Leasehold vs. Freehold

[serrow]

2007 was the first year that leaseholds went back to land owners. everyone held their breath to see if mandatory conversions would take place... they did not. if you choose a leasehold with an expiration of at least 35 years, the mortgage companies will mortgage you like any other property.

[nullgeo]

I agree that Leasehold purchases can be a perfectly good strategy for entering the market. And some of the points made about how to make it work in the long equity run are good. But a Leasehold buyer needs to be perhaps even more savvy about the market place and how to play it than does a Fee Simple buyer — assuming that development and protection of the investment is an issue. If not, then it is just a cheap way to get in that can bite you back in the arse latter on. Need to be sure of every angle of the changing market.

[serrow]

your best deal is to buy a DOG beat down leasehold that has a fee available. Lowball both and see what you get. I would imagine amazing bargains could be had with shortsale leaseholds.

[MadRussian]

Today browsing properties on Maui I found one with leasehold. Intersting line in description of property - "Buyer must be at least 50% hawaiian ancestry with DHHL and proof of geneoloty."
Is this common? Is there some special requirements on Hawaii for leasehold?

[treedonkey]

Originally Posted by Dreaming of Hawaii

treedonkey, buying land outright is not impossible in Hawaii. At least not on the Big Island. Our house is in a rural area, 50 miles from Kona, and there are lots in our subdivision for $50,000 (which is exactly what we paid for our 1/3 acre lot 7 years ago). We have all utilities, including county water, paved streets, etc. You can go down the road and pick up a nice 1 acre lot, all lava, with no utilities for less than $15,000.

First of all, I said ALMOST impossible, not impossible. And secondly, you're right, I spoke out of turn. I do know that if you drive toward southpoint, beyond Captain Cook's, there are lava fields to be had for quite cheap. And there is a good reason for that, as you pointed out. My family lives in Kailua and Holualoa. Almost all the acreage in Kona is leaseheld farms. Those are the types of properties that I was referring to when I said it's virtually impossible to purchase them outright, but thanks for the clarification.

[hotzcatz]

MadRussian, that was for a Hawaiian Homelands property. Not all leasehold has those restrictions but the Hawaiian Homelands ones do.

[ZhugeLiang]

A leasehold has to be the worst investment ever concocted. If you can come up with that kind of money up front, what are you doing renting in the first place?

[serrow]

Originally Posted by ZhugeLiang

A leasehold has to be the worst investment ever concocted. If you can come up with that kind of money up front, what are you doing renting in the first place?

Please read up on the topic. You are not renting any more than any other person in the condo can yank his unit out of the building and move away. The only thing you do not own is the fractional portion of land your unit represents. take a look at this unit.

There was a studio in the Salt Lake regent with a 49 year lease with lease rent of $30/ month. Assuming a relatively respectable d/p of 10% the unit cashflows. You can also tell from tax records that other studios in the building are FS so the land owner has offered it up in the past, and very very likely will offer it up in the future again. With those numbers the unit cashflows compared with rents in the building. so you could buy it, rent it, and for 49 years you'll be in positive cashflow territory. Do you think rents will go up in 49 years? yes they will, and you have years to purchase the fee. In most units, the fee is the value it would cost to bring that unit up to the FS price.

That is just one scenario. It can also take the model of deferred financing. Unless you're fee is owned by Bishop Estate, you're in good shape.

[nullgeo]

Originally Posted by serrow

Please read up on the topic. You are not renting any more than any other person in the condo can yank his unit out of the building and move away. The only thing you do not own is the fractional portion of land your unit represents. take a look at this unit.

There was a studio in the Salt Lake regent with a 49 year lease with lease rent of $30/ month. Assuming a relatively respectable d/p of 10% the unit cashflows. You can also tell from tax records that other studios in the building are FS so the land owner has offered it up in the past, and very very likely will offer it up in the future again. With those numbers the unit cashflows compared with rents in the building. so you could buy it, rent it, and for 49 years you'll be in positive cashflow territory. Do you think rents will go up in 49 years? yes they will, and you have years to purchase the fee. In most units, the fee is the value it would cost to bring that unit up to the FS price.

That is just one scenario. It can also take the model of deferred financing. Unless you're fee is owned by Bishop Estate, you're in good shape.

Excellent analysis ... and correct ... Leasehold has its place in real estate strategies ... you just need to know the game ... dangerous if you don't (don't jump into a seemingly cheap price just to get into Hawaii) ... roughly as potentially profitable as FH if you run the numbers, check your ownership source, and make a tight offer.