Leasehold vs. Fee Simple

[mgeary]

I did a search through all the forums here on Punaweb, at least the subject lines. No hits for "Leasehold".

I think I've got an understanding of the basics (length of lease, annual lease $$), but there's some nuances that I'm puzzling over. Does anyone here live in a leasehold property? Does the value of the property depreciate as the term of the lease gets shorter? How can you get equity out of a leasehold? Are leases often successfully renewed, and if so, at what cost? I know it's possible, but is it practical to "hop" from leasehold property to leasehold property every decade or so as the leases expire? Do people do that?

I'm an optimistic 50 year-old, I might only live for one such "hop". ;-)

Still getting ideas, rolling them around. Mahalo in advance for any shared experience.

How do I know?

[mgeary]

I guess that answers my question. 41 views to my original posts, no responses. Seems like leasehold property is not very popular, for whatever reason(s).

How do I know?

[Carey]

I am not a professional & didn't respond because of that, so you must take EVERYTHING here as heresay & such.
Leasehold is an option if you want to live near the beaches in Hilo (most of the Keaukaha properties are in various leaseholds), if you want ag land, if the lease has tons of years left & you don't. Some of the leaseholders do/have extended & have kept the rates within market reason, some leaseholders have not. There have been some leaseholds since I have been looking that have resold without depreciation, & some that have (usually prime location & longer terms hold better... but some ag leaseholds have held value, too. Some people do hop from leasehold to leasehold (esp in ag lands & prime vacation type lands)
I know of quite a few of the UH - H ag students that get a foothold on leasehold ag land, then go on to purchase, & many stay with leasehold.
I do remember decades ago when the 'new' condo leaseholds started to gain favor, and many old timers speculated that there was no way that they would hold value.... Leasehold land is actually a very old system & can give a buyer an option to live somewhere that they would otherwise have. In many aspects it is less speculative than fee simple (you know how long your land will cost how much) but it will not give you the potential return on investment that fee simple might (but that return is speculative, also)

[John S. Rabi]

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!"

[mgeary]

Those both helped quite a bit. Thanks to both of you, Carey and John.

As I said in my first post, I'm still just exploring options. It doesn't sound like a really good one, particularly when comparing the properties described in Hawaii Information Service. The few leaseholds that are available look pretty dumpy dollar-for-dollar compared to fee-simple props. The one advantage that I can discern so far is location.

Mahalo.

How do I know?