Lease Land vs Fee Simple Land
Please note: Every real estate transactions is unique. Before entering into any real estate transaction, please consult with your tax advisor, financial advisor and legal counsel. This information cannot be relied upon as legal or tax advice. It is provided for informational purposes only. We recommend using a LOCAL LENDER, who is familiar with the particularities of securing a mortgage for a property on leased land or fee simple land in the Coachella Valley.
What is Lease Land?
When you purchase property in the United States, it is usually “fee simple” (or, “fee land”). This means you own both the land and the property. In a few parts of the US, properties are purchased as “leased land,” which is a different type of ownership rights. It means that you own the structure and lease the land on which it stands for the duration of the long-term lease0. Leased land is common in many parts of the world and has been part of US property history since the 1800’s. Two types of lease land exist in the US: Indian lease land and corporate lease land. Corporate lease land less common in the Coachella Valley, therefore our discussion below focuses on Indian lease land.
Does Indian Lease Land Impact Property Value?
Indian lease land properties typically increase/decrease in value similarly as fee simple land properties.
Indian Lease Land History in the Coachella Valley
In the 1800s, the US government seized all the land in along the Pacific and Southwest. In 1876, the US government limited ownership ownership rights of the Agua Caliente Band of Indians to 52,000 acres of the Coachella Valley, 6,700 acres of which are in Palm Springs. The US government then deeded the Pacific Railroad title to “checkerboard parcels” of every other square mile of land (running east/west) for 10 miles (running north/south) on either side of the railroad right-of-way. Follow these links to learn more about the history of Indian lease land, and to see a map of Palm Springs Indian lease land.
In the Coachella Valley, over 23,000 residential properties are on Indian leased land. This means some of the best neighborhoods in Palm Springs are on land belonging to the Agua Caliente Band of Indians.
This means homeowners own the structure and also have rights to the land for the duration of the lease. All leases are long-term and are commonly negotiated and renewed years in advance of their expiration dates. Because every lease is different, each one must be reviewed for specific terms affecting the designated property. With a lease land transaction, it is critically important to consider lease owner, administrator, status and time remaining time on the lease.
Nearly all Indian land leases are administered by a third party. The Bureau of Indian Affairs administers the majority of Indian land leases. Most others are administered by an appointed property management company. This means that, with a few exceptions, homeowners and buyers do not deal directly with the Indian land owners. The land administrator bills and collects the land rent on an annual or monthly basis, according to the terms of the lease.
To learn more about Indian lease land, please contact the Bureau of Indian Affairs, Palm Springs Branch on 760.416.3289, or at their website: BIA Palm Springs.
Why buy Lease Land vs Fee Simple Land?
- Financial Benefits
Buying a home on Indian lease land is a great way to afford a more luxurious home with a smaller initial capital investment. Most homes on lease land cost 15%-30% less than those on fee simple land. This is because you’re buying the home (structure) but not the land. As a practical matter, the landowner cannot use the land once a structure is built. Therefore, by owning a property (structure) on leased land, the homeowner benefits from using the land without the capital expense of purchasing the land itself. Instead, the property (structure) owner pays rent for the land (as determined by the lease agreement and paid through the lease administrator).
At the taxation level, there’s another benefit: homeowners are typically taxed on the market value of the home, not the underlying land. Contact Riverside County tax assessor for tax information about a specific property.
- Appreciation and Resale Value
Historical data shows that the condition of the home (including internal and external maintenance and improvements) have far more influence on a property’s appreciation and resale value than the type of ownership.
It is just as easy to sell or bequeath your home on leased land as on fee simple land.
Mortgages on Lease Land
Mortgage interest rates for homes on leased land and fee simple land tend to be the same or quite similar. The mortgage process is usually more complicated for lease land because some leases have down payment requirements and other specific conditions. WE RECOMMEND USING A LOCAL LENDER WHO’S FAMILIAR WITH THE COMPLEXITIES OF LEASE LAND. Check out Resources – Lenders for some local lenders who process mortgages on lease land.
The information above is provided for general information purposes only and should not be relied upon as legal or tax advice. All Indian land leases are unique and it’s important to carefully review all contracts, leases and information about the specific property, structure and lease prior to entering into a transaction. Please consult with your financial advisor, tax advisor and legal counsel when considering and/or undertaking any purchase of lease land or fee land.