Hawaii leasehold residential property
Definition of Leasehold Property
Leaseholds are properties where an owner (lessor) leases real estate to buyers (lessees) for specific time periods. The lessee is permitted to occupy the property for the lease period and pays lease rent. The lessee is also responsible for paying the property taxes.
Definition of Fee Simple Property
Fee Simple is the type of ownership where a buyer purchases a property outright and has the right to use the property indefinitely. If the buyer pays the mortgage, real property taxes and association/maintenance fees to stay in good standing, the property will likely be his or hers to use until a decision is made to sell the property.
Why People Buy Leasehold
Hawaii leasehold properties are usually less expensive than comparable fee simple properties. Almost every buyer prefers fee simple, however not everyone can afford to buy in fee.
Some people buy an inexpensive leasehold property and occupy it until the end of the lease term. This can effectively fix the buyer's housing costs for the remainder of the lease as a hedge against rising housing costs.
Others will buy leasehold properties when the fee is not currently available and hope that negotiations will be worked out to offer the fee for a reasonable price. When this happens, lessees often see their property value increase significantly over several years after it becomes fee simple.
What to Know when Buying Leasehold property in Hawaii
Check the time period remaining on the lease. Leases that started 50 years ago may be nearing the end of their lease terms. Leasehold property prices generally decline as their lease terms approach expiration. If you see a condo on the market for $25,000, it may have just a few years left on the lease
If you anticipate needing a loan for the purchase, check with your lender to see if they will make a loan on the property. Mortgage companies usually require that the lease be at least five years longer than the loan. For example, to get a 30 year mortgage on a leasehold property, the lender would want to see at least 35 years remaining on the lease term.
Find out if the lessor offering the fee simple interest. If the fee is available, what's the price?
Monthly lease rent. Find out how much it will cost per month.
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.
Expiration of the Lease
There are a few possible outcomes. Two common situations are:
The property reverts to the lessor. The lessee must surrender the property and move out.
The lessor sells the fee to the lessee and the lessee become the fee simple owner of the property.
Comparing Leasehold Properties
It is very difficult to compare leasehold properties, unless they are two condos in the same building or two land parcels of similar size and lease terms. There are many lessors in Hawaii and each property can have a different lease term, monthly lease rent and fee purchase price (if the fee is offered).
When viewing properties on Hawaii real estate websites, if you see a property with a price thats a lot lower than all the others, it could be leasehold.
Determining whether a property is Fee Simple or Leasehold
There are two ways leasehold is designated. When looking at a "Customer Full 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.
Fee simple properties are designated "FS - Fee Simple" next to the price on a "Customer Full Page".