Why is this Property So Inexpensive? (Leasehold)

While browsing through the current listings I am sure you came acrossGetMedia.ashx some beautiful condos/homes with what seem to be unrealistic prices. Did you inquire about these properties wondering if the price was entered wrong or if they are a scam?

Take for example beachfront, 1,555 square foot, 2-bed condo right in Kahala, one of Oahu’s most prestigious neighborhoods for just $120,000.

These properties are called “Lease-hold” (LH) ownership as opposed to “fee-simple” (FS). Fee-simple ownership is what you may already be familiar with. FS ownership is the most complete, meaning you own  the land and any improvements made on the land.

With LH ownership you own the unit/house while you pay the lessor a monthly lease rent for use of the land. As the lessee, you don’t own the rights of the land, just the ability to use it exclusively, or freely transfer ownership for the remaining years of the lease. The lease will usually include a clause providing that any improvements such as a home or building will be surrendered to the FS landowner upon  expiration of the lease.GetMedia-1.ashx

When purchasing a LH property, as the buyer, you are responsible for property taxes, maintenance fees, a monthly lease-rent, and your mortgage, if financed. It is important to factor in all variables when budgeting and predicting cash flow.

Often times, lessors offer a “fee conversion,” where they sell their leased fee interest land to leasehold owners, so it is possible to obtain FS ownership on certain LH properties. Don’t count these properties out when consulting with your Realtor.

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