Each day I have buyers asking about the difference of Fee Simple Property and Leasehold Property, asking to explain Leasehold Property or wondering why Leasehold Properties will sell far below the price of a Fee Simple Property.
Please keep in mind that I_m discussing property under Hawaii_s laws and real estate regulations. Although there will be general similarities, your state may have some key differences. So consult your state's real estate laws before you apply this outside of Hawaii.
LEASEHOLD AND FEE SIMPLE STRICT DEFINITIONS
According to Realtor.org, this is how they are defined:
Fee Simple: An unconditional, unlimited estate of inheritance that represents the greatest estate and most extensive interest in land that can be enjoyed. It is of perpetual duration. When the real estate is in a condominium project, the unit owner is the exclusive owner only of the air space within his or her portion of the building (the unit) and is an owner in common with respect to the land and other common portions of the property.
Leasehold: A way of holding title to a property wherein the mortgagor does not actually own the property but rather has a recorded long-term lease on it.
WHAT YOU OWN WITH LEASEHOLD PROPERTY
When you purchase a Leasehold property, it will usually have a monthly lease payment you must pay to the fee owner. Not only that, you will also have an actual expiration date of the lease. That means that upon expiration of the lease, the fee owner will have the option to decide whether they want to continue to lease the property to you or take possession of the property.
In other words they can get the land back as well as your house and other structures on it. You can pay to have them moved, but consider the expense that could be involved. It's important that you think long and hard about that before making the purchase. A 50 year lease can make the expiration seem far, far away, but it will arrive and you or your loved ones will face having to walk away without the home you had all those years.
Leasehold property is a good option to use or occupy property for an extended period of time; however it needs to be properly researched to be done right. It's not for everyone. Just be sure it_s what you want to do before signing on the bottom line.