Understanding Lease land in Palm Springs

Lease Land vs. Fee Simple

Financial Benefits

The primary difference between buying land and leasing it is obvious; lease land reduces the cost of a home by 20 to 30% on average.  Once a structure is built the land beneath it can be of no other use to the homeowner.  So, by owning on leased land, the homeowner gets the use of the land without the capital outlay - and can afford a far more luxurious home for lease money.  futhermore, since no one actually owns a home until the loan is paid off, most so-called "land owners" don't really own their property for 30 years.

• Won't the value of my real estate climb faster if I own the land?

While many things determine resale values, all available figures indicated that resales of homes on leased land have climbed in the exact proportion as other homes in the same areas.  The condition in which you keep your home has far more influence on its resale value than the fact it is or is not on lease land.

• Waht about my children or heirs? Can I pass a leasehold estate on to them?

Of course.  you can give or sell your home on leased land just as easily as on fee land.  however if you are concerned about your heirs 65 years from now, there are four realistic questions you should ask yourself:

1. Will they really want a 65 year old home when the average life of most California residences is estimated at less then 50 years?
2. Considering that most residences change ownership about every five years (which would be more then 10 turns of ownership during the life of your lease) is the home really likely to stay in your family for 65 years?
3. If you have a savings of $206/month (2,472 per year) by leasing land vs. purchasing, over the life of a 65 year lease, your savings would total $160,680 even it if earned no interest.  if you kept this monthly savings in an account paying 10% annual interest, your savings would exceed $1,250,000 over 65 years ( and even more if interest were compounded monthly).  Wouldn't that be a better way to take care of your heirs?
4. What happens at the end of the lease? Sincer there is no legal restriction prohibiting the Lease Holder from selling their land, you or your heirs may have the option to purchase if you wish to do so.  however, most probably, you would be offered a new lease based on conditions existing at that time; there would be no financial advantage to taking the land back.

• Why do some people compare a home on lease land to a variable annuity life insurance policy?

Probably because it is easier to understand.  Just as a variable annuity gives you the possibility of gaining from both fixed interest rates and asset appreciation, a home purchased on leased land gives you a monthly savings along with the possibility of home appreciation.

It can be an investment hedge whether home prices are rising or falling.  during an "up" period, your home will increase in price.  in a "down" period, the dollars you did not spend on land, but invested in a fixed interest savings, will continue to increase.

Today building on lease land is no longer an advantage reserved for business and investment buyers.  now, in Palm Springs, it is something any home buyer can enjoy.

Presented courtesy of Financial Title Company.  None of the above statements can be guaranteed.  We recommend you consult with  your accountant, attorney  and tax advisor prior to making any purchases on Lease OR Fee land.