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What is a leasehold?

The concept of leasehold property has been a part of the Hawaiian real estate terrain for many decades. While many single-family properties on the islands have switched to fee simple ownership that is similar to a more conventional purchase of a home or property, the leasehold option remains a common one here, particularly on Oahu in Waikiki, Downtown, Makiki and the University areas.

The leasehold tends to jump out in the real estate sections because the prices are much lower than fee simple (the commonly assumed ownership of a property) and there are reasons for that.

A leasehold is just as it sounds -- a lease on a piece of property for a period of time. At the end of it, the leaseholder forfeits the property back to the fee simple owner. These leases begin at 40-50 years and count down from there, even as the property changes hands among leaseholders. The leases are adjusted after the first 20-25 years so that they match whatever the going rate is at the time of the adjustment.

The good

  • It's a great way to live in a nice property at a reasonable price, and it's often cheaper than renting a comparable space.
  • It can be a good investment if you are able to rent out the property to vacationers or others at a higher price.
  • Sometimes leaseholder properties offer the option to turn it into a fee holder property. The price can be negotiated based remaining time on the lease and the value of the underlying land.
  • A leaseholder arrangement may be appealing for folks looking for a second home.

The bad

  • The leaseholder doesn't own the land beneath the house or unit.
  • You have no equity to show for your ownership at the conclusion of a lease.
  • It will be impossible to obtain financing if there is less than 10 years left on the lease.
  • Homeowner association fees are not included in the agreement.

It is a good idea to include an attorney on your real estate team if you plan to buy a leaseholder property. Real estate agreements are often complicated and are worth a lot of money, but a real estate attorney can keep your best interests at heart and provide valuable advice on the unique terms of the leasehold agreement.

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Law Offices of Reuben S. F. Wong
1164 Bishop Street, Suite 1006
Honolulu, HI 96813

Toll Free: 888-567-4597
Phone: 808-531-3526
Fax: 808-531-3522
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