Understanding Leasehold vs. Fee Simple Properties in Hawaii: A Comprehensive Guide

When buying property in Hawaii, you’ll encounter two primary types of ownership: leasehold and fee simple. Understanding the differences between these two can significantly impact your real estate decision. In this guide, we'll break down what leasehold and fee simple properties are, their pros and cons, and how they affect property ownership on the Big Island.

What is Fee Simple Ownership?

Fee simple is the most common type of property ownership in Hawaii and across the United States. When you purchase a fee simple property, you own both the land and the buildings on it outright. This ownership is perpetual, meaning you and your heirs have full control over the property indefinitely, subject only to local zoning laws and regulations.

Key Benefits of Fee Simple Ownership:

• Full Control: You can modify, sell, lease, or pass on the property as you see fit.
• Long-Term Security: Since ownership is perpetual, there’s no expiration date.
• Higher Resale Value: Fee simple properties typically hold their value better, making them a more attractive investment.

Considerations:

• Higher Purchase Price: Fee simple properties are generally more expensive than leasehold properties.
• Property Taxes: As the full owner, you’re responsible for all property taxes, which can be higher due to the land ownership component.

What is Leasehold Ownership?

In a leasehold arrangement, you own the buildings or improvements on the land, but not the land itself. Instead, you lease the land from the landowner for a predetermined period, typically ranging from 30 to 99 years. When the lease term expires, ownership of the land reverts to the landowner, and you may need to renegotiate the lease, vacate the property, or surrender the improvements.

Key Benefits of Leasehold Ownership:

• Lower Purchase Price: Leasehold properties generally cost less upfront, making them more accessible.
• Potential for Negotiation: There might be opportunities to negotiate lease terms or even purchase the fee simple interest from the landowner.

Considerations:

• Lease Expiration: As the lease term comes to an end, the property’s value may decrease, and uncertainty about lease renewal can impact your investment.
• Lease Rent: In addition to mortgage payments, you must pay rent for the land, which can increase over time.
• Limited Control: Major modifications or changes might require approval from the landowner, and you may face restrictions on how you can use the property.

Comparing Leasehold and Fee Simple Properties

When deciding between leasehold and fee simple properties in Hawaii, consider the following factors:

1. Longevity: Fee simple ownership provides long-term security, while leasehold ownership is finite and subject to lease terms.

2. Cost: Leasehold properties are generally more affordable, but the total cost of ownership can increase over time with lease rent payments.

3. Investment Value: Fee simple properties usually offer better long-term appreciation and resale value.

4. Flexibility: Fee simple ownership grants you full control over the property, whereas leasehold ownership often comes with restrictions.

Leasehold Properties on the Big Island

On the Big Island, leasehold properties are often found in areas with significant historical, cultural, or agricultural importance. For example, many leasehold properties are located in older neighborhoods or near beachfronts where the land is owned by trusts or large estates.

It’s crucial to review the lease terms carefully, understand the remaining lease duration, and assess the potential for lease renewal or purchase of the fee interest. Working with a knowledgeable real estate agent, like Amber Haley from Real Broker, can help you navigate these complexities.

Final Thoughts: Which Option is Right for You?

Choosing between leasehold and fee simple property ownership in Hawaii depends on your financial situation, long-term plans, and personal preferences. If you’re looking for a more affordable entry into the Hawaii real estate market and are comfortable with the lease terms, a leasehold property might be a viable option. However, if long-term ownership and investment potential are your priorities, a fee simple property offers greater security and value.

Before making a decision, consult with a local real estate expert who understands the nuances of Hawaii’s property market. For personalized assistance and to explore your options, contact Amber Haley at Amber@HaleyHawaii.com or call/text 808-707-8917. Amber's expertise can guide you through the process, ensuring you make an informed decision that aligns with your goals.