Types of Ownership February 18, 2024

Leasehold vs. Fee Simple | Honolulu Real Estate

Why are some properties in Hawaii so much more affordable than others? What’s the catch?

That oceanfront property for $100,000 is likely to be a leasehold.

Fee Simple vs. Leasehold

In Honolulu, fee simple ownership is the predominant form of property ownership, offering full ownership rights for an indefinite period. This means you have the freedom to pass it on to heirs or sell it at your discretion, potentially reaping profits from your investment.

Conversely, leasehold properties involve a unique arrangement where a third-party landowner retains ownership of the land, while the homeowner holds a lease for a specified duration. Alongside your mortgage, leasehold properties also come with a “lease-rent” payment, adding an additional financial consideration to factor into your budget. It’s important to note that leasehold properties often have shorter lease terms, which can impact their resale value and financing options.

The End of Leasehold: What Happens Next?

At the conclusion of the leasehold period, several scenarios may unfold. The property may revert back to the landowner, leaving the homeowner without ownership rights. Alternatively, the landowner may offer the homeowner the opportunity to purchase the fee in full, converting the property to fee simple ownership. Additionally, the landowner may choose to extend the lease, providing the homeowner with continued occupancy under leasehold terms.

Understanding the Financial Dynamics

When considering a leasehold property with a mortgage, it’s essential to ensure that the remaining lease term aligns with your financing needs. Many lenders require lease terms of at least 20 years (for a 15-year mortgage) to mitigate risk, making this a critical factor to consider in your decision-making process.

Unveiling the Price Disparity

You may have noticed that leasehold properties often boast lower price tags compared to fee simple properties. This price difference can be attributed to various factors, including the shorter lease terms and the perceived risk associated with leasehold ownership. While leasehold properties may offer an initial cost savings, it’s important to weigh this against the long-term implications, potential limitations, and monthly fees of leasehold ownership.

Partner with a Honolulu Real Estate Expert

Navigating the Honolulu real estate market requires insight, expertise, and a deep understanding of local nuances. Whether you’re relocating or PCSing to Hawaii, partnering with a knowledgeable real estate agent can make all the difference. I specialize in helping clients find their dream homes in paradise while ensuring a seamless buying process from start to finish.

Ready to Begin Your Honolulu Home Search?

If you’re ready to embark on your Honolulu real estate journey, don’t hesitate to reach out. Contact me today to schedule a consultation and take the first step towards finding your slice of paradise in Hawaii’s capital city.

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In the dynamic Honolulu real estate market, understanding the distinctions between leasehold and fee simple properties is essential for making informed decisions. While leasehold properties may offer initial cost savings, they come with unique considerations and potential limitations. As your trusted Honolulu real estate agent, I’m here to provide expert guidance and help you find the perfect property that aligns with your needs and preferences. Let’s work together to make your Hawaii dream a reality!