Alabama Power, a division of Southern Company, is utility company with a huge influence on the waterfront real estate market on Lake Martin, Alabama.
First of all, they built Martin Dam in 1926, thereby damming the Tallapoosa River and creating Lake Martin in the first place. For my post about our tour of Martin Dam, click here.
In the process of building it, they bought up all of the land under, and most of the land around the eventual shoreline. Along with developer Russell Lands, Alabama Power owns pretty much every inch of undeveloped land around the lake. Area experts estimate that of the 770 miles of shoreline of Lake Martin, 70% remains undeveloped.
Over the years, Alabama Power has sold off residential lots. But a big part of their influence remains as holders of lot leases. This is where the homeowner owns the house, improvements, etc., but Alabama Power still owns the dirt and they lease it to the home owner.
Since about 2007, I have written a couple of posts on this subject. To get a basic understanding of how leased lots work on Lake Martin, please read them. Please keep in mind, they are old and about to be sort of outdated by what I say below, but please see:
Since I have written the above, Alabama Power has made a huge change in the lease program. If you really dug into the old leases, you would find that they used to read that they were for five years, with five automatic renewals at five years each. The way you renewed it was to pay the first month’s payment. So, it was five years plus 25 years of renewals, that’s how they figured they were giving you a 30 year lease. It made sense to them, but caused most loan underwriters fits. Well, I should rephrase that. Before 2008, lenders didn’t give a hoot. Back then they had only two requirements for lake lending: mirror and water. If you could fog a mirror, and if the land was touching water, they pushed money at you.
After the real estate meltdown in 2008, the pendulum swung to the other extreme. When underwriters on leased lot home loans read the automatic renewal clause, most freaked out. They would not give 30 year fixed rate loans on what they viewed as five year property. Most wouldn’t even offer an ARM loan. That left you only with a couple of local banks as financing choices.
All this is now moot!
Somewhere around March of 2012, Alabama Power changed the lease terms for their residential land leases on Lake Martin. Now they are 35 year fixed term leases, meaning, the lease starts in (for example) Jan 1, 2012, and ends December 31, 2047. This allows you to get 30 year fixed rate financing. I think this development could really revolutionize the way people view leased lots.
Over the years I have been blessed to sell a lot of waterfront leased lot homes on Lake Martin, and for every one I have sold I have talked to probably 50 buyers about the leased lot process on Lake Martin. It’s a hyperlocal concept, to be sure, and when buyers have reservations, it’s usually about the lease terms. Many times, even when they get past the concept and go to finance the purchase and want to use their hometown lender, that is where the deal would crash. Hometown lender would be unfamiliar with Alabama Power lot leases, would freak out about the renewals, and the deal would die.
Now, with Alabama Power offering to have a 35 year lease, I predict a tremendous influx of other lenders who can finance them. Like any other type of real estate, once the financing options open up, it makes them easier to buy. When things are more liquid, they gain in value. I think over the long term, say the next five years, you will see a gain in leased lot homes’ worth on Lake Martin. It’s a great move by Alabama Power, and I heartily applaud it.
Are you interested in buying a leased lot waterfront home on Lake Martin? I would be glad to help you out, and explain what to look for so that you get the most for your money.
Or do you own a leased lot home right now, and are wondering how this new policy might affect your home’s value? Click here to request a no obligation CMA, or call me at 334 221 5862.