Buying a house? Check the land title first

When people look at buying a house, they often focus on the house itself. Who can blame them?

Maybe there’s a gorgeous kitchen, or a double garage in which to live out your workshop dreams.

Except the house is a lot less important than the land under your feet. If you get the land title wrong, it can turn the sanctuary of your home into a nightmare.

There are lots of different types of title, but the four you’re most likely to come across are freehold, unit title, cross lease, or leasehold.

Freehold is what most people think of when buying a house. You own your land outright and are in control of what you do on it.

For the most part, all you need to worry about are council rules or easements.

The problem is that everyone wants the simpler solution; and what everyone wants becomes the most expensive option.

In unit title you own your own house and an equal share of common areas, like maybe a garden. You still own the land, but you have to share it.

You’ll need a body corporate to ensure everyone contributes their fair share for maintenance.

For leasehold, you might buy the building (likely an apartment), but the ground under the building belongs to someone else. So you’ll be paying ground rent.

The problems come when the ground rent is reviewed and increases, sometimes by a lot.

The pros and cons of leasehold are two sides of the same coin — not owning the land. When we talk about property going up in value, it’s not because of the house itself. it’s the land that’s worth more.

So you can get a bargain when buying, but you’re still paying for the land eventually, just not up front.

So you need to factor that into your costs — and check when the ground rent is being reviewed.

If it is due to change soon, that could be the reason the owner is selling. They don’t want to deal with a possible monster increase.

Cross lease is one that confuses people. Think of it as a combination of freehold and leasehold, but for a group of people.

The group buys the land outright and your house is leased to you from the group.

Again, this can create a bargain. But it’s another where you’ll want to carefully vet your neighbours first.

Any changes you make should be done with your neighbours’ agreement. But there have been cases of neighbours disregarding that, even demolishing their house to build a new monstrosity, blocking everyone else’s view. The only recourse then? Court action.

Then again, if you buy a freehold section, there’s nothing to stop neighbours blocking your view either.

Any of these can work, as long as you know what you’re getting into.

My first home was a unit title. It had another couple above us, who we needed to work with on things such as maintenance, insurance, painting.

It worked fine. But shortly after we sold up, our upstairs neighbours also put their house on the market. I guess they didn’t get along with the people we sold to.

- Frances Cook is the host of the personal finance podcast Cooking the Books. She is not a financial advisor, and all information is general in nature. For individual advice, see a financial advisor. Listen to her podcast on OneRoof.co.nz