Freehold, Condo or Land Lease... Which is Right for You?

Posted by Melissa Barrett on Wednesday, March 21st, 2018 at 2:44pm.

You’ve been saving for your down payment, you’ve been looking online, and you’ve been thinking of your ‘must have’ list. The budget is set, and you’ve determined your prime location(s). Perhaps you’ve even begun looking at potential new homes! But there are a few questions still to consider when getting ready to buy your first home, or your second, third, or final home.

Have you thought about which type of purchase you’d like to make? Do you want a freehold property, a land lease, or a condo? Do you know the difference between the three? Here, we will break these down to help you determine which decision is right for you! The Jen Scholte Team is here to assist you in determining the best strategy for your move. 

What is a Freehold?

 

A freehold home and property is when the owner fully owns both the land and the structures on the property. There are no monthly maintenance fees and the owners do not have to answer to any governing boards with regards to changes/upgrades/improvements of their property of their home. With that being said, the owner is also responsible for 100% of the cost of any improvements or repairs to the property or structures, as well as regular maintenance and upkeep. These types of purchases are generally the most expensive of the three types we are discussing today, however, the owner will gain the best Return on Investment with a Freehold property. The down payment for financing required is generally more than condos, but less than land lease.

What is a Condo?

 

With a condo, the property is owned and managed by a Condo Corporation. All exterior amenities are considered common areas meaning you only own the interior of your unit. The exterior is typically maintained by the Condo Corporation’s property management team meaning no lawn care or snow removal for the owners! Condos are the easiest in terms of lifestyle and may be preferred by recreational property owners, people with busy lifestyles or elderly with limited mobility. Plus, there are typically some great amenities on site such as a pool, community room or fitness center, and so on depending on the Condo Corporation. As a condo owner you are able to represent your interests as a part of the condo board, where you can also get to know your neighbors and enjoy peace of mind. Condos are typically more affordable to purchase than freehold, but do come with maintenance fees associated which affect the cost of the condo itself – so budget your monthly finances accordingly. Depending on your preferences, you may enjoy the regulations or find them stifling.  There are often rules about what you can do with landscaping (if it is a ground level, or condo townhouse), what you can have on your balconies/decks, and how you decorate your exterior.  Financing for a condo will take into consideration both the value of the condo and the cost of the condominium fees when working through an approval. The carrying costs for a condo are an important aspect of condo purchasing.

What is a Land Lease?

 

Some buyers may be attracted to Land Leases because of their affordable purchase price. Land Lease is typically a fair bit lower in price in comparison to freehold homes, but buyers are required to do their due diligence when considering this type of purchase. With land lease properties, the buyer would be purchasing the structures only, and leasing the use of the land (likely from a land owning corporation, the government or a First Nations Band). Leases can be short as in 15-20 years or may last up to 99 years, which may be longer than any of us intends to own the home, however once that term runs out the owner can either choose NOT to renew the lease, or to renew at a perceived market value. How far along the lease is can also affect the listing price as well. If a property is close to the end of it’s lease term the home could be listed a fair bit less due to the impending uncertainty. This type of option may be attractive to long-term renters who do not have interest in the investment of real estate, or to retirees downsizing and aren’t worried about leaving a legacy property to their family members. However, there are additional factors when applying for financing to take into account when considering Land Leases. It may be difficult to get financing, a limited number of financial institutions will finance Land-lease properties.  Also, many lenders require a 30% down payment as they’re uncomfortable with the fact that the purchaser doesn’t actually own the land. Lastly the carrying cost of a land lease will be amortized out over a shorter period of time, perhaps over 15 years rather than 25 years for a freehold property. This may move you to choosing a property based on monthly affordability as well as ease.

Bringing it all Together

So when it comes down to it, which is right for you? Consider what’s important to you and your future home. Here are some questions to consider:

  • Do you want complete freedom and yet full responsibility?
  • Do you have a busy lifestyle, and wishing for maintenance-free living?
  • How much of a down payment can you afford?
  • What’s your monthly budget for housing expenses?
  • Do you want this purchase to be an investment in your future?
  • Have you received a pre-approval from a lender?

You may know right away which property type is right for you, or it may take some consideration. For a professional and informed opinion, contact a member of The Jen Scholte Team today to discuss further and make the choice that will have you loving where you live! 

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