Throughout the Coachella Valley, especially in the city of Palm Springs, hundreds of properties, including single family homes both detached and attached, condos, and other units, are situated on leased land. Many savvy cash buyers who have been willing to take a shorter term mortgage have purchased such properties, even those with a short term remaining, at a lower price, in hopes of strong appreciation in the near future. Why? Because the pool of potential buyers is limited by the difficulty in obtaining a 30-year term mortgage, by not knowing what the terms of the new lease will be, and by not knowing when the lease will be renewed. This uncertainty poses a disadvantage to the seller and creates doubts about finding a buyer for his property.
Location and property attributes (architecture, views, etc.) can make properties on leased land attractive to a buyer who is willing to explore such a purchase. The current lease terms will need to be reviewed, as well as any information that can be gathered about the legal ramifications if there is momentum to renew the lease. This is a purchase that involves much diligence- and, if the risks of the unknown are too great, the buyer may walk from a deal. On the other hand, if a buyer is confident that the neighborhood where the property is located will rise substantially in value in the short or long term once a lease is extended, then he or she may have made an incredible investment.
A buyer may see a neighborhood that would be $1m+ if the lease had an expiration date of 2067 based on surrounding sold comparable properties, but with an expiration date of 2042 the prices would be around $750,000. So the buyer knows that if the expiration is extended to 2067 the properties are arguably 25% more valuable in the current market and it appears there is a great deal to be had.
There are no guarantees, of course, regarding any aspects of real estate because of the number of factors that affect the market in a particular area as well as the market in general. Seeking legal assistance is encouraged in any transaction, and working with a real estate agent or broker who is knowledgeable about your area is vital in order to make a sound decision.
Contact us today with your budget and property requirements to receive a link of properties with current short lease terms.