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Buying a home on leased land comes with additional complexity and considerations compared to traditional home ownership. However, there are benefits that can make buying the house enticing, even if the land it’s on isn’t included in the purchase.
Let’s break down how the process works, the types of land leases, and the pros and cons of purchasing a home on leased land.
Common Types of Leased Land
The most common types of land lease properties are manufactured or mobile homes located in communities like trailer parks. Certain parts of the country have specific use cases for land lease properties such as:
- Co-op apartments in New York City
- Condos in Hawaii
- Land-lease agreements for homes built on Native-American reservation land
- Land-leased properties in high-cost areas like coastal cities
- Leased land retirement communities
Spotting Potential Leased Land Properties
It’s not always easy to tell when a house is located on leased land, but there are a few clues worth watching for:
- The term “manufactured home” is on the listing
- “Leasehold interest” is often used to describe a land lease agreement
- Higher-than-normal HOA fees
- The property price listed is considerably lower than the average price for the area
If you are interested in a home that you suspect is on leased land, be sure to ask for the details as early in the process as possible. If you plan to purchase the home with a mortgage, you’ll want to let your lender know that the house is on leased land.
Pros and Cons of Buying A Home On Leased Land
| Pros | Cons |
| Home is more affordable, because the land isn’t included in the price. | Risk losing ownership of home/updates in property if lease expires |
| Tend to offer better surroundings than apartments (yards, parks, etc.) | Harder to sell because lenders may be more reluctant to finance the purchase of one |
| Often include amenities like a pool, tennis or basketball courts | Don’t gain equity in anything other than the house, which could depreciate over time |
| Possibility at either no property tax costs, or very low property taxes | Cost of land lease agreement may go up with a lease renewal |
» MORE: See today’s refinance rates
How The Land Lease Process Works
A land lease agreement for a residential house means you own the building but rent the dirt it’s on. If you’re buying a home as part of a land lease, you’ll essentially be a homeowner and a renter.
Homes like these come with a lease agreement, where you’ll pay a monthly fee for your house to sit on the land. It’s also common to find these kinds of real estate deals in neighborhoods with homeowners’ associations (HOAs), meaning you could have one large payment that includes the land payment and HOA fee, or you’d pay both separately.
Length of Land Lease Agreement
Since the lease lays out who owns the land, the building, and who owns improvements made on the land, it’s important to know when it expires. If the lease’s remaining length is shorter than the time you plan to spend in that house, you need to find out what will happen to the property once that lease expires.
A shorter lease length also hurts financing options. Most lenders won’t give you a loan beyond the remaining lease term if it’s fewer than 30 years. Make sure to read over what’s called a “Surrender Clause.” It outlines what you will be entitled to if the lease expires and is not renewed. In extreme situations, a surrender clause could lead to you becoming a renter in the house you purchased.
Bottom Line
Buying a house in a leased land agreement offers some benefits, particularly the cost of the house itself. It may allow you to buy a much larger house than the traditional homebuying method. The major trade-off is financial security. However, since you don’t own the land, the lease agreement could limit how much wealth you can build.
Be sure to discuss all options with a licensed real estate agent and consult a lender who can walk you through the possible financing options or obstacles you could face in pursuing a home on leased land.