Lease-hold (LH) ownership of real estate vs. fee-simple (FS) ownership of real estate in Hawaii.
If you are browsing Hawaii real estate for the first time…you may notice that there are some AMAZING properties listed way cheaper than seems reasonable. You’re probably thinking to yourself whether that unreal price is tied to some type of scam even.
Why use a pool when your condo at the Kahala Beach is just a stone throw away from the ocean?!
So, what’s the catch? This is for “lease-hold” (LH) ownership, as opposed to theÂ “fee-simple” (FS)Â ownership people are already familiar with. FS ownership is the most complete, absolute ownership of the land, and any improvements on it while LH ownership is created by a FS owner (lessor) entering into a ground lease with a LH purchaser (lessee).
The lessee pays the lessor a monthly lease rent for use of the land, and does not actually own the land, just the rights to use it exclusively, or freely transfer ownership (sell or give away) for the remaining years of the lease. A ground lease will usually have a clause in it providing that any improvements such as a home or building will be surrendered to the FS land owner upon expiration of the lease.
When purchasing leasehold property, a buyer would be responsible for:Â property taxes, maintenance fees, and a monthly lease-rent (currently a combined $3,486 per month on the above listing) on top of a mortgage, if financed. There are instances where a leasehold property can be a great deal depending on the terms of the purchase, but it’s important to factor in all the variables when budgeting and predicting cash flow.
Lessors may offer a “fee conversion,” or sale of their leased fee interest to leasehold owners, so it is possible to obtain FS ownership on certain leasehold properties, so don’t count them out without consulting your REALTORÂ® and/or CPA.