HONOLULU (HawaiiNewsNow) - When you are looking to buy real estate, do you automatically discard anything that's leasehold? That may be a mistake according to Cliff Colvin, a Realtor from Coldwell Banker Pacific Properties. Cliff dropped by Sunrise this morning to give us he perspective on leasehold properties. Check out his notes below and watch the video of his interview.
What is leasehold?
Leasehold is merely the opposite of Fee Simple. Leasehold is where the land and the improvements on that land are owned by separate people or entities. This is a strange concept to many people but common in Hawaii. It mostly stems from large tracts of land owned by the royal trusts, where the trustees were instructed not to sell these parcels but to use them in other ways to generate income to support various good works such as schools, hospitals, and orphanages. The owner of the land charges rent to the person who puts a dwelling or building on the property according to the terms of the lease.
Are there different types? What are things I should know and what should I look for?
Although all leases are similar, they are not the same! Much depends upon the specific terms that were set when the deal was struck. Know the terms of the lease. How long is it? Understand the lease rent. How is it determined and when will it renegotiate? It is important to know that when the lease expires, the land in most cases reverts to land owner. Of course, the lease could be renegotiated and extended or even offered for sale but there is no guarantee of either of those outcomes.
What are the advantages of leasehold?
One big advantage is that most of the cost of a home or condominium in Hawaii is in the land itself. If you can share the cost of renting that land with other owners, like in a high rise building, you can cut your monthly costs dramatically.
As an example, look at this ocean front condominium on the Gold Coast which is at the base of Diamond Head nestled between the ocean and Kapiolani Park. A unit of this size and quality and with these views would sell for as much as three times our asking price if it were Fee Simple. That would put it out of reach for many buyers.
Are their disadvantages?
Leasehold is not for everyone. Uncertainty of what will happen at the end of the lease can be off-putting for some. However, a savvy investor with the help of a good realtor, would be able to calculate how much a property could kick out in income every month. There is great cash-flow potential in leasehold properties.