Freehold vs Leasehold Condo in Waikiki. (for sale, real estate, apartments)

[thrillobyte]

It's always been a dream of mine to live in Waikiki ever since visiting the lovely Ala Moana park at dusk on a lazy fall afternoon. Of course the prices in the nicer towers range from 600k to over a million. As I and my wife have no heirs I was wondering if it would make more sense to just enter in a leasehold contract for 50 years (we're seniors so thats plenty of time) and have smaller payments vs renting and then worrying about annual increases in rent and then having to move. From the looks of it the payments would be like cut in half. Any thought or warning about this strategy?

[hothulamaui]

not fully versed in lease hold but I would only buy if there were a very long time left on the lease so there is something to sell when the time comes. I think when you buy lease hold you also have to worry about lease payments going up. I am sure one of the real estate people will post and let you know for sure or not. good luck

[thrillobyte]

I would guess some sort of acceptable land payment schedule could be worked out, otherwise escalating payments don't make any sense either. RE agents in Hawaii don't want to talk to me once they hear I can't be doing this for a year or two and goggling doesn't turn up much in the way of specific answers to my questions. Basically I just want a 2+2 or 3+2 in the tower zone on the beach side of the canal, the closer to the beach the better with payments about half that of a regular mortgage to compensate for the extremely high association dues.

[timbo31958]

I'm no expert on the subject either. When we bought our place I looked at both leasehold and fee simple properties. We bought our place fee simple because it seemed like flushing money down the toilet to pay the lease fee for the land and make the monthly payment on our home and never really "own" it. Also if you look at it like we did you really are not saving any money by making 2 payments instead of one. You can look around at the properties that are for sale and compare the ones that are fee simple to the ones that are lease hold, and by adding the lease payment, maintenance fee/association fee, and the house payment it could be almost as much if not more than buying fee simple.

[OpenD]

Right now it's a buyer's market, and many properties are distressed because so many sellers bought during the most recent bubble. So look for the kind of property that best fits your overall financial needs. A leasehold condo is fundamentally a complicated rental arrangement that may not leave much residual value to your estate. It's been a standard arrangement for businesses for years, where they build a store on leased land, amortizing the cost of construction over a fixed number of years, as a fixed cost, without an expectation of having any residual value at the end. It's not nearly so common for residential property.

One tip I can offer... look for property that has been on the market more than a year, then make a lowball offer. A certain percentage of the time the sellers are sick of the whole thing and accept. My dad bought a home for 1/2 the asking price that way. And a good friend did almost as well.

You just have to have nerves of steel and a total lack of attachment to any specific property.

Keep in mind that as an investment, only the underlying land is likely to hold value or appreciate in value in the long term. Buildings, on the other hand, tend to depreciate.

[thrillobyte]

Thanks to all for your helpful advice, especially PacificHeights, who IM'ed me with some great advice and warnings. I will not have any attachment to this property as it is just a place where my wife and I will live out our remaining years in paradise, albeit a concrete paradise. Building equity is not a concern as we just look upon the payments as we would renting a nice condo, with a 40+year leasehold as insurance that we won't be asked to leave in 5, 10, 15 years because the owner wants to sell, if I am reading this leasehold thing correctly. The total of the payments would have to be, at the most, 60% of a freehold payment, however, or the whole thing would not make financial sense.

[lost_traveler1]

Leasehold = you own the apartment but not the land under it. The owner of the land cannot kick you out until the end of the lease hold date.

Fee simple = (not sure what the heck freehold means) you own the apartment and the land (for apartments, portion of the land).

Most apartments in waikiki (or converted hotels to apartments) are leasehold, some have the option to buy the fee (land). Of course the price for the lease is cheaper in terms of monthly payments than paying for the additional fee (land).

If you have no heir, as you say, then there would not be any need to pay for the fee (land) to bequeath to. Leasehold would be feasable here, but consult with a proper real estate and mortgage company for expertise. They will pretty much say what I summed up.

Things to consider is that a lot of the properties are old, like built in the 50's -70's so consider maintenance costs throughout your leasehold.

[OpenD]

Originally Posted by lost_traveler1

Things to consider is that a lot of the properties are old, like built in the 50's -70's so consider maintenance costs throughout your leasehold.

Not just the old ones. Sometimes the new ones develop problems that are costly to fix. A friend bought a fairly new condo, and within 6 months she got hit with a $12,000 assessment to fix an unforeseen problem with the parking spaces due to groundwater lift. Then because half the units didn't cough up the assessment, they couldn't get the repairs done and the whole place was thrown into a huge uproar. It was a stressful mess.