what are the pros and cons of buying a house on leased property

In Buying Property - Asked by mary a. - May 25, 2015
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Answer(s)

Steve S.
Owner/Investor
Riverside, CA

pro: it costs less and may offer a attractive cap rate
con: it is a non tangible asset...you are buying a lease not a house...land owner will own the house if they do not renew your lease
my advice: stay away

May 26, 2015
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TANG F.
Broker/Agent
Dumfries, VA

It depends on the cost of leasing as opposed to buying the land. Also the lease terms might be very favorable . I will hardly recommend this to anyone despite possible tax advantages that may exist. I will say every case is different and you should look at them as such to make a decision. On the good side, you might end up buying the land in a state that has tenant's first right of refusal. STAY POSITIVE!

May 27, 2015
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Steven S.
Owner/Investor
Villa Park, IL

The "pros and cons" depend on what benefits you seek. First be sure you fully understand the benefits you seek, then determine if the property or ownership structure can provide you those benefits, and if so, at what cost.

May 28, 2015
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Michael B. M.
Broker/Agent
Santa Barbara, CA

Mary:
Assuming you are looking at this opportunity as a true investment- I would advise you to not think about an investment as its "pros & cons" but ask, what is the net after-tax return at the end of the investment holding period? In essence there are only two things that matter; what is your after-tax ROI (Return On Investment), and does this ROI meet your required return? Therefore, you need to read the lease, understand the income & expenses, and run the numbers based on your cash outlay, capital improvements, management, vacancy, financing, taxes, recapture & sale proceeds (if any), for your holding period.
Now, if your question is not an investment question- then I would say- each year that passes and the lease term gets closer to the end, generally the house will loose value as the next buyer will be confronted with the same questions you have today and will be unwilling to pay what you paid. However, if this property is in a master planned development that doesn't sell the land and all homes are under the same conditions, like mobile home parks, then the value most likely will remain consistent year over year. Lease rates are likely rise at predetermined intervals and will influence the value should you wish to sell later. The property management can help answer your questions with your properties future lease terms. You may want to get an agent that can walk you through this process. Hope this helps!
Best, Michael B. Marechal, CCIM

Jun 1, 2015
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Mark P.
Broker/Agent
Springfield, MO

The Advantages: The purchase price is reduced. The savings may allow you to buy a more expensive house. These homes are typically part of a homeowners association, which provides common services and facilities.
The Disadvantages: Finding a lender for a land lease can be problematic. You might have to pay significant fees as part of the lease. The cost of leasing the land can increase each time the lease is renewed. You only build equity on your home not the land. Selling the home on leased land may be difficult.

Jun 3, 2015
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