Land Lease Value

We wanted to share with you a quick rule of thumb we use to figure out land lease value. Typically we take 10% of the total land value to find the annual rent. From there, if need be we deduct the percentage of what the Tenant actually uses, which will give you the annual rental amount for their portion, then divide by 12 to get the monthly.

For example, if your land totals 1.8 acres and is valued at roughly $400,000 and the Tenant is using around 50% of the land; 10% of $200,000 = $20,000 (annual rent) / 12 months = $1,666/month. You also have to take in consideration if the land does not have any frontage and if it is in a relatively obsolete part of the property. I would say asking for $2,000/month wouldn’t be unreasonable, however it may be easier to sell it to them as an annual escalating rent, for example increasing $150/month annually but topping out at $3,000/month or some other agreed upon number.

Depending on how much leverage you have on them as a Tenant, and how successful they are at that location you could maybe take advantage of the situation, but at the same time if they have a back-up option at their disposal, it would be a shame to lose their income generation.