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Updated about 6 years ago, 10/31/2018
Why would developers build on leased land?
Why would developers build on leased land when you can build on land you actually own?
#2 Contractors Contributor
- Severna Park, MD
Location . I could build a Chick filet on leased land in a great location , or build one in a poor location that I own . Where am I going to make more money
why do people buy Condominiums? they do not own the building or land, just the right to change the inside, as @Matthew Paul is saying location and someone else owns it that does not want to sell and you will be improving their land with a building that they do not have to pay to have done.
Originally posted by @Patrick Liska:
why do people buy Condominiums? they do not own the building or land, just the right to change the inside, as @Matthew Paul is saying location and someone else owns it that does not want to sell and you will be improving their land with a building that they do not have to pay to have done.
But you do own the land with a condo. it's still owned fee simple in perpetuity. On leased land - the building may revert back to the owner after the term is over?
That is correct, it would revert back to the owner, that's what i was saying that the owner then gets an improved lot, but usually there is something worked out with the owner and the leaser. usually their is a long lease involved as well.
My uncles father purchased land all along what became the Main Street in the medium sized town of Fairfield California. Eventually he leased the lots to major corporations and local stores who built on his properties, he leased the land for 30 years. After the 30 years he owned the buildings placed on his lots. He started out life as a ditch digger and recently died with a net worth of 55 million dollars!
My father leased land to a gas station about 15-20 years ago. They paid for everything and he got a modest check every month from it. Then about...2 years ago that gas station decided to pull out because it wasnt making money. Now my dad gets a gas station that he didn't spend a dime on and the former company gets to leave "free and clear" and not have to bother trying to sell the property(with the potential for it to just sit empty and continued to drain money from them). Even though my dad got a free gas station now has to try and find someone to buy the gas station (or lease again but he chose to sell). It took him about 6-12 months for it to finally sell but it sold. It turned out the previous company had bad management and was paying over double in taxes than they should've been so once my dad figured that out and got it fixed it was easy to sell.
Its really is a win-win situation for most circumstances. As long as its a great location there usually isnt a problem for either side. Even if there is turn over at the end of a lease.
Originally posted by @Nik Moushon:
My father leased land to a gas station about 15-20 years ago. They paid for everything and he got a modest check every month from it. Then about...2 years ago that gas station decided to pull out because it wasnt making money. Now my dad gets a gas station that he didn't spend a dime on and the former company gets to leave "free and clear" and not have to bother trying to sell the property(with the potential for it to just sit empty and continued to drain money from them). Even though my dad got a free gas station now has to try and find someone to buy the gas station (or lease again but he chose to sell). It took him about 6-12 months for it to finally sell but it sold. It turned out the previous company had bad management and was paying over double in taxes than they should've been so once my dad figured that out and got it fixed it was easy to sell.
Its really is a win-win situation for most circumstances. As long as its a great location there usually isnt a problem for either side. Even if there is turn over at the end of a lease.
Great example!
Ground Leases are a low cost way for developers to gain rights to the land. It is less expensive in the short term than buying land. Typically lease terms are for 49 or 99 years.
Also, generally you cannot finance land acquisitions using conventional financing, so you can't leverage the purchase unless you really know what you are doing.