Buying land in Hawaii is a big deal. It’s important to understand the differences between fee simple and leasehold ownership, so you can reach your real estate goals in this paradise. Whether you’re buying your dream home or looking to invest in land to build, it’s best to work with an experienced team who understands the unique challenges of this market.
In the Hawaiian Simple Hawaii Land Process real estate market, it’s common to see FS or LH next to properties on the MLS, which stands for “Fee Simple” or “Leasehold.” While Fee Simple grants complete ownership of the land and improvements, it can be less expensive to purchase leasehold property in sought-after locations. Let’s dive into the difference between the two types of ownership so you can determine what is the right choice for you!
For most people, the picture that comes to mind when they think about purchasing a property is of a fee simple property. These are the types of properties that make up 98% of the real estate in the state of Hawaii and the vast majority of homes and condos on the mainland. Fee simple gives you complete rights to the land and buildings on it, which means that you can build equity in your home over time and sell it later for a profit.
Leasehold properties, on the other hand, are a bit more like leasing a car than purchasing a home. You buy the structure on the property, but the land is being leased to you for a set period of time, usually for 30 to 40 years. This means that when the lease ends, you will revert back to the landowner (or they may offer the option of extending the lease for an additional 30 to 40 years).
One advantage of purchasing a leasehold property is the fact that you can sometimes purchase the fee interest in the land from the homeowner at a substantial price, which changes the property status to fee simple. This is an excellent opportunity for investors who want to enjoy a luxurious vacation home or long-term residency in the islands but don’t want to take on the full financial responsibility of buying the land.
The disadvantages of purchasing a leasehold property include the fact that you don’t own the land and are not building equity. In addition, there are often significant maintenance fees to pay to the landowner (and these will increase over time) and you must also re-negotiate the lease agreement every 10 years.
Having said all that, there are still plenty of reasons why you might choose to buy a leasehold property, particularly in certain Hawaii markets. For example, many of the luxury condominium developments in the heart of Honolulu are leasehold. This allows them to be more affordable than fee simple options and give people a chance to live in a prime location, close to downtown Honolulu, Ala Moana, Kakaako, and other popular areas of the city.