Land Lease vs Land Fee
Palm Springs Real Estate
A history of Palm Springs leasehold properties
Things to consider before purchasing a leasehold home in Palm Springs
Approximate costs of a leasehold home for sale in Palm Springs
What is a land fee home in Palm Springs?
The Origins of Palm Springs Land Leases
When the Pacific railroad first started laying the tracks between LA and Yuma in 1876, the United States government gave deeded ownership to the Agua Caliente Band. That deeded land spans 52,000 acres of the Coachella Valley, 6,700 of which is in Palm Springs. As when it was originally parceled out, the Agua Caliente land and private land is broken up into a checkerboard-like pattern that spans one-in-ten square miles either side of the railroad.
The thought of owning leased land tends to strike many potential home hunters in Palm Springs with fear.
But, it shouldn’t.
Some of the top neighborhoods and real estate in Palm Springs are situated on Agua Caliente land. In fact, there are over 20,000 residential properties on leased land in Palm Springs. Each lease is a little different, providing each home owner with a specific set of rights, and allowable uses for the property, for the duration of the lease. Home owners and prospective home owners in Palm Springs don’t have to worry about dealing directly with the band either, most land leases in Palm Springs are administrated and managed by the Bureau of Indian Affairs or a property management company that was appointed by the band. There are some exceptions to that rule though.
Some land leases in Palm Springs and the Coachella Valley are owned by private leaseholders, these are generally known as business leases or developer leases.
If you’re concerned about a property’s lease status, review the title reports to determine the lease status, the remaining time left, and who owns the Palm Springs land.
Contrary to popular belief, leased land in Palm Springs appreciates at exactly the same rate as traditional land fee properties. In fact, other factors—such as how well you maintain your home—are said to have a greater effect on your home’s resale value than whether or not you own the land your home sits on.
One of the most common questions that I am asked about leased land in Palm Springs is;
“what happens when the lease runs out?”
Well, if you have renegotiated a new lease with the land owner, you could always renegotiate a new lease upon completion of the last one, you might also make an offer to purchase the land from the current owner. Although the latter is a bit of a long shot, land owners have been known to take market-rate offers to purchase the property.
Consider these before purchasing a leasehold home in Palm Springs
Mortgages –I highly recommend that you contact a local Palm Springs mortgage lender when searching for a leased land mortgage. This is because Palm Springs’ lenders have local knowledge of leased land and won’t be spooked at the first gate when processing your mortgage. That being said, mortgages are quite common for leased land in Palm Springs. You should be aware though that not all leases were created equal, and some have minimum amounts that you can put for a down payment, as well as other property-specific conditions.
The length of time on lease– Typically, land leases and homes for sale in Palm Springs are for a long term lease. Although these leases are often for 99 years at a time, you should check to see the age of the lease, and how many years are remaining on the lease. After all, you don’t want to purchase a perfect vacation home in Palm Springs only to find out that you’ll be responsible for moving it in less than five years’ time.
Of course, hiring a real estate specialist in Palm Springs is a must to help you navigate the complex requirements of the Coachella Valley’s real estate market.
Annual Costs –On average, Leased land in Palm Springs is 15-20% cheaper than property that is owned by you. That cheaper up front cost does come with some additional costs over the years, however.
Annual lease prices can vary between as low at $1,500, up to more than $7,000 per year. These annual costs can also fluctuate. Some of the common features of leases in Palm Springs include:
- Prices fluctuating on the Consumer Price Index
- Escalating fees as the lease matures
- Lease fees to be paid monthly, quarterly, or annually
On top of these annual lease costs, you should factor in property taxes, any HOA fees, and utilities. Average costs for these are:
- Property taxes: 1-2% of the assessed value
- Utilities: $3 - $6 per day depending on the size of the house
- Insurance and HOA fees: Various
- Cost of living expenses: Dependent upon your lifestyle
What is a land fee home in Palm Springs?
Quite simply, a land fee home is a home where you own the land and the structure that is on it.
In Palm Springs and Cathedral City, these freehold properties can be up to 20% more expensive than a leasehold property. Unlike the leasehold properties though, you are free to use the land as you wish, in keeping with city ordinances, and you will likely have a lot less annual costs that are common with land leased properties.
If you need help navigating the complexities of the Palm Springs real estate market, contact me today.