Lease Purchase
Lease Land And Manufacture Homes
By Buyincomeproperties.com
Jan 31, 2006, 09:18

There are three options for people to manufacture their homes. Most people choose to lease land while some people have no choice but to purchase land first. For people in some other areas, either way will do.

The most common situation people encounter is leased land and manufactured homes. As a form of real estate, any manufactured house will depreciate, so it seems to be much wiser for people to purchase the land, which will appreciate instead. However, this could only be considered plausible in a very long term, say one hundred years or so. The real wise option for people to choose is to lease the land, which will benefit them a lot in five or ten years. 

Here is a scenario that help us to think twice before decide to purchase the land: In the year 1975, Mr. Johnson bought a mobile home park which has a life span of 25 years. In the year 2000, no body is going to buy a lot in the twenty-five year old mobile home park. However, there is a guy Jerry who decided to buy it. He thought he can wait until everybody in the development of the mobile park vote to knock down it and turn it into a brand new hospital which would have greater value. Do you think Jerry is a little crazy? Can he wait that long? 

What we learn from this hypothetic case is that it would be better for people to buy the depreciating property on a leased lot. The concept of ¡°real estate investment¡± has long been misunderstood by many people. We should make clear that buying manufactured house is not a investment but only a transaction. There is no difference between buying a refrigerator and buying a house. A manufactured house will serve people for a long time as a refrigerator. People could be better off if they set aside their money for other items that will appreciate some time.

It is obvious that there are several advantages of leasing. First of all, buying a house on a purchased lot will face the risk of depreciation and no buyer in the near future, which will never happen to people who lease the land and simply sell the house for salvage value. Second, people have to pay for their ownership. The cost of maintenance and management will cost a lot of money especially when the house was built in low quality. After all, moral hazard exists every where. What is worse, when selling the condominium and the lot in a subdivision, a bad developer manipulates the number of the cost of maintenance, the huge amount of legal fare will drag a family into insolvency, not to mention the unknown odds of win in the lawsuit. On the contrary, people deserve the best service if they are paying rent. They expect to have their broken window be replaced at the first time, their clogged sink be repaired immediately. If people could be contented with their living environment, they could simply withhold the payment until problems are entirely solved. 

According to the above advantages, my suggestion to people is to lease the land. This does not mean they can sign the contracts and walk into their new house without concerning with anything. Instead, there are three issues I need to put up in the article and ask people to pay attention to. 

Beware of the term of a lease 

If people overlook the term of a lease, the state law cannot prevent this from happening: The second day right after the tenant¡¯s death, his child may be force to pull down their house and leave the land in a month. Otherwise, heritors could be asked to pay a much greater rent even if they don¡¯t want to. Though sounds ridiculous, this scenario may actually happens to people who sign up a lifetime leases. 

Thus, people should be assured that the term of their lease is long enough so that in the case of their demise, their lease could still be carried by their heritors. 

Moreover, people can only be protected by a land lease with all rights assigned to the user. If the land developers reserve the rights of adjust the rent he ask for, people will run into the troubles when they are going to sell the house. The more the developers raise the rent, the less can the house owner bids. 

When negotiating with land developers, it is better for people to assume the land and manufactured house are depreciable property. The land developers can raise the rent because the land may appreciate, however, the house people purchased will inevitably depreciate over time. The assumption of depreciating value will become the upper hand for people who lease the land. 

If the above suggestion cannot work out, at least people could ask a fair way for the both part to calculate the market rent. People could consult their attorney about the local price index tied to the cost of leased land. After all, the land developers can not make up the rental price liberally. 

In sum, to better protect themselves from financial lost, people should go into the purchase with the absolute right of inheriting and using for quite a long time. 

A land developer can only ask for reasonable rent increase 

The first issue I need to remind people is that usually no law can protect the consumer rights when people face the increase of their land rent, so it should carefully and clearly stated the interval and percentage of rent increases in the lease contract. Economists suggest that it would be fair if the rate of rent cost increase is in proportion to the inflation rate. It would be the best way for people to tie the National CPI index to the lease increases. For example, if your monthly payment is $5000.00 and the inflation rate is 2%, then after the annual lease increase, you have to pay $5010.00 a month. Given the adjustment in your social security, you will lose nothing. 

In addition, agreeing on general formulas to calculate the rent increases is the best solution to the problem of finding out the true cost of maintenance. It would be unfair for the people to pay for the money wasted by rash manager. Actually no one knows the real cost of maintaining the property, because it differs from different level of management. 

Avoid misunderstanding 

When people sign the contract called Lease/Maintenance Agreement, they usually overlook that their monthly rent payment is actually made up of two portions: maintenance portion and lease portion. Making sure that which part of their money will go toward the maintenance because the land developer cannot be controlled and they have no incentive to minimize the costs. In this way, the portion of maintenance can become the origin of rent increase

Aside from the lease payment and the maintenance payment, another portion of the rent is the costs of insurance, taxes, etc. People are seldom told and explained by their agency that leasing land will occur these additional costs.