The scarlet letter of Hawaii Real Estate isn’t A. It’s the letters LH. Seeing the land tenure leasehold on a listing causes many buyers, and agents for that matter, to bypass a property. Just as the puritans wrongly ostracized Hester Prynne, leasehold properties don’t deserve to be shunned. For the right buyers, leasehold ownership provides a great opportunity. This is particularly the case in an era when inventory and options remain limited.
Lower Acquisition Costs
First and foremost, it’s worth highlighting the biggest advantage of leasehold. Acquisition cost. Leasehold properties cost significantly less than comparable fee simple properties. Plain and simple, you get more bang for your buck. Higher monthly fees are the tradeoff for lower acquisition costs. In addition to the maintenance fee, leasehold properties come with a monthly lease fee. If you have less cash in reserve for your purchase, but strong monthly income, leasehold could be an interesting option.
A Few Other Things To Consider With Leasehold
There are some other factors that can enhance the appeal of a leasehold property.
- Does the property offer something unique? There are a handful of leasehold properties that offer something unique or at least less common in the Maui market. Alaeloa is a truly one of a kind development in the Napili area. The combination of low density, a beautiful shoreline and the mix of stand alone and duplexed beach cottages is unlike anything else on Maui. Maui Eldorado in Ka’anapali has its fantastic beach cabana. Kamaole Nalu is one of a handful of direct beachfront condos in South Kihei.
- Does it have a longer lease term? A longer term lease is particularly appealing. It takes away uncertainty about the future of your property and it opens financing options. If it is in excess of 35 years, it allows for a conventional 30 year mortgage. More than twenty years left on a lease means you can get a fifteen year mortgages. You need five more years on the lease than the term of the mortgage to get financing. Once a lease term shrinks to less than 20 years, both the smaller pool of buyers and increased uncertainty may impact resale value.
- Can it be converted to fee simple? In some cases, the lessor shows a willingness to convert the property to fee simple. That could enhance the condos value over the long term. The caveat here is that fee conversion costs money. In almost all cases, the financial outlay for lessees is significant. Typically, somewhere in the six figures significant.
Discover New Options
Again, leasehold isn’t for everyone and not all leasehold is the same. It requires some extra due diligence and there is a reason that leasehold properties come with their own unique disclosures. That said, there are some great leasehold properties on Maui and that list extends beyond the three developments referenced above. Don’t stigmatize a condo just because of its land tenure. Any condo on island whether its leasehold or fee simple is going to have its strengths and its weaknesses. If you evaluate the condo development on the plusses and minuses as a whole, you might just find leasehold fits your needs. We look forward to assisting you with the evaluation process.
