There is a common misconception regarding leasehold condos. I would like to try and clear it up.
Leasehold Definition: Land which is owned by the government or a landowner and then leased to a tenant for a fixed period of time. And if the condo complex is built on this land it becomes a leasehold condo.
Many people shy away from these because of the fear of the added costs involved with the lease. While there is an added cost with the lease payment, there is generally a lower condo cost because of this. We must weigh all the factors to see if there is real value here.
First, let’s determine how long someone usually holds on to real estate (you answer this question for yourself): 7, 10, 15 years.
I’m going to use the Maui West Side condo resort of Papakea for my example (but this will work for any Hawaii condo). This is a beutiful place that is always very popular for vacation rentals. It is leasehold. Several years ago the fee for the individual units was for sale at well over $100k. Some owners took advantage of this and bought the fee and therefore turned their particular condo into a fee simple. Great!! Or was it? Let’s look at the numbers for a minute.
Assuming you will keep your condo for 10 years:
- The lease fee right now for a 2 bedroom at Papakea is $125 per month. Let’s times that by 12 for a year and we get $1,500 for a year
- Your lease fee for the 10 year period would be $15,000
- The lease was available to purchase at over $100k
Those who purchased the leasehold have had to add it into the cost of their condo when they try to sell. So in this instance, I think you can see the advantage of purchasing a leasehold at $150k less than a fee simple and have a very good value.
This senario will be different with each condo complex on Maui and I am just using one. We have quite a few different ones here. West side, Maalaea, and there are a couple in Kihei.
If you would like more information on a certain complex, please call or email me for help.