What you need to know about getting a land lease home
Land lease homes aren’t for everyone. After all, not many people want to buy a house without owning the land. A land lease home in Canada definitely has benefits over traditional housing, though. In some parts of the country, owning land is prohibitively expensive. In others the best land is owned by people who have leased it to entire neighborhoods. In both situations, purchasing a home with a land lease could make sense, both financially and for your perfect lifestyle.
The basics of getting a land lease
Buyers seek out land lease homes for the benefit of having a lower price. The trade-off to saving money is that there is constant uncertainty surrounding your property. A land lease home in Canada is usually on a piece of land with a 50- or 99-year leases (also called emphyteutic leases in Québec). As time goes on and the leases come close to expiring, property values can fall for the following reasons:
- There’s no way to know if the landowner will renew the lease
- If the lease is renewed, there’s a chance that the increase in land rent could be significant
- The landowner can demand that rent be pre-paid for the life of the lease, causing huge financial stress for buyers
When it comes time to sell a land lease home, homeowners might find it tricky to get a good price. Again, property values on land lease homes decrease over time as the years left on a land lease dwindle. Since buyers only build equity in the houses and not the land, they can find themselves in situations where homes are priced much lower than expected or hoped.
Land lease homes spend longer on the market because of their uncertain nature. Buyers looking to purchase a land lease home might also have difficulty finding a lender. With only the house as security for a mortgage and the longer selling time, lenders consider the risk higher – and a higher risk for lenders means a larger down payment and potentially higher interest rate for buyers.
When purchasing a land lease home, it is essential to use a real estate agent who is experienced in land lease homes. Your real estate agent will know what to look for and can answer any questions you have. Using a lawyer and lender who have experience with land lease homes in Canada is also a great idea. Don’t forget about the homeowners insurance, either.
You’ll need to make sure the structure is protected, even though you don’t own the land it sits on.
If you’ve got your heart set on certain high value or protected pieces of land, land lease homes are the only way to go. In Canada, most land leases are held by First Nations, governments, or universities. Land lease homes can be a great way to save money on the cost of a home – even once land rents are factored in. In a worst case scenario, homeowners find themselves in a situation where they have to move their homes or sell them to the landlord when the lease expires. In a better scenario, homeowners live in their land lease homes and are only subject to small yearly rent increases.