Aloha, and welcome back!
One of the most common questions that I get from those who are looking for a new home or condo here on the island of Hawai’i regards the difference between fee simple and leasehold arrangements. To be sure, it’s definitely an important question – both circumstances contain very different details, and it’s important to consider the uniqueness of each arrangement when you’re in the market for your next home here in paradise.
So, without further ado, let’s explore the difference between fee simple and leasehold properties!
What do these terms mean?
In a nutshell, a fee simple arrangement simply means that you, as the owner of a property, own the property and the land in perpetuity – which is to say indefinitely – and that both the property and the land upon which the property sits upon can be deeded to an heir or a beneficiary in the event of your passing.
A leasehold, on the other hand, means that the land is ultimately owned by someone else, who is then agreeing to lease it to you for an agreed-upon period, frequently for a lengthy period of time at the beginning of the agreement.
Which one is best for me?
It really depends! Overall, leasehold agreements are often cheaper than fee simple arrangements – though not always – because the lease itself may only have a certain number of years left before it expires, which has an impact upon the property’s current resale value. For example, a leasehold property with 60 years left on the lease can definitely fetch a pretty penny on the open market – but the same leasehold property with only 10 years left before its end won’t go for nearly as much, turning them into a kind of depreciating asset until the next leaseholder agreement.
The downside here is, of course, that owners of leasehold properties do not own the land itself, and the leaseholder of the land can technically ask the tenant to leave at the end of the lease. Having said that, most if not all lessees will have an opportunity to extend their agreement with the landholder before then – or even have the opportunity to buy the land outright, as many landowners will ultimately sell the land itself back to a homeowner’s association (HOA) if the property in question is a condo…and sometimes at a cheaper overall price than could be had with a fee simple agreement, which is usually far more expensive.
Ultimately, no two buying situations are alike – and whether you are purchasing a fee simple or a leasehold property, it’s important to consider all the angles before diving in. It’s always a good idea to have the help of an experienced realtor to help you make the best decision for your individual circumstances – so give me a call and let's get started on getting you into your next home here on the Big Island of Hawai’i!