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Types of Property Ownership in Hawaii

Types of Property Ownership in Hawaii

Spectacular view of Honolulu from Diamond Head, Oahu, Hawaii

Searching for homes in Hawaii is an amazing experience because of all the different varieties of homes and properties available on the market. Whether it’s a high-rise condominium, a home on the mountains overlooking the city, or a beachfront property, there are many to choose from. However one of the most common questions that arises when new homeowners are shopping is the topic of “leasehold” properties.  What is a leasehold property?  Before I answer that question I want to go ahead and explain what the most common type of property ownership that most people are familiar with.

Fee Simple (FS)

Fee Simple is the most common form of ownership. A buyer purchases and owns the home, land, and any improvements in its entirety, and can sell or pass to another via will or inheritance.  You can do practically whatever you want to with the property, as long as you stay within guidelines set out by zoning laws, neighborhood covenants, or condo associations. Fee simple titles virtually have indefinite duration. It is the most complete ownership interest one can have in a real estate property.  Owners tend to feel most secure with this type of ownership.  Fee Simple is also known as Freehold in other states.

Leasehold (LH)

Admiral Thomas, Victoria St, Honolulu

Leasehold property owners do not own the land, but have the right to enjoy and use the land and structures/buildings upon the land, for a fixed amount of time for an agreed upon price. As determined on the individual lease, at the end of the lease period the buildings and fixtures on the land may revert back to the lessor (landowner), or they may become the personal property of the lessee(leaseholder).  Leasehold properties tend to be more common with listings of condominiums for residential and properties with large acreage for farming.  Leasehold property values are typically 20% lower than a comparable fee simple property(sometimes even lower).   Based on the price at first glance they tend to appear to be a great deal.  However, keep in mind that you do not own the land and there is no guarantee that you can use it beyond the expiration of the lease.  The landowner may have other plans in mind.  At the end of the leasehold agreement, the leaseholder may be offered some options: An extension on the leasehold, an opportunity to “buy the fee” from the landowner by making a one-time payment and becoming the new fee simple owner, or neither. in this case the leaseholder ends up with nothing and no further ties to the property.  An important thing to keep in mind is that if you are also trying to obtain financing on a leasehold property, it can much more challenging than a traditional mortgage on a Fee Simple property.  If your lease is less than 30 years, you won’t be able to get a traditional 30 year fixed mortgage.  

Now you know the differences between “Fee Simple” and “Leasehold”.  I hope this will help you on your journey to finding the home of your dreams.  

Are you interested in purchasing or selling a home on Oahu? Are you ready to make your dream a reality?  Our team of agents will be happy to assist you with your real estate needs.  Large or small, we got it all! Contact me today : toryeborn@kw.com or visit tory.weaverhawaii.com to see listings on Oahu

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