Leasehold vs. Fee Simple

The most common use of Leasehold title is to convey land upon which improvements have been or are to be made, such as a condominium or a single-family residence.  The lease is usually for a period of time in excess of fifty years during which time you may exercise the rights of ownership as if you held title in fee.

Your probable immediate negative reaction to this type of purchase may be erased by a little insight into the reasons for and benefits of conveying this type of title to you.

The first reason is that the Fee holder wishes the property to remain in his estate but would like to drive some income from the property. Secondly and predominately, it makes the property affordable.  Lets take for example a three-acre parcel of land, oceanfront, and zoned apartment. The market price for the land alone is $4 million.  The developer constructs forty condominium apartments of equal size and sells them Leasehold on a seventy-five year lease.  The lease payments are fixed for a term of thirty years at which time the lease is renegotiated.  The fixed payments are $200 for the first ten years, $250 for the second ten years and $300 for the third ten years.

Now compare these monthly payments to the payment that you would make if you had purchased the apartment fee simple.  The price would be $100,000 more for each apartment.  Your down payment would be at least $20,000 more and you would be financing an additional $80,000, representing an additional monthly payment of over $1,000 depending on the interest rate.  This higher down payment and monthly payment could well take the property out of an affordable price range for you.

There are tax benefits in purchasing Leasehold properties.  However, taxes are unique to the individual and it is suggested that you consult a tax expert." - excerpt from Keller Williams Maui's Hawaii Buyer Advisory

Please contact Linda@MauiSeasideHomes.com to request a complete Hawaii Buyer Advisory packet.