Land for Rent: What You Need to Know When Deciding Whether You Should Rent or Buy

When many individuals or businesses are looking to move, most people focus on the structure – but many cities, towns, and rural areas have land for rent, which could be an even better option.

Sometimes known as a land lease, the rent is the payment made under the contract, the lease. These agreements are made between tenants and landlords, which allow the tenant to use the land for a set monthly price. The land is often vacant, and both parties can write the specific permitted uses into the agreement.

It’s important to consider the difference between renting and owning land and to look at the pros and cons for land for rent before entering into an agreement.

Owning Land

It can be very common to drive down the street and see “Land for Sale” signs. These are usually zoned for residential use if in a city and are undeveloped parcels. Many counties have undeveloped land that can be used to live “off the grid” or agricultural land with minimal restrictions. A few different things that buyers need to consider are:

  • Upfront costs: These could include the closing costs for the land, the down payment, and any fees. If you’re purchasing land in a homeowners’ association, there will most likely be HOA fees, as well.
  • Recurring costs: There will be certain payments required on a regular basis: property taxes, HOA or condominium fees, and land upgrades if you decide to build. This could include running electricity, water or sewer costs.
  • Sales costs: When and if you choose to sell the piece of property, there will be closing costs and other fees, including title transfers and more.

It’s important to consider what you want to accomplish when you start thinking about buying land.

  • Are you buying land to build for yourself? If you want to construct your own house, vacant land is readily available for residential use and there are millions of available acres in rural America. You’ll have many of the same fees listed above but will have the property in your name.
  • Are you purchasing residentially zoned land as a real estate investment? A growing segment of people is leaning toward land investing for the residual and passive income stream it can provide. When the land is vacant and undeveloped, the property tax and property insurance costs are low, and there are no monthly structure payments. This land can either be rented out for a regular, monthly price or sold.
  • Are you purchasing commercially zoned or farmland? These plots are usually rented out more frequently than residentially zoned parcels. While they have the same benefits as buying land that has been zoned residential, many have found a much higher availability of renters for these types of land.

Renting Land

There are three primary types of land lease agreements in the United States.

  • Residential

The vast majority of residential land leases in the United States are used for mobile homes. The homeowner purchases the mobile home structure, but must find their own property. Many times, the only option these consumers have is to find a site with open land; this is most often in a mobile home community, or trailer park, where they can “park” their trailers. These locations typically include water, electric and sewer hook-ups for the homeowners.

There are others who have space that they rent to owners of “tiny homes.” These living structures are about 100 to 400 square feet and are much more compact than the average American home, which often has at least 1,000 square feet. With a much smaller footprint, these homes take up a minimal amount of space and often need far less space than the minimum acreages required by some counties.

  • Commercial

Land for rent in the commercial real estate world is also known as a ground lease or land lease. A ground lease makes a differentiation between the ownership of the land and the ownership of the structures and improvements on the land.

Commercially, these tend to be much longer lease agreements, sometimes even reaching 50 to 99 years.

  • Farmland

Renting farmland is a very attractive option for many farmers who don’t own enough suitable land for their crops. There are many locations where farmable land is highly desired, and many individuals are searching for land that they can use for farming produce or care for livestock. In 2014, the U.S. Department of Agriculture found that producers rented and farmed 353.8 million acres of farmland. In addition, the department reported that non-farming landlords owned 80 percent of the acres and that almost 45 percent of all of the landlords had never farmed. It’s easy to see that many landowners and farmers alike view farmland for rent as a highly profitable real estate option.

Things to Consider When Looking for Land for Rent

Land for rent, or land leasing, has a few points that you should consider.

  • It’s typically harder to find someone willing to rent out land — especially in the residential realm when many individuals are seeking single-family properties. There is usually more rentable residential property options for someone looking to park or place a mobile home than to build a single-family home.
  • Land that is in a homeowners’ association may have additional, sometimes significant, fees attached to the property. It’s important to read and understand all of the possible contracts and paperwork that come along with renting land.
  • If you build — and own — the structure on the property, you will only build equity on the home.
  • There may be more obstacles when trying to sell a home that has been built on rented or leased land.

Advantages of Renting Land

Land leases and land rental agreements have many benefits for both tenants and landowners.

  • Renters have found creative ways to offset the cost of renting property, even when the payments are less than the cost ownership. Some can garden on their land, and save money on their family’s food costs by eating fresh produce and canning or freezing for the months when they aren’t able to grow as much.
  • Purchasing vacant, undeveloped land could cause owners to incur greater unanticipated costs to make the land usable for the intended purposes. For renters, land that has already been in use, or is in a mobile home park or homeowners’ association, may have already been connected to a sewer system, or may have a previously installed septic system. Developed property may also have electric and water connections, but undeveloped land may only have one or two of those needs. Purchasing this land will cause greater expense to the landowner; for a rental, though, the renter may be able to work with the landlord to bring the property up to the needed standards.
  • Many tenants have said that finding land to rent offers them something much greater than the pride of ownership — the freedom and flexibility that comes with not owning a piece of property. While much of the decision to pick and go will be contingent on the terms of their rental or lease agreements, they have much less invested in the property and fewer legal ties to the land. In addition to avoiding closing costs, they can leave without having the headache of selling and transferring ownership of the piece of land.
  • Renters don’t need to pay property taxes, which can allow for significant cost savings in some areas of the country.
  • Residential land rentals, whether they are used for standard single-family homes or mobile homes, are usually part of a homeowners’ association. As a result, the property renter can call on the association for some services and facilities.
  • A ground lease often allows tenants access to prime real estate locations that wouldn’t necessarily be available for purchase. Landowners can reap a longer-term benefit for land in desirable locations, and tenants, especially in commercial real estate, when retailers and restaurants can secure the perfect site for their venture.
  • Individuals and companies seeking land for rent have found that a land lease or rental allows them greater financial flexibility because they don’t need as much money upfront to complete a purchase.
  • Homeowners who choose to buy or build a house on rented property appreciate the lower mortgage costs that come along with only buying a house or structure. Whether they decide to invest in their capital improvement or other uses, the money is available. This available money gives many renters a faster turnaround when seeking to rent the property — instead of needing a significant down payment for a purchase, they can give a deposit, which is typically a much smaller amount.
  • Landowners like that a land lease gives them a consistent, steady stream of income, and long-term control over the rent increases. Agreements also typically include a clause that gives ownership of any capital improvements to the landowner.

Sources
Ground Lease Fundamentals in Commercial Real Estate: http://www.propertymetrics.com/blog/2014/08/04/ground-lease/

Most of the U.S. Rented Farmland is Owned by Non-Farmers:

https://www.agcensus.usda.gov/Newsroom/2015/08_31_2015.php

10 Rock-Solid Reasons Why You Should Be Investing in Land:

http://retipster.com/landinvesting/