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What Are Land Leases & How Do They Work?

Finding the right house in Santa Clarita can be immensely difficult, particularly for first-time buyers. As more and more of the millennial generation grows up and starts to enter the market looking for their first home, the competition for units that are low on cost but high on value gets even tougher. However, if you’ve taken a look through the listings, you may have been shocked to see a few strange ones that stick out: larger homes in beautiful neighborhoods seemingly selling for significantly lower cost than anything else out there.

Why is that the case? Well, the most likely explanation in the absence of something major being clearly wrong with the home is that the home is actually a land-lease agreement. These aren’t an immensely common arrangement, but it’s important to know what they are when considering buying one of these properties.

How a Land Lease Works

When you buy a normal home on a conventional loan and contract, you’re actually buying two things: the home itself, and the land that your home is built on. This gives you full and total control over your home, including the ability to make changes like extending the floorplan of your home or making certain changes.

In a land-lease agreement, you are only buying the home itself, not the land that the home is built on. There are some benefits to this, but there are also some significant disadvantages as well. On the positive side, not owning the land absolves you from a lot of landowner responsibilities, including property taxes. This could save you hundreds or even thousands of dollars per year on your tax liability. Likewise, those in a land-lease agreement don’t usually have to pay for the cost of any major utility services or breakdowns, since they’re not actually part of your home.

However, there are downsides. A land-lease is, as the name implies, an agreement where you lease the land, and that means making a monthly payment to the landowner. These payments can be anywhere in the realm of several hundred dollars to a thousand dollars or more, which is a huge extra expense to have to take on in addition to paying the cost of your home. Add in a homeowner’s association fee, and you have an agreement that really doesn’t save you as much money on your monthly housing expenses.

The other big downside to these agreements is that they’re usually limited to two types of homes: mobile homes and manufactured homes. While both of these types of homes are perfectly acceptable for some people, they’re not everyone’s cup of tea, and they also generally don’t hold their value as much as traditional single-family homes do.

When is a Land Lease Right for You?

Why should you choose a land-lease? Well, for starters they do often give you more for your money in terms of life quality, even if they don’t hold as much as an investment. Generally, you can find a land-lease manufactured home in the Canyon Country area for as low as around $150,000, and sometimes mobile homes for less than $100,000. For those who are on a tight budget, that’s an even more attractive number than even those for smaller condos or townhomes. And some of those places aren’t exactly small either: some have full garages and cover 1,400 square feet of space and have a yard!

However, first-time buyers should beware before entering a land-lease deal. A land-lease is going to gain equity nearly as fast as a traditional contract or even a low down-payment program with a higher interest rate. When it comes time to get off your land lease agreement and sell your home, you might find that selling your place is more difficult than you might have thought.

Get help finding your first home by working with an experienced Santa Clarita realtor! Call Dippy at (661) 441-3304 today.