Should I Buy a Leasehold Property in Hawaii?
As you prepare to buy a home on the Big Island, there is one factor in the Hawaii real estate market you should familiarize yourself with. While it is not exclusively a feature of the Hawaii market, many people are not familiar with leasehold properties and how they work.
One of the best ways to make a confident decision about the right home for you in Hawaii is to be as well-informed as possible. Keep reading for a basic explanation of leasehold properties to help you determine if it would be the right fit for you. If you have additional questions, we are always ready to help, so contact us any time.
What is a leasehold property?
There are basically two ways to buy real estate: fee simple and leasehold. It is most likely that what comes to mind when you think of buying a home is fee simple ownership. This is where the buyer purchases a property, including all structures and the land they are on within the property lines. Even condo owners with fee simple ownership have an undivided interest in the common elements of the development, including the land the condo sits on.
Leasehold ownership is a little different. When you purchase a leasehold property, the land the home is one continues to belong to the lessor for a determined period of time. While you do own the home, you will be required to return the property to the lessor at the end of the duration of the lease.
What's the difference between leasehold ownership and renting?
At first glance, it can be hard to see the difference between a leasehold property and a rental property, but they are different. One of the major differences is that you can sell your leasehold property, rather than just moving out like you would a rental. In this way, it can still be an investment property in a way that rentals will not be.
The duration of the lease on a leasehold property is also usually far longer than a rental home. Your lease for the property would likely be a matter of decades, rather than months like you would with a rental home.
A leasehold property also allows you to make any improvements and changes you would like to the property while it is yours. This means everything from tearing it down and rebuilding to a bathroom remodel to a major landscaping project is yours to take on, without the approval of the lessor. In a rental home, almost any changes to the property require landlord approval, and generally will not be a realistic option.
Also keep in mind that when you have a leasehold property, it is entirely your responsibility. You act as the homeowner, not calling on a landlord to fix something. There are additional financial burdens with this responsibility, but also plenty of perks.
Why would someone want to buy leasehold?
When you compare fee simple to leasehold ownership, it can be hard to understand why you would choose a leasehold property. The basic answer is affordability. When you buy a leasehold property, you will pay significantly less. Because the lessor is going to profit eventually from continuing to own valuable land on Hawaii, they can afford to sell to you for less. Leasehold ownership is sometimes a good option for people who want to buy a home in Hawaii and are looking for the most affordable option.
A leasehold property will be the right fit for someone who wants an affordable homeownership option, provided they are prepared for changes in lease rent payments and can work with the leasehold timeline.
Want to learn more about finding the right real estate property for you on the Big Island? Contact us any time.