Why Land Leasing Is The Best Option When Buying a Home

What Is a Land Lease?

Also known as ground lease, is an agreement between the lessor and the lessee to own the property but not the land it sits on.

Land lease is usually 50 to 99 years.It gives lessee the right to develop and use the land in exchange for rent payments.

The agreement typically contains all the acceptable uses of the land and  any improvements made on the land becomes the property of the lessor at the end of the lease incase it is not extended.

2 Types of Land Lease Agreements

      I.) Subordinate Land Lease
      II.) Insubordinate Land Lease

I.) Subordinate Land Lease

This is where the lessee has higher stake on the property and the land where it sits.Incase the lessee defaults on the mortgage payment, the lender can foreclosure both land and property.This puts the lessor's equity at risk.Rental rates are usually higher than of unsubordinate lease due to the associated risk.

II.) Unsubordinate Land Lease
 

This is where the property and the land are separate.The lessor has priority of claims on the land.This leasing type makes it difficult to obtain mortgage financing.

Advantages of Ground Lease

•Ground lease lets merchant tenants save huge money and spend it in other key areas necessary for their business growth.

•It requires less equity in acquiring a ground lease.

•More affordable than traditional options

•Lower property taxes

•Access to great locations without buying the land

•Can claim deductions on rent payments