Home Buying in Captain Cook>Question Details

dedereimer, Home Buyer in Honaunau, HI

Q: If leasehold properties are a bad deal, why do people continue to purchase them? Can Bishop kick you off the land and leave you with zero cash?

Asked by dedereimer, Honaunau, HI Tue Nov 29, 2011

I have an attorney friend read a lease and these are his comments:

I have read the lease and find it to be about as one -sided as could possibly be expected. Every issue is written in favor of the lessor. You, the lessee, have absolutely no rights no matter what problems come up. Think of it like the worst possible condo lease combined with the worst possible homeowners association rules.

All of this, plus you have to pay rent and taxes... and pay for the improvements. And, it all goes away with no money to you in 14 years!!! You have no rights in this lease - not even to the water that falls from the sky or is buried in the ground.

If you want to lease property then just lease it without having to throw away thousands of dollars on a "purchase". you would be far better off just renting some apartment. house, or ohana.

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Answers

6
Aloha:
My name is Mike Gallagher. I own my own Brokerage here in Kailua, Hawaii on Oahu and although I realize my answer is some what delicate, the reason most folks buy Lease Hold Property is that they are elderly, are not concerned with leaving any equity to anyone, not concerned in Selling and upon their expiration its a "Who Cares?"

If you really want to know about Hawaii Real Estate, visit my website at http://www.hawaiirealestatestatistics.com or http://www.aroundhawaii.com under "Real Estate Articles."

Mike G.
1 vote Thank Flag Link Fri Feb 17, 2012
In short because these leasehold farms are at least half the price of fee simple (non leasehold) properties and often there are no fee simple farms available at any price. Here in the coffee belt of the Kona Coast much if not most of the farmable land is leasehold. If you want to buy a coffee farm it is often your only choice. If you are just looking for a place to live then yes you should look elsewhere. But if you are looking to farm, especially coffee then leasehold is often a good choice.
1 vote Thank Flag Link Tue Dec 6, 2011
I had the opportunity to view a few properties Erik had listed. He knows the market and is very responsive. Although I hired a different buyers agent before meeting Erik, I would have felt just as confident working with Erik. As I am looking at coffee farms, I can say his advice here is spot on.
Flag Sun Oct 21, 2012
The advice given here is good, but I would place more weight on that given by the pros that live and work in Hawai'i. Mike and Erik are both well versed. The leasehold lands are a great deal for the right buyer. The lessor is typically a board of trustees responsible for carrying on the wishes of the original estate (roughly). In the case of farm lands, the right buyer is someone looking to engage a farming way of life. The rules imposed by the lessor are not that difficult to follow. They are not going to kick a family off land if they are following the rules set forth by the trustees. Often, if there is a problem of compliance, the lessee will be given guidance by an associate and goals to meet at 2,3, and 5 years. Very reasonable in my opinion.

I am currently looking at taking over a coffee farm in south Kona that has a very short term left on it's lease. Initially I was concerned, but with 2 years of research, I am now much more confident to move forward.

Those looking at property in Hawaii have to decide what is right for them. There are advantages on both sides of the tenure argument. Talk to the pros like Mike and Erik, and people that are living on both property types and follow your gut.

Aloha!
0 votes Thank Flag Link Sun Oct 21, 2012
If you do decide to buy leasehold property with a relatively short period of time remaining on it and you want to build a home, have it designed to make it relatively simple to remove when you leave. The landlord owns the land and anything you leave behind, but you are free to take anything you added to it with you, or to sell it to someone who can use it. Moving a house is a lot easier when it is designed to be moved.
0 votes Thank Flag Link Fri Jan 6, 2012
I have looked at many leasehold farms and none have removable dwellings. It is just not realistic. Typically a modest home makes it easy to get your investment back. Those that build lavishly, thus beyond the scope of the property or region, will not recoup their investment. This is true with real estate anywhere. Don't build beyond the market.

With Leasehold in Hawaii, it seems that if you have a good property/ business/ home to offer, it is easy to sell. If the place is in neglect or is old and peculiar, then the sale may take a while.
Flag Sat Aug 31, 2013
Well, your attorney friend has provided you some pretty clear advice. I'd listen to him/her.

Just a note: What you're describing is not a lease-option, as Tim believes. It's a leasehold--quite different. Sounds as if you've encountered a bad one. Not all are bad. Some are written for long periods of time--such as 99 years. In the interim, you can sell the property. Some properties in Baltimore are like that; in some cases, you can even pay off/buy (not sure of the exact terminology) the lease for a relatively small amount.

But 14 years is way too short. There's a reasonably good chance you'd still be there. And if you couldn't renew the leasehold for a minimal amount (which, from your friend's comments I'm guessing you couldn't do), then there wouldn't be much advantage. The only possible advantage--not enough to outweigh the disadvantages--might be the deductibility of the taxes you'd be paying. (I'm not an accountant, so this isn't financial advice.)

Again, while some leaseholds do make sense, listen to your attorney friend. Sounds like very good advice.

Hope that helps.
0 votes Thank Flag Link Tue Nov 29, 2011
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
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Why do criminals rob banks? You and I know they will get caught but the crook thinks he is smarter or better and and it won't happen to him. Same with rent to own. Some might work out, but it has to be rare and with home prices dropping it just makes the chances it will actually close even harder.
0 votes Thank Flag Link Tue Nov 29, 2011
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