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Should I buy a Leasehold condo in Hawaii?

Have you been searching for property in Hawaii and noticed that some prices just seem too good to be true? If so – you may have found a property that is LEASEHOLD.

When I am asked by clients, “Should I buy this condo? How about this one?” One of the first things I do is look to see the ownership status of the property – is it FEE SIMPLE or LEASEHOLD. After that – I can move on to evaluating the property.

Next to LOCATION, LOCATION, LOCATION knowing the ownership status (or tenure) is the most important fact you can know about a property in Hawaii.

If I find out that a condo or coffee farm is LEASEHOLD – I immediately inform my clients and they almost always ask:

“Should I buy a leasehold property or condo?”

And my answer is:

“You can buy a leasehold property but in general but I don’t recommend it.”

When you buy a leasehold property, you don’t own the property – you just buy the right to use it. This is why the prices are significantly lower than Fee Simple properties. When the leasehold is up – you return the property. Therefore when you buy a leasehold property – you can sell it before the lease expires, but the closer it gets to that date, the less the property is worth. Leases can get renewed but unless there are guarantees regarding the length of the new lease or the pricing, it is a risky proposition.

I like to tell clients to think of it this way “Leasehold is similar to what most are familiar with when renting an apartment for a year and sign a lease.”

In Hawaii – there are areas where there are more Leasehold properties than others – so on the Big Island it is mostly coffee farms and on Oahu there are a good number of Leasehold condos. Although the majority of properties are Fee Simple, you really need to check the status before moving forward.

In Hawaii – the law states that we must make it very clear if a property is Leasehold or Fee Simple as this is not a normal way to buy property on the mainland.  I recently had a client send me properties they liked from Zillow and they were all Leasehold.  When I told them – they said they didn’t see the word Leasehold anywhere.

Zillow does not follow the Hawaii Law regarding advertising of Leasehold properties and it is hidden in the property description. You really have to search for it to find it. Here is a video I made showing where to look….

Hope that helps

Dave

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Julie Keller

March 24, 2020

Great info Dave, thanks!

Linda Hussey

March 26, 2020

Really helpful Dave !

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