One of the most important and unique aspects of buying property in Hawaii is understanding the difference between leasehold and fee simple ownership. This distinction, which is far less common on the mainland, can significantly impact your investment, financing options, and long-term costs. Every buyer considering Oahu real estate needs to understand these ownership structures.

Fee simple ownership is what most people think of when they buy property. You own the building or unit and the land beneath it outright, with no expiration date on your ownership. Fee simple properties generally appreciate more consistently, are easier to finance, and provide the greatest flexibility for the owner.

Leasehold ownership means you own the building or unit but not the land. Instead, you lease the land from a landowner for a specified period, typically ranging from thirty to ninety-nine years. When the lease expires, ownership of the improvements reverts to the landowner unless the lease is renegotiated or renewed.

The historical roots of leasehold property in Hawaii trace back to the large land estates that have owned significant portions of the islands for generations. While the Hawaii Legislature passed the Land Reform Act to help convert leasehold properties to fee simple, many properties on Oahu remain leasehold, particularly in areas like Waikiki and Hawaii Kai.

Leasehold properties typically sell at a significant discount compared to similar fee simple properties, sometimes thirty to fifty percent less depending on the remaining lease term. This discount can make leasehold properties attractive entry points for buyers who might otherwise be priced out of desirable neighborhoods.

However, leasehold properties come with lease rent, which is an additional monthly payment to the landowner for the use of the land. Lease rents are typically renegotiated at set intervals and can increase substantially, sometimes doubling or tripling. Understanding the lease rent schedule and potential increases is critical before purchasing.

Financing a leasehold property can be more challenging than financing a fee simple property. Some lenders will not finance leasehold properties, and those that do may have specific requirements regarding the remaining lease term. Generally, lenders require at least thirty years remaining on the lease beyond the mortgage term.

The remaining lease term significantly impacts both value and livability. Properties with shorter remaining lease terms become increasingly difficult to sell and finance. If you are considering a leasehold property, carefully evaluate the remaining term and any options for lease extension or fee simple conversion.

At Kristy and Austin Home Group, we have deep expertise in both leasehold and fee simple properties on Oahu. We can help you understand the financial implications of each ownership structure and find the best property to match your goals and budget. Contact us today for personalized guidance on Oahu real estate.