Home Buying in Waikiki>Question Details

Scott Harris…, Both Buyer and Seller in 96815

why are leasehold units so low in value?

Asked by Scott Harrison, 96815 Wed Feb 23, 2011

Help the community by answering this question:


You are not always able to obtain financing for a leasehold property. There must be adequate time on the remianing lease. In some buildings, there is an opportunity to buy the fee and in some that opportunity does not and will not exist.

A leasehold property owner has little certainty and that is enough to frighten many buyers. Therefore, leasehold prices, except in buildings where the fee purchase is readily available are priced low.

I hope this is helpful.

Judy Sobin
East Oahu Realty
1 vote Thank Flag Link Wed Feb 23, 2011
You don't own the land with lease hold, so what you are paying is only for the house/condo that resides on the piece of land that you are "leasing". Personally I find it a bit odd to buy leaseholds (unless the lease does not expire for a very long time and you intend to sell it before the lease expires). There are some uncertainties when the lease expires although usually you tend to renegotiate the terms.
0 votes Thank Flag Link Mon May 6, 2013
I own a leasehold property and there are several reasons why LH props are priced lower than Fee Simple ones:
--Financing - hard to find and get a loan under 30 yrs. and some mort companies won't finance LH properties.
--Lease Rent - when this rent is renegotiated to market value, it usually goes up, sometimes way up...
--Finite lease term before lease period is renegotiated. Renegotiation of the lease is usually done and in the better LH properties it is very likely. Yet the sooner you get to the end of the period, the more the value of the property may go down. This period is usually 10 to 15 years out.

All this being said, LH properties can enable a buyer to live in a more desireable place and area and neighborhood. For example, my building, Discovery Bay is right across from the beach and I bought it at a "discount" to the Fee Simple properties in the neighborhood. You can get more bang for the buck, sort to speak.
0 votes Thank Flag Link Fri Apr 8, 2011
In leasehold properties, when the lease on the land ends, the condo or home owner must give the home or condo back to the land owner. The land owner gets the land back and all improvements on it. Therefore, by the time the lease expires the condo or home has no value because the land owner takes it. Basically the improvement each year is less desirable because there is lease time on the lease, thus the value of the property goes down accordingly.

However, sometimes the lease is renegotiated and the term extended. Also, the land owner may decide to sell the land to the condo or homeowner. In those cases the value of the condo or home will most likely increase again.
Web Reference: http://www.caseyhawaii.com
0 votes Thank Flag Link Wed Feb 23, 2011
You do not own the land underneath the dwelling - that negatively affects the value of the property, especially in Hawaii where land holds so much value. On top of your mortgage payment, you will also have a lease rent payment. If there's less than 30 years left on the lease - you will not be able to get a 30 year mortgage on the property. Also, as the lease term runs down, the property becomes even less and less desirable - which is not good for a future sale. However, sometimes you can buy both the leasehold property and the fee simple interest at the same time, which then converts to a regular fee-simple property. For weekly tips on Hawaii real estate - become a fan of Hawaii Real Estate on Facebook! : )
0 votes Thank Flag Link Wed Feb 23, 2011
See this video Blog that answers how they work. The fact that one day you may have to hand them back is what reduces value, unless you find one likely to be sold out. That is the only play in Leasehold in my opinion. http://www.youtube.com/user/TheOahuAgent#g/u
Web Reference: http://www.TheOahuAgent.com
0 votes Thank Flag Link Wed Feb 23, 2011
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