What does “Leasehold” mean for Hawaii property?

Buying property in Hawaii can seem foreign and confusing – especially when you run across terms like “leasehold.”

Fee Simple vs Leasehold

Fee Simple

This is the “typical” type of ownership where the buyer owns the home and land in its entirety, and can sell or pass to another by will or inheritance. A fee simple title has a virtually indefinite duration. It is the most complete ownership interest one can have in real property.

Above is an example of where to find the leasehold status of a property disclosed on the www.hawaiilife.com website. 

Leasehold

Leasehold is a term you may never have heard before. A leasehold property owner does not own the land, but has the right to enjoy and use the land and structures/crops upon the land, for a fixed amount of time for an agreed upon price. As determined on the individual lease, at the termination of the lease period the buildings and fixtures on the land may revert back to the lessor (landowner), or they may become the personal property of the lessee.

Leasehold property values are typically 20% (or more) lower than a similar fee simple property. Thus, leasehold listings can appear at first glance to be a “great deal.” But remember – you don’t own the land, and there is no guarantee that you will be able to use it past the length of the lease agreement.

It is possible to obtain a mortgage to purchase a leasehold property, but keep in mind most lenders want to see a “5 year pad” in the leasehold agreement on top of the loan term. For example, with 20 years left on a lease, you can potentially secure a 15-year fixed mortgage to purchase the property, but not longer, because of the “5 year pad.”

For more information on Leasehold property, click here.