What Is Lease Land – A Simple Explanation
Some of the best neighborhoods in the Coachella Valley (about 1/2 of Palm Springs specifically) are on Indian land. Over 23,000 residential properties are located on Indian lease land, which give the home owner the right to the property for the duration of the lease. Most Indian leases are administrated by the Bureau of Indian Affairs; a homeowner doesn’t deal with the Indian owners directly, but instead usually with the appointed property management company or Bureau of Indian Affairs office. Mortgages are available on lease land. Some leases do have minimal down-payment requirements and other specific conditions, however it is possible to get a loan on lease land. Interests rates tend to be the same for Lease and Fee Simple land.
However, WE RECOMMEND GOING WITH A LOCAL LENDER FAMILIAR WITH LEASE LAND. (Contact us for more information on lenders that process lease loan applications.) The price of the lease varies generally between $1,400 and $6,000 per year depending on the property. Some lease payments are paid annually; others are divided and paid monthly. Lease land typically consists of long term land leases that are commonly renewed well in advance of their expiration dates. However each lease is unique and should be reviewed for the specific terms affecting a particular property.
Typically, Indian Lease land properties have increased/decreased in value at the same rate as Fee Simple land (land that is not lease land). 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 less 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. Prices are traditionally 15% to 20% less for comparable properties on fee land. Due to the price, the amount of the property taxes on lease land are less than fee land as you are typically only paying taxes based on the purchase price of the structure, not the land. This is not guaranteed, however. For more information, you can research the tax information with the Country of Riverside tax assessor.
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.
What 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: Will they really want a 65 year old home when the average life of most California residences is estimated at less then 50 years? 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? 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?
What happens at the end of the lease?
Since 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 likely, 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, could continue to increase. Today building on lease land is no longer an advantage reserved for business and investment buyers. Now, it is something any home buyer can enjoy.
If you would like to learn more about the Indian lease land, please contact the bureau of Indian Affairs, TESA Branch in Palm Springs at (760) 416 3289, presented courtesy of Financial Title Company. None of the above statements can be guaranteed. Before you get into a transaction on Indian lease land, you should read and review all contracts, leases and information about the specific lease as all leases are unique. We recommend you consult with your accountant, attorney and tax advisor prior to making any purchases on Lease OR Fee land.
Downloadable PDF: Lease_land_explained.pdf