Linda McCabe and Erin McCabe with Corcoran Pacific Properties
Is Leasehold a Dirty Word?
The Island lifestyle and mystique aren’t the only things that set Hawaii apart from the mainland. Purchasing condos in Honolulu is equally as different. If you envision a Hawaiian condo as your ticket to paradise, this article is a must-read especially if you’re a first time real estate buyer in the Aloha State.
Unlike most mainland purchases, ownership in Hawaiian condos falls into one of two categories – fee simple or leasehold. Fee simple is the same complete, straight forward ownership that’s offered in most states. Under fee simple ownership – you pay maintenance fees, property taxes and insurance and maintain control of the property (through the homeowners association), which includes the right to occupy, sell or bequeath the condo to heirs.
Leasehold ownership isn’t that simple. Due to limited land availability, leasehold is not only extremely popular on the Islands; Hawaii has more leasehold properties than any state in the US and you'll see many condos in Diamondhead and other parts of Waikiki beach that are. Contrary to fee simple ownership, you don’t buy the property when you opt for a leasehold condo. Instead you enter into a long-term, ground lease with the fee simple owner of the land that holds your condo, but you still assume responsibility for maintenance fees, property taxes and insurance. As you may suspect, this type of condo acquisition has a fair share of upsides and downsides. On the upside, the original lease is usually 55 years or more with a fixed payment during the first 25 to 30 years. Leasehold properties also tend to be significantly less expensive than comparable fee simple condos. This could be an ideal scenario when acquiring a newly constructed condo because you receive the maximum tenure of the lease along with an attractive cost savings.
Despite advantages on the front end of a lease, challenges mount as the lease begins maturing. The primary downside is that your property rights cease completely when the lease tenure expires. You basically pack up your belongings and surrender your condo and equity to the lessor. Although lease contracts are often amended to extend the tenure, there are a small number of high rises that look like they will not be renewing their leases. Between the fixed lease rate period and expiration date, however, your lease cost will often be renegotiated every 10 to 15 years and adjusted based on market value at the time. Obviously, if the market value shows an increase, your lease fee will escalate accordingly. Financing can also be difficult if you attempt to refinance or sell immediately prior to the renegotiation period.
While leasehold can be a dirty word to some buyers, it’s music to the ears of others. Only you can determine if it fits your specific property goals and needs. Before you write off the possibility of a leasehold, remember that each deal is different and leaseholds wouldn’t be popular in Hawaii if everyone viewed them from a negative perspective. To the contrary, do your due diligence and carefully review each leasehold contract and any amendments before making an offer. In order to provide the crucial information on the type of ownership, each individual listing on our website specifies whether ownership is fee simple or leasehold. If you see a beachfront condo for sale with a very low price, time to check the listing to determine whether it is a leasehold property.
We're very familiar about the pros and cons of leasehold properties. Contact us when you are ready to work an expert real estate agent who's on your side.
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Though not guaranteed, information and statistics in this article have been acquired from sources believed to be reliable.
The majority of Oahu's population is condensed into the sprawling city of Honolulu on the island's southeastern shores. In addition to skyscrapers that line the downtown business district, there's a number of chic Honolulu condo developments in and around the city. There's also a strong tie to Oahu's history here. Iconic landmarks like the King Kamehameha I statue, the royal Iolani Palace, and the Aloha Tower are reminders of Hawaii's unique heritage.
The Fair Housing Act prohibits discrimination in housing based on color, race, religion, national origin, sex, familial status, or disability.
Information Deemed Reliable But Not Guaranteed. The information being provided is for consumer's personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. This information, including square footage, while not guaranteed, has been acquired from sources believed to be reliable.
Last Updated: 2022-07-01