An Oahu Realtor Answers Your Questions

This week: What’s the difference between fee-simple and leasehold property?


Published:



Photo: Jaymes Song
 

Aloha! Welcome to my first real estate Q&A column for HONOLULU Magazine. Once a month, I will answer real estate-related questions you may have. With this column, I’ll be able to merge my passion in my three “R’s:” reading, (w)riting and real estate.

Before I dived into the competitive, stressful, fast-changing world of real estate, I used to be in the competitive, stressful, fast-changing world of journalism.

In my previous professional life, I spent more than 15 years at The Associated Press, the Honolulu Star-Bulletin and The Orange County Register. Before that, I was a kid who saw his immigrant parents grow their real estate investments using hard work, patience and the bank’s money.

Hawaii is a special place that we are so blessed to call home. But as we all know, there’s a price to paradise. And it takes way more than just wanting it badly enough to buy a place of your own.

The median price for a single-family home on Oahu is about $650,000 and rising, making it challenging for local, hard-working families to buy even a modest house from Kapolei to Kalama Valley.

Other factors that can affect property values on Oahu include termites, traffic and Genshiro Kawamoto.

The information, views and opinions expressed here are mine only. You may agree. You may disagree. Either way, your feedback and ideas are always welcome.

The first question is one that I get asked constantly, especially from tire-kickers (potential buyers) from other states.
 

Q: What is the difference between fee simple and leasehold?

A: In a nutshell, fee simple is what most people across the country expect when they talk about buying property. It is the broadest form of home ownership, where you own the land and improvements.

With leasehold, the buyer doesn’t get ownership of the land and would be subject to a land lease, which in most cases requires compensation, such as rent.

In Hawaii, unlike many other states, most of the value is locked up in the land, not the improvements, so knowing what you’re buying is critical.

While buyers may initially be attracted to leasehold properties because of their seemingly low prices, buying leasehold is not for everyone.

In the Sunday paper, you may have noticed a FS or LH behind the prices, indicating whether a property is leasehold or fee simple. However, many of the popular national real estate websites fail to differentiate the two, causing confusion among unknowing consumers.

For example, the leasehold property I get inquiries on often from buyers from the mainland is the Kahala Beach condo units, an oceanfront property next to the posh Kahala Resort and the Waialae Country Club, home of the PGA Tour’s Sony Open.

As of Tuesday, four new listings were added this week, making a total of nine active listings in the development. Six were priced below $200,000 with lowest being a short sale for $139,000. That unit is a 1,256 sq. ft., 2-bedroom, 2-bath condo with one parking on the most prestigious street on the island.

$139,000 on Oahu? What a steal, right?

Well, the buyer will also be responsible for paying the lease rent of $2,256 to landowner Kamehameha Schools on top of the $1,125 maintenance fee for a grand total of $3,381 per month, plus property taxes of about $350 per month. Most lease rents aren’t as big as Kahala Beach, but they are a factor in affordability and qualifying to buy.

At Kahala Beach, the lease agreement goes till the end of 2027 and is up for renegotiation in 2017, when lease rents could change. If this property was fee simple and included the land, it’s safe to say these properties would be priced much, much higher.

There are a lot of other aspects when buying a leasehold property. It’s best to consult with your real estate agent to understand what you’re buying and any additional costs associated with your home purchase.

 

Got any real estate questions for me? Email me at realestate@honolulumagazine.com.

Subscribe to Honolulu