Author Topic: Buying in Palm Spring...something called Land leases?  (Read 1070 times)

Gin1984

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Buying in Palm Spring...something called Land leases?
« on: March 18, 2018, 04:54:07 PM »
My mom is looking buying a condo in Palm Springs and found out that most condos don't own the land they sit on, they lease it from Native tribes.  Has anyone heard of this?  Is the realtor being honest with my mom?

englishteacheralex

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Re: Buying in Palm Spring...something called Land leases?
« Reply #1 on: March 19, 2018, 01:03:59 AM »
It also happens a lot in Hawaii, where we own a condo. The general advice we ran into is that most people don't think it's a good idea to do a lease-hold unless the numbers work for a rental property. Apparently the property generally goes down in value as the time left on the lease runs out, because nobody knows if the lease will renew (I think the lease-or has the right to take the property back at that time?) or if the rent will increase substantially.

Most people told us to buy fee-simple, which is the usual situation where you own the land (or in the case of a condo, a tiny sliver of land).

Might be different in Palm Springs.

Catbert

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Re: Buying in Palm Spring...something called Land leases?
« Reply #2 on: March 19, 2018, 11:45:16 AM »
Yep, as others have said its common in Palm Springs but certainly not "most".  If she wants to avoid them, it can be done.  When we bought a condo there we specified to the Realtor that we didn't want leased land.  It was just a complexity we didn't want to figure out or deal with. 

Do your own research but IIRC the leases are actually negotiated with and approved by BIA or BLM (or some other Federal governmental entity).  While the leases are long term when they get close to expiring it is difficult/impossible to get a mortgage or sell.  On the good side, since the condo complex doesn't own the land the condo prices are lower and consequently property taxes. 
« Last Edit: March 19, 2018, 11:50:09 AM by Catbert »

Michael in ABQ

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Re: Buying in Palm Spring...something called Land leases?
« Reply #3 on: March 19, 2018, 11:54:23 AM »
I'm a real estate appraiser and I can tell you that once you get a ground lease (aka land lease) below about 30 years of remaining term banks start getting nervous. A long-term ground lease is 50+ years. Some go as long as 99 but that's generally the max in most of the world. The Guinness Brewery in Dublin is on something ridiculous like a 999-year lease.

The important thing to consider is how long is the remaining term, including any renewal options. If you buy a property with 25 years left when you go to sell it there might be just 10 or 15 years. How much would you pay for a property that you'll have to hand over to the ground lessor in 10-15 years? Or what about 5 years? A $200,000 property with 5 years left on the ground lease might end up being worth essentially what you could rent it for over the next 5 years, maybe a few tens of thousands.

Outside of Hawaii ground leases for residential real estate are pretty rare. If it's a new 50+ year term there will probably be minimal difference in value between a leasehold (aka property on a ground lease) and a fee simple (aka normal ownership rights in 99% of the country).