Q. What is leasehold? A. These are properties where an owner (lessor) leases real estate to buyers (lessees) for specific time periods.
Q. Why would anybody buy leasehold? A. Hawaii leasehold properties are usually less expensive than comparable fee simple properties.
Q. What is fee simple? A. It's the type of ownership where a buyer purchases a property outright and has the right to use the property indefinitely. Of course the buyer must pay his/her mortgage, real estate taxes etc. to retain the right to the property.
Q. What do I need to know if I'm going to purchase Hawaii leasehold real estate? A. There are several things:
Is the lessor offering the fee simple interest? If so, what is the fee price?
What is the time period left on the lease? A property originally sold in the 1960's may be nearing the end of its lease term.
What's the monthly lease amount? When buying leasehold, the lessee (you) pays the lessor a monthly fee for the lease - similar to rent.
Lease renegotiation dates. When a property was initially built, for example a building constructed in the 1970's, the monthly lease rent may have been $25. Periodically, the lease terms can be renegotiated, based on market values. The lease rent for that same property today might be $250.
Q. What happens at the end of the lease? A. There are several possible outcomes. Two common situations are:
The property reverts to the lessor and the lessee (you) must move out.
The lessor sells the fee to the lessee and the lessee (you) become the fee simple owner of the property.
Q. Can I compare two leasehold properties based on price? A. If the two properties are in different buildings or neighborhoods, it will take some research. There are many lessors in Hawaii and each property can have a different lease term, monthly payment amount and fee purchase price (if the fee is offered).
Q. What about financing? A. Properties with short leases will be difficult to finance. For example, if you're looking at a property with 10 years left on the lease, the bank is not going to give you a 30 year mortgage. They might give you a 5 year mortgage, which means you'll have much higher monthly payments.
Q. What happens when a property's lease term nears its expiration? A. If the fee has not been offered, the property's market value decreases. Purchasers are more likely to be cash buyers. If the lessor suddenly decides to offer the fee, lessees may see their property values increase dramatically.
Q. How can I tell whether a property is leasehold or fee simple? A. There are a couple of ways leasehold is designated. When looking at a "customer short page" from the MLS, leasehold properties have one of these two designations at the upper right corner, next to the asking price: "LH - Leasehold" or "LH - Leasehold / FA".
The second designation, "LH - Leasehold / FA" means the lessor is willing to sell the fee simple interest.
Here's an example from the top of a "customer short page" for a leasehold property:
|ML#: 270358||Active||3/5/2005 LP: $350,000||LH - Leasehold|
|Addr: 53-053 Kamehameha Hwy|
|City: Hauula||HI||Zip: 96717|