 120k. Lease payments were 50 bucks a month and only went up by CPI.

That was 20 years ago.For people renegotiating those leases today. New lease will run you about 1700 a month and will go up more quickly and has some bad terms. Not as good a deal by any means. The house on leased land today costs around 400k.
This is in an area where fee simple the houses would be over 1 mil today.

So you just have to look at the terms and evaluate.

One consideration for me is we have no children and our lease on our beach place ends when we are in our eightys. It keeps the cost low so we donít rent and we donít care if it doesnít appreciate.

Just look at the numbers and your own situation. It may make great sense or it may be a bad deal.
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Old 08-01-2019, 02:54 PM   #6
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One of the issues is: will you need the equity out of the house.

It's not whether you will be alive in 2018: it is will banks permit a 30 year mortgage on it in 2045 (i.e. can you sell it, for example if you want the money to move into an assisted living community.) I "googled around" and saw an article which indicted that some backs won't issue a 30 year loan where the lease is less than 35 years. (No, I have no first hand knowledge of this, but I suspect it may have some veracity because banks seek "collateral" for their mortgages.)

Not that I'm a fan of them, but: how does a reverse mortgage work with this (and the lease has not been renewed) if you want one at 75 or 80. (Recall, without a lease of a certain length the value of the house goes down.)

Your attorney: does he just get paid if the sale goes through, are you paying him by the hour, or something else. If he earns his bread and butter representing buyers of homes on tribal land, will this effect his opinion?

What are some of the clauses / expenses which cause you concern?
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Old 08-02-2019, 12:49 AM   #7
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Thanks for the thoughts and questions. We saw the attorney today, who is with one of the top real estate law firms in Palm Springs. He spent about 90 minutes on our discussion including preparation and charged for one hour. We liked him.

His opinion was that our particular lease was pretty good as leases go, given that it doesnít expire until 2080 and it increases by CPI every 5 years. Apparently the Indian tribes are not taxed on income from these leases, so they are glad to have them in their portfolio of assets. He said some of the concerns I was worried about were not significant as a practical matter. He said as long as youíre paying your mortgage, taxes, insurance and lease payment, the Bureau of Indian Affairs leaves you alone.

However, Iím still a bit skittish about this because:
- Many high volume lenders wonít lend on leased land, so our rate will be about 1/8 point higher.
- HELOCís and reverse mortgages are not an option on leased land.
- Any time you want to refinance your property, you must get Indian approval and pay the requisite fees (currently about $2K).
- You cannot lease your property for a term longer than 12 months without getting Indian approval. May not be in our plans anyway, but itís a good example of how your freedom is limited.
- The lease must be renegotiated before 2045 because there must be at least 35 years left on the lease in order for buyers to get a 30-year mortgage. There is no guarantee that the lease will be renewed, and when it is extended, lease cost often increases a lot. 2045 is a long time from now though so probably not a huge concern for us.

Palm Springs definitely has a lot of leased land, and the area we like best, called Indian Canyons, is one of the most exclusive areas in town and is almost 100% leased land. The SFRís in this neighborhood are mostly over $1M, with condos in the $250k-$650k range. We are trying to decide if this is the only area for us, or if there is somewhere else on fee simple land that we could enjoy.
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