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Buying a Home in a Land Lease Community – 3 Things to Know

You and your spouse have worked for the last 30 years. The kids are grown and gone and now it’s time to downsize. You have decided to buy a retirement home in a warm-weather state, and you are attracted to land lease communities because of their amenities and typical home prices.

Land lease communities are extremely popular in states like Florida, Texas, and Arizona. Even Nevada has seen an increase in such communities in recent decades. They are one option for downsizing in retirement. Just be aware that buying in a land lease community is a bit different. It really pays to know what you are getting into before you make the move.

Below are three things to know about purchasing in a land lease community. Before getting to that however, a definition of terms is required. In a land lease community, you do not own the land on which your house sits. You lease it. As such, the homes are almost always manufactured homes.

1. Homeowners Have Special Rights

Although each state regulates land lease communities differently, most recognize that homeowners are in a rather unique position. They cannot just pick up their homes and leave if they are dissatisfied with their communities. As such, the states have created special rights for land lease tenants to protect them against predatory landlords.

It is important to be familiar with the land lease rules in the state you are intending to move to. The idea here is to thoroughly understand the relationship between landowner and homeowner prior to buying. If that relationship is not one you can live with, do not buy in that state.

2. You Will Still Pay Property Taxes

If you were to buy a conventional home, you would pay local property taxes. That goes without saying. But according to the CityHome Collective real estate brokerage in Salt Lake City, land lease tenants also pay property taxes. They just do it differently.

The bulk of the property taxes are included in monthly rental payments. However, pass-through taxes are generally paid annually, as separate payments altogether. What are pass-through taxes? They are local taxes to pay for things like fire service, trash hauling, etc.

Pass-through taxes will vary by community just as standard property taxes do. The one thing to remember is that buying in a land lease community doesn’t eliminate property taxes. You still pay them one way or another.

3. Two Ways to Determine Rents

Finally, the land lease community generally sets rental rates based on one of two formulas. The first is market value. The second is consumer price index. The prospectus that comes with a home generally determines how rent is calculated.

The market value model is nearly identical to how rental rates are set for standard apartments and rental homes. Whatever the going rate is for that particular year is what you pay. The landowner re-evaluates the rate every year in order to adjust your lease accordingly.

Under the CPI model, you pay the market value for your first year. Annual increases are based on the consumer price index (CPI). In other words, your annual rate increases are based on the rate of inflation. If inflation ticks up 3%, your rent will be 3% higher the following year.

Buying a retirement home in a land lease community has its advantages and disadvantages. Do your homework before you buy. As long as you know what you are getting into and you’re happy with it, you might find that your new community is perfect for you.

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