A land lease, also known as a ground lease, is an agreement in which a landowner rents out the land to a tenant. There are two main types of land leases: subordinated and unsubordinated. In a subordinated land lease, the landowner is at risk if the tenant defaults on the loan for their property. In an unsubordinated land lease, the landowner is not at risk if the tenant defaults on the loan for their property. Land leases are common for mobile homes and manufactured housing. They can be a cheaper route to homeownership, but there is always the potential for rent increases.

In a land lease situation, the homeowner owns the home but not the land it sits on. Land leases are much more common with commercial properties, but many residential real estate property owners also pay to lease the land their homes sit on. There are several types of residential leased-land properties, and the most common type varies by region. In Hawaii and Delaware, there are leasehold condos. In areas with Native American reservations, you may be able to purchase property on leased reservation land.

When you purchase a home as part of a land lease, you don’t own the land on which the house is built. The purchase price is usually reduced because you’re not buying the land. Saving on the cost of the land may allow you to buy a more expensive home. These homes are typically part of a homeowners association, which provides common services and facilities. However, finding a lender for a land lease can be problematic. In an HOA, residents may share in the cost of leasing the land, so you might have to pay significant fees as part of your lease. The cost of leasing the land can increase each time your lease is renewed. Unlike traditional homeowners, you’ll build equity only on your home, not the land. Selling a home on leased land may be difficult.