15 Nov Fee Simple Vs Leasehold
Today, we are going to talk about two very common property ownership types. First is the most common type in Hawaii & the rest of the United States: fee simple. Second ownership type is a leasehold. It’s important to understand the difference between the two to properly evaluate homes when looking to buy one.
Fee simple is also known as fee simple absolute, as it is the most outright form of ownership. When acquiring a fee simple property you are not only purchasing the building but the land under it as well. You aren’t required to pay any rent on the land as you completely own it, however as the owner there are maintenance fees, property taxes, etc that you will be obligated to handle. There are also no ownership time restrictions, you may pass the property on to your heirs, in other words it’s yours to keep.
A leasehold ownership happens when someone rents out the land on a given property from a fee simple owner. As the lessee in this situation you do not own the land, & your occupancy of said property is limited by your lease timeline terms. When the land is returned at the end of the lease, it is called reversion. The allowed usage and fees for the lessee is all dependent on the signed lease between the two parties. In some scenarios, the building as well as land is returned to the fee simple owner at the end of the lease.
There are plenty of pros and cons to both, depending on what you are looking for. For example if you are looking to rent a property and don’t have enough capital saved for a mortgage down payment for a fee simple property, leasehold is a great option. Leasehold on a given property is usually actually cheaper than rent for a similar property. The owner of the property could also later down the line offer you to buy his/her interest in the property, making you the fee simple owner. There is always the risk however that the owner will take back everything including property improvements at the end of the term and you will be in a situation to have to find a new place.