01-21-2008, 07:14 AM
I used to own a leasehold condo and it was beneficial for me because it was in a vacation rental program and I could depreciate the full purchase price of the condo vs the depreciation of a fee simple condo where the land value can not be depriciated. I moved into the leasehold condo later on but I sold it after several years of living there.
The value of every leasehold property is decreasing by every day, reaching $0.00 at the end of the lease. Make sure you read the lease before buying a leasehold property. In addition to the expiration date of the lease, there are renegotiation dates in the lease (usually every 10 years) so your current lease payment is not guaranteed until the end of the lease, it's guaranteed until the renegotiation date. You also need to see how the new lease payment is negotiated for the next 10 years. (It could be a big surprise and a huge increase!)
Most lenders will not lend money on leasehold properties unless there is a 10 year "cushion" at the end, meaning if there are 30 years left on the lease they will give you only a 20-year loan.
There used to be a movement (mainly on Oahu) to have a mandatory lease to fee convertion and some land owners actually offered to fee to the tenants, but the movement seems to be quiet now. By law leases can not exceed 60 years in Hawaii.
Aloha,
John S. Rabi, ABR,CM,CRB,FHS,RB
http://www.JohnRabi.com
Typically Tropical Properties
"The Next Level of Service!"
The value of every leasehold property is decreasing by every day, reaching $0.00 at the end of the lease. Make sure you read the lease before buying a leasehold property. In addition to the expiration date of the lease, there are renegotiation dates in the lease (usually every 10 years) so your current lease payment is not guaranteed until the end of the lease, it's guaranteed until the renegotiation date. You also need to see how the new lease payment is negotiated for the next 10 years. (It could be a big surprise and a huge increase!)
Most lenders will not lend money on leasehold properties unless there is a 10 year "cushion" at the end, meaning if there are 30 years left on the lease they will give you only a 20-year loan.
There used to be a movement (mainly on Oahu) to have a mandatory lease to fee convertion and some land owners actually offered to fee to the tenants, but the movement seems to be quiet now. By law leases can not exceed 60 years in Hawaii.
Aloha,
John S. Rabi, ABR,CM,CRB,FHS,RB
http://www.JohnRabi.com
Typically Tropical Properties
"The Next Level of Service!"