Leasehold or Fee Simple – Which Type of Ownership is Best For Your Situation?

What is the difference between leasehold and fee simple ownership in Hawai’i?

Fee Simple or freehold is similar to ownership in most mainland states. Simply put, the homeowner holds absolute title to her home and the land it’s sitting on.

Leasehold differs from fee simple in that one party holds title to the land while another, the homeowner, pays for the use of the land. These leases have an expiration date and periodic renegotiation dates address changing land values.

Now that we understand the difference between fee simple and leasehold, we need to decide which type of ownership is best for your situation. Fee simple properties carry a higher list price and do not have the added lease payment that must be factored into the equation. Let’s lay out a couple of examples that will aid you in making your decision. The average length of time an owner holds onto a property is 5-10 years.

For the purposes of this example, I will use a model of 5 years. I did not consider utilities, insurance, or other minor incidentals.

Property #1 – Leasehold

Maalaea Yacht Marina, Unit 408. Offered by Josh Jerman, Hawaii Life Real Estate Brokers

Maalaea Yacht Marina, Unit 408 (MLS# 364672) – 2 bed, 2 bath, 882 sq. ft., direct oceanfront
List price: $319,000
Monthly maintenance fee: $740.79
Monthly Lease payment: $604.00 (tax deductible)
Property taxes per month: $58.00
60 months cost of ownership: $399,687.40
VRBO: $112.00 per night (estimate only, no guarantee of future rental income)

Property #2 – Fee Simple

Lauloa Unit 205, Offered by Susan Fox, KW Island Living

Lauloa, Unit 08 (MLS# 367259) – 2 bed, 2 bath, 950 sq. ft. – direct oceanfront
List price: $629,000
Monthly maintenance fee: $693.41
Property taxes per month: $305.00
60 months cost of ownership: $670,604.60
VRBO: $129.00 per night (estimate only, no guarantee of future rental income)

Keep in Mind

Leasehold offers the opportunity to get into a condo in Hawaii with lower up front costs. You need to sit down and pencil out the deal, it may make sense if you’re planning to hold the unit for the short term.