Dear Dr. Per Cap:
My husband and I are planning to buy a house in the next year. I want to live off the reservation but my hub insists we’ll save money if we build on the rez. What’s your take?
Signed, Suzie Homebuyer
Dear Suzie
You ask a burning question that impacts many Native homebuyers. There are pros and cons to both options so let’s start with buying a home on the rez. Also, let’s clarify that usually when we speak of land on a reservation we’re talking about trust land and when we refer to land off a reservation we’re talking about fee simple land.
A major advantage to owning a home on trust land is the fact that you won’t owe property taxes like you will on fee land. This alone can save a homeowner thousands of dollars a year. Moreover, unlike a mortgage payment property taxes usually increase over time and they don’t go away even after a mortgage is paid off.
Most homes on trust land also cost less than comparably sized homes on fee land. One reason is because homeowners often don’t pay for trust land on which a home is built. Instead the land is inherited, gifted, or leased for a small amount. That’s rarely the case with fee land for which 25% of the purchase price of a home can go toward just the land itself.
There are other advantages to living on trust land. Some tribes provide services and programs at no cost to homeowners such as grading and paving for driveways, building infrastructure like water and power lines, and down payment assistance. Moreover in many states if you work a job based on the reservation where you reside, that income is exempt from state tax.
So owning a home on trust land can definitely save you money. However, if a person is looking at a home strictly as a financial investment owning on fee land is usually a better way to go. That’s because a house on fee land will usually appreciate or increase in value over time. One reason for this is an established market to buy and sell homes. On fee land you can sell a home to anyone willing to buy it, not just a tribal member. You can also borrow against the home by using it as collateral, something very difficult to do on trust land. Just bear in mind it might take time for your investment in a home to pan out.
Here’s an example. Back in the 1950’s my grandfather retired as a teacher at the Santa Fe Indian School. He and my grandmother bought a brand new house in Albuquerque, 1300 square feet with three bedrooms for get this – $5,000. Later my aunt inherited the home and sold it the early 2000’s for over $200,000. Yes, you read that right. Now I admit than even adjusting for inflation a typical home was much more affordable back when Elvis was singing Blue Suede Shoes than today but still – we just don’t see homes appreciate on trust land like they do on fee land.
But money is only part of your decision. Ultimately the question you and your husband must answer is “Where will we both be happiest?” The answer could depend on living near friends and relatives or participating in tribal gatherings, spiritual and cultural doings, and hometown basketball games. In short how much to do you value living in a tribal community vs a non-tribal community?
We moved from a tribal community and bought a house in the city about four years ago. For our family fee simple was the way to go, but there are those days when I miss running into family at the grocery store.
As Native people we all balance similar choices. Be wise while pursuing the dream of homeownership!
Ask Dr. Per Cap is a program funded by First Nations Development Institute with assistance from the FINRA Investor Education Foundation. For more information, visit www.firstnations.org. To send a question to Dr. Per Cap, email askdrpercap@firstnations.org.