Big Island

Leasehold vs. Fee Simple in Hawaii Real Estate

If you are searching for real estate in Hawaii, you have likely come across the terms Fee Simple (FS) and Leasehold (LH). The state of Hawaii offers different types of property ownership. Fee Simple is the way you are probably familiar with; the property is purchased outright. With Leasehold, the property is owned by someone else and you purchase the right to use it per the terms of the Lease. There is generally a lease rent paid to the lessor, the landowner.

Park-like back yard

Lovely 4/2 residential leasehold home on Painted Church Rd

Kamehameha School Bishop Estate (KSBE)

Much of the land in the Kona agricultural belt is Kamehameha School Bishop Estate (KSBE) Leasehold (LH). KSBE is the largest landowner in the state of Hawaii. They set up a Hawaiian Trust over a hundred years ago to benefit the education of Hawaiian children.

According to KSBE, approximately 70% of South Kona is KSBE LH property. Therefore, if you want to own a larger parcel of farmable land in south North Kona or north South Kona, buying a LH may be your best option.

Most people are not interested in an agricultural Leasehold property and, rightly, Leasehold is not for everyone. Most Leasehold purchases require a cash purchase. Some residential leasehold properties would qualify for financing; however, the lender wants to see 5 more years on the term of the Lease than the term of the loan. The Lease documents spell out the terms of the Lease, which generally include farming requirements. The farming requirements are different per Lease, but are based on the USDA benchmark statistics.

Luana farm is a 10.65-acre coffee and macadamia farm in Honaunau, South Kona, Big Island of Hawai’i (MLS# 265662)

Leasehold Benefits

I’m often asked, “Leasehold vs. Fee Simple?” in Hawaii Real Estate. Here are some of the benefits:

  • Initial cost of LH property is far less than comparable FS property
  • Property tax is less on Agricultural LH than comparable FS property
  • Purchase price of Lease can be written off as a business expense from taxable income as well as other farm expenses, lease rents, etc.
  • Income potential from farm
  • Live in an area that gives you more privacy, which you only find in Agriculture zoned areas with larger land parcels

Contact a Hawaii Leasehold Specialist

The best advice I can offer regarding purchasing a Leasehold property is to hire a Realtor that has experience and is knowledgeable of the KSBE LH transaction process.

I live in South Kona. I do not live on Leasehold land, but I am surrounded by it. I appreciate the privacy of having a 10-acre macadamia farm behind me and two 12-acre coffee farms in front. I enjoy gorgeous South Kona coastline and sunset views.

I’m an ISA Certified Arborist and a UH Master Gardener. I specialize in real estate from Kona to Ka’u, with a focus on GREEN and sustainable property. Contact me and let me know how I can help make your dream of living on the Big Island a reality, and if I can further explain Leasehold vs. Fee Simple in Hawaii Real Estate.

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Yesha Galloway

March 8, 2016

Hello, I have read your article on Leasehold properties. My partner and I currently live in New Mexico and are considering purchasing a coffee farm in Kona. The particular property we are looking at is a leasehold. We have the opportunity to stay at the property for May 27 – June 23, 2016.
I’m afraid of falling in love without knowing what we are getting into.
Would you be able to assist us with all the ends and outs? Also we may consider a different property that is Fee Simple.

Thank you,
Yesha Galloway

Yesha Galloway

March 8, 2016

Hello, I have read your article on Leasehold properties. My partner and I currently live in New Mexico and are considering purchasing a coffee farm in Kona. The particular property we are looking at is a leasehold. We have the opportunity to stay at the property for May 27 – June 23, 2016.
I’m afraid of falling in love without knowing what we are getting into.
Would you be able to assist us with all the ends and outs? Also we may consider a different property that is Fee Simple.

Thank you,
Yesha Galloway

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