Leasehold vs. Fee Simple Properties

by | Mar 15, 2023 | Investing, Real Estate | 0 comments

Leasehold vs. Fee Simple Properties

If you’re in the market for a property in Hawaii, one of the first things you’ll need to consider is the type of ownership. In Hawaii, there are two main types of property ownership: fee simple and leasehold. Understanding the differences between these two types of ownership is crucial when making a decision about which property to buy.

Fee simple is the most common type of property ownership in the United States. When you buy a fee simple property, you own the land and everything on it. You’re free to use the property however you wish, subject to local laws and regulations. You’re also responsible for all maintenance and repairs to the property.

Leasehold, on the other hand, is a type of property ownership where the buyer owns the building but leases the land from the landowner for a set period of time. The length of the lease can vary from 10 to 99 years, and at the end of the lease, ownership of the land reverts back to the landowner. Sometimes the landowners will offer the option for the leaseholder to convert their ownership to fee-simple, but this is not always the case. Leasehold properties can offer lower upfront costs than fee simple properties, making them more accessible to buyers who may not be able to afford a fee simple property.

Leasehold properties can also be found in some of the most desirable areas of Hawaii, including beachfront locations and resort communities. This can make them an attractive option for buyers who want to own property in these areas but may not be able to afford a fee simple property. Leasehold properties are typically found in condominiums or timeshare properties, while Fee Simple properties are typically found in single-family homes, townhouses, and other types of houses.

However, leasehold properties also come with some risks and drawbacks. One of the biggest risks is the potential for lease rent increases. The terms of the lease can allow for rent increases over time, which can significantly impact the overall cost of ownership. Additionally, leasehold properties can be more difficult to finance because lenders may see them as a riskier investment than fee simple properties. Buyers should carefully consider the terms of the lease and consult with a real estate professional before making a purchase.

In Hawaii, leasehold properties are more common than in other parts of the United States, especially in resort areas. We recommend carefully considering the advantages and disadvantages of each type of ownership before making a decision. Ultimately, the choice between leasehold and fee simple ownership will depend on your personal preferences, financial situation, and long-term goals.

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