Fee Land Vs. Lease Land
What is Indian Lease Land?
In 1876, Pacific Railroad laid the tracks between Los Angeles and Yuma, Arizona. The U.S. government deeded the Agua Caliente 52,000 acres throughout the Coachella Valley (6,700 acres lay within the city of Palm Springs). The government gave the railroad a checkerboard of every square mile of land for 10 miles on either side of the railroad right-of-way. The Agua Caliente tribe got the non-Pacific Railroad owned squares. The city of Palm Springs is built on a "checkerboard" consisting of alternating Indian and non-Indian land.
Some of the most popular neighborhoods in Palm Springs are on Indian land. Over 23,000 residential properties are located on Indian lease land, which give the home owner specific rights to the property for the duration of the lease. Most Indian leases are administrated by the Bureau of Indian Affairs; a homeowner doesn't deal with the Indian owners directly, but instead usually with the appointed property management company or Bureau of Indian Affairs office. Not all "lease land" properties are governed by the Bureau of Indian Affairs; some lease land parcels are owned by private leaseholders, often referred to as "Business Leases" or "Developer Leases." Review your title reports on the specific properties to determine ownership and lease status.
For more information: A history of Indian Lease Land
Mortgages are typically available on lease land. Some leases do have minimal down payment requirements, term requirements and other specific conditions, however has been typically possible to get a loan on lease land in the past. Interests rates tend to be the same for Lease and Fee Simple land, but subject to the constant changes in the lending world. A lender may require the remaining term of the lease to be at least 5 years longer then the term of the loan. Not all lenders will lend on lease land. WE RECOMMEND CHOOSING A LOCAL LENDER THAT IS FAMILIAR WITH LEASE LAND. Contact The Paul Kaplan Group for more information on lenders that process lease loan applications.
The price of the lease can vary generally between $1400 and $8000 per year depending on the property, and subject to change; (some are higher, some lower). Some lease payments are paid annually; others are divided and paid monthly. Some leases have built in escalation clauses in the lease; other lease increases may be tied in with the Consumer Price Index. Read the individual lease for exact information regarding the term of the lease and any increases in lease fees.
Lease land typically consists of long term land leases. The length of the lease will vary. However each lease is unique and should be reviewed for the specific terms affecting a particular property. Historically, Indian Lease land properties have increased/decreased in value at the same rate as Fee Simple land (land that is not lease land), however property values are never guaranteed for lease land or fee land.
Lease Land vs. Fee Simple.
The primary difference between buying land and leasing it is obvious; lease land reduces the cost of a home compared to "Fee Land", land that you own. So, by owning on leased land, the homeowner gets the use of the land without the capital outlay - and may be able to afford a larger home for less money. Also, since no one actually owns a home until the loan is paid off, most so-called "land owners" don't really own their property for 30 years.
Prices are traditionally 15% to 20% less for comparable properties on fee land, but can vary. However, in recent years, in some neighborhoods, there hasn't been a big difference in pricing between fee land and lease land properties. If you want to live in certain neighborhoods in Palm Springs, often the only options are purchasing on leased land. The Paul Kaplan Group can help identify which properties are on lease land and which are on fee land.
Property taxes: We advise you to research the tax information with the Country of Riverside tax assessor. Note: There are current legal disputes with the owners of lease land concerning the ability of the Country to tax lease land. We advise anyone interested in purchasing a property on lease land, to do their due diligence to understand the pending litigation and how the outcome may affect ownership of the property.
Common question: Won't the value of my real estate climb faster if I own the land?
While many things determine resale values, recent comps for resales of homes on leased land have either risen or declined in similar proportions as other homes in the same areas. The condition in which you keep your home most likely has far more influence on its resale value than the fact it is or is not on lease land. When considering purchasing any property, we suggest buyers check comps for the specific neighborhood you are considering.
For additional information on lease land, please contact The Bureau of Indian Affairs TESA Branch in Palm Springs at 760-416-2133.
Presented in part as a courtesy of Financial Title Company. None of the above statements can be guaranteed. Before you enter a transaction on lease land, you should read and review all contracts, leases and information about the specific lease as all leases are unique and subject to changes. We recommend you consult with your accountant, attorney and tax advisor prior to making any real estate purchases on Lease OR Fee land.
The Paul Kaplan Group makes not guarantee or warranty to the accuracy of the above information, and does not provide legal, financial or accounting advice. The above information is a general summary. We strongly advise you to meet with the appropriate legal and financial professionals to discuss the details of your tax and legal issues associated with buying on Lease Land in the Palm Springs area.