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What Does Lease-Hold Ownership Mean in Hawaii?

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.

Take for example, this beachfront 1,258 square foot 2-bed condo next to the Kahala Hotel & Resort in one of Oahu’s most prestigious neighborhoods for just $70,000! (MLS# 1015645)

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 the “fee-simple” (FS) 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: 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 REALTOR® and/or CPA.

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Carmen Brodeur

January 1, 2011

Good point. You really need to pay attention to whether the listing is fee simple or leasehold in Hawaii.

Carmen Brodeur

January 1, 2011

Good point. You really need to pay attention to whether the listing is fee simple or leasehold in Hawaii.

Two Great Gold Coast Listings at Diamond Head « Hawaii Real Estate Market

January 7, 2011

[…] in 1959, the building was originally called the Diamond Head Ambassador Hotel and used to sit on leasehold […]

Two Great Gold Coast Listings at Diamond Head « Hawaii Real Estate Market

January 7, 2011

[…] in 1959, the building was originally called the Diamond Head Ambassador Hotel and used to sit on leasehold […]

Karen Fiddler

January 31, 2011

This is such good information! And you explained it perfectly. In Southern California we don’t have a lot of leasehold property, but it’s important to understand the ramifications of it when we find they are on lease. Good post

Karen Fiddler

January 31, 2011

This is such good information! And you explained it perfectly. In Southern California we don’t have a lot of leasehold property, but it’s important to understand the ramifications of it when we find they are on lease. Good post

Oahu Oceanfront Home & Condo Deals Under $100K – Too Good to Be True? « Hawaii Real Estate Market

May 11, 2011

[…] on these lately from buyers from all over the world. Both of these properties happen to be leasehold, where you don’t own the land. Any property you find listed that has an “LH” […]

Oahu Oceanfront Home & Condo Deals Under $100K – Too Good to Be True? « Hawaii Real Estate Market

May 11, 2011

[…] on these lately from buyers from all over the world. Both of these properties happen to be leasehold, where you don’t own the land. Any property you find listed that has an “LH” […]

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