There is a billboard at the back corner of the lot. The seller tells you it pays 400 dollars a month and has paid 400 dollars a month for eleven years, and he hands you a one page lease to prove it. On a house renting for 1,650 dollars, an extra 400 dollars of income is a quarter of the rent arriving for free. You price the deal accordingly.
Then the title commitment comes back with a recorded easement in favor of a company you have never heard of, the lender asks whether the site rent has been assigned, and the answer to that question turns out to be yes, in 2019, for a lump sum the seller already spent. You now own an encumbrance on your collateral and none of the income that was supposed to justify it.
Billboards, cell towers, rooftop antennas, and similar site leases are a small category that goes wrong in a specific and expensive way. The income is usually not counted. The encumbrance always is. Here is how a lender actually reads one.
A site lease is not ancillary income
It is worth separating two things that sound similar. Ancillary income is money a landlord collects from tenants for things beyond the unit: coin laundry, a parking space, a storage locker, pet rent. A lender’s treatment of that category is covered in whether a DSCR lender counts ancillary income, and the short answer is that it gets discounted heavily or ignored.
A site lease is a different animal. It is a long term grant of rights over part of your land to a party who is not your tenant and who is not renting housing. A billboard company leases a few hundred square feet and the air above it. A carrier leases a compound and a tower, or space on a roof, plus access and utility runs across the rest of the parcel. These agreements commonly run twenty to forty years with automatic renewals, and they are usually recorded, which is the part that matters.
So you have two distinct questions in front of you, and conflating them is how investors get surprised. First, will the lender count the rent. Usually no. Second, what does the recorded interest do to the lender’s lien and to the appraised value. That one is not optional and it has to be resolved before closing.
The recorded encumbrance is the real issue
A mortgage lender is taking a lien on the whole parcel. Anything recorded against that parcel ahead of the mortgage sits ahead of the lender in priority and survives a foreclosure. An easement or a recorded memorandum of lease for a billboard or a tower is exactly that kind of interest.
In practice the lender wants to know three things. What area does the interest cover, and does it touch the house, the driveway, the parking, or the yard a tenant uses. What rights does it grant beyond the footprint, which for towers routinely includes access across the lot, utility easements, and a prohibition on anything that obstructs the signal or the sign’s sight lines. And how long does it run.
That last right is the one that quietly does damage. A billboard lease often forbids the owner from erecting structures or planting trees that block the sign’s view from the road. A tower lease may restrict construction near the compound. Those restrictions reduce what you can ever do with the property, which is the same structural problem as a recorded affordability covenant, covered in what a lender does with a recorded covenant.
The closest relative on the collateral side is a severed mineral interest or a gas lease, where somebody else holds rights in your dirt. The analysis in a property with an oil and gas lease or severed mineral rights transfers almost directly.
The worked example: 1.54 on paper, 1.24 in the file
Put numbers on it. The house rents for 1,650 dollars a month. You are borrowing 150,000 dollars on a thirty year fixed at 7.25 percent, which is about 1,023 dollars of principal and interest. Taxes are 2,400 dollars a year, or 200 dollars a month. Insurance is 1,320 dollars a year, or 110 dollars a month. The housing payment is 1,023 plus 200 plus 110, or 1,333 dollars.
Count the billboard rent and your income is 1,650 plus 400, or 2,050 dollars. Coverage is 2,050 divided by 1,333, which is 1.54. That is a strong file and it would price well.
Exclude the billboard rent, which is what most residential programs will do, and coverage is 1,650 divided by 1,333, or 1.24. Still a pass on a 1.10 minimum, but a materially different file, and it will price differently.
The spread between 1.54 and 1.24 is the whole question. If your deal only works at 1.54, you do not have a deal, because you are relying on income the file will not recognize. If it works at 1.24 and the site rent is upside you keep for yourself, the billboard is a genuine bonus. Run both versions through the DSCR deal calculator before you commit, and if the denominator is unfamiliar, the walkthrough of how coverage is calculated shows where each line lands.
Why the lender discounts the site rent
Three reasons, and all of them are defensible.
The appraisal does not support it. A residential appraiser is producing a market rent opinion for a dwelling, comparing it to other dwellings. There is no comparable set for billboard rent on a residential parcel, so there is nothing in the report for the underwriter to verify the 400 dollars against. Income a lender cannot tie to the appraisal tends not to count, which is the same constraint behind rental income a lender cannot find in a bank statement.
The income is not housing income. Residential rental programs are built to lend against a dwelling producing residential rent. A commercial site lease is outside the box the guidelines were written for, and underwriters do not have discretion to widen it.
And the stream is less secure than it looks. Billboard leases are frequently terminable by the operator on short notice if the sign loses its permit, if a highway reconfiguration changes sight lines, or if the structure becomes nonconforming under a local sign ordinance. Carriers decommission sites when coverage gets consolidated. Eleven years of payment history is reassuring and it is not a guarantee of the twelfth.
If a lender does give partial credit, expect it to want the recorded lease, proof of payment into your account, and a vacancy factor applied. Treat credit as the exception.
The easement that was already sold
This is the trap that costs real money, and most investors have never heard of it.
There is an active market in buying out site leases. Specialist firms approach property owners and offer a lump sum, sometimes fifteen or twenty years of rent discounted, in exchange for an assignment of the lease and the rental stream, often structured as a perpetual easement. The owner takes the cash. The sign or the tower stays. The future rent belongs to somebody else, permanently.
If the seller did that, the property you are buying carries the encumbrance with none of the income. Worse, the seller may genuinely not remember the distinction, or may describe it as “the billboard lease” without mentioning that the lease was assigned. The one page document he hands you may be the original lease, which is no longer the operative instrument.
The only reliable check is the title work. A recorded assignment, a memorandum of easement, or an easement agreement in favor of a company that is not the sign operator is the tell. This is also why the legal description matters so much: an easement area carved out of your parcel can be described in a way that surprises you, which is the problem in when the legal description leaves out your garage. If the recorded documents contain errors, the cleanup path runs through corrective deeds and re recording.
Who owns the structure, and why that is a separate question
The sign, the tower, the equipment cabinets, and the generator are almost always the operator’s property, not yours, even though they are bolted to your land. The lease will say so, and it will usually give the operator a removal right at termination.
That matters for two practical reasons. The structure does not add to your collateral value, so do not let a seller price it into the purchase. And at termination you may be left with a concrete pad, buried conduit, and guy wire anchors rather than a clean lot, unless the lease obligates restoration. Read the removal and restoration clause specifically.
The ownership line between what conveys with the real estate and what is somebody else’s equipment is the same line investors get wrong on appliances, which is worked through in what actually conveys with the house. The closest parallel on the collateral side is leased rooftop equipment, where the panels on the roof belong to a third party under a recorded agreement, covered in solar panels and leased equipment.
On larger parcels the compound and the access drive also raise the excess land question, since a lender is valuing a dwelling and may not give value to acreage or outbuildings beyond it. That is the subject of acreage, excess land, and outbuildings.
Access, utilities, and the tenant’s quiet enjoyment
A tower site is not passive. Technicians arrive, sometimes at night, sometimes with trucks, and they have a contractual right to cross your property to get there. A billboard gets re skinned on a schedule and lit from dusk to dawn.
Ask where the access route runs and whether it crosses the yard, the driveway, or the parking your residential tenant uses. Ask whether the lease grants a utility easement, and where those lines sit. A shared or burdened driveway is its own category of problem, laid out in shared driveways, private roads, and access easements.
Then think about the tenant. Floodlight glare into a bedroom window, a maintenance crew at two in the morning, and a forty foot structure at the property line all affect what the unit rents for and how long tenants stay. The appraiser may well note it as external obsolescence and adjust the value down, which cuts your loan amount at the same time the lease is failing to add to your income.
That is the asymmetry to internalize. The encumbrance can reduce both the value and the achievable rent, while the income it generates is the one number the file ignores.
What to pull before you write the offer
Five documents, and all of them exist.
The recorded instrument, not the seller’s copy of the lease. Order the title search early and read what is actually of record. Any recorded assignment or easement in favor of a third party, which tells you whether the income still belongs to the property. The full lease including exhibits, since the restrictions live in the exhibits. Twelve months of deposit records showing the rent landing in the seller’s account, which is the only proof the stream is live. And the local sign or tower ordinance status, because a nonconforming structure can disappear.
Then underwrite the deal with the site income at zero. If it works, proceed and treat the rent as yours to enjoy. If it does not, you are buying an encumbrance and hoping, and that is not a position worth taking on a thirty year loan.
One more thing worth checking: whether the lender will require the site interest to be subordinated to the mortgage. Sometimes the operator will agree and sometimes the lease forbids it, and finding that out in week one rather than week five is the difference between a closing and a dead deal. The same ordering logic shows up in the carrying cost structures discussed in net leases and the DSCR a lender will actually use, and in the tax bill priority question in the first tax bill that breaks your DSCR.
If you have a property with a sign, a tower, or a rooftop lease under agreement, send us the title commitment and the lease and we will tell you how a lender is going to read it. Call 412-990-2941 if you are inside a contingency window.
FMC Capital is a Pittsburgh-based mortgage brokerage, NMLS #1840537. We place loans on rentals and flips across Pennsylvania and additional states. Lender treatment of site leases, income credit, and subordination requirements vary by program and are subject to change. Nothing here is a commitment to lend, and nothing here is legal advice. Have a qualified real estate attorney review any recorded easement or site lease before you close.