1. The rent

One of the most significant factors you need to consider is your monthly rate. That is because it will be one of the biggest expenses you will have to pay to stay in the leasehold property.

That being said, the rent will vary from property to property. However, there are generally set dates where leasehold properties will allow for renegotiating of rent, along with a price cap in case the costs increase based on ongoing factors.

2. The duration

The lease duration is vital solely because of what may happen at the termination of the lease. Since property values tend to go down nearing the termination date, both the lessor (the owner of the land) and the lessee (the property owner) will have to agree to what happens when the date finally arrives. That agreement can either be an extension of the lease or the property being turned into a fee simple, meaning the lessee will then own the property and the land.

3. The results of termination

As mentioned already, the results of the termination will be dependent on the lessee and the lessor. However, if there has been no agreement, or at least there are no plans to extend the lease, the lessor will have the right to repossess the land and everything on it, including the property.

4. The possibility of conversion

For every leasehold property out there, there is always the possibility that a conversion from leasehold to fee simple can happen. However, the cost of such a conversion will vary depending on the property and the land itself. Fortunately, the cost can be financed, meaning one can take out money to pay for it.

5. The feasibility

When speaking of feasibility, it means asking whether it makes financial sense for you to pay for the leasehold property. In many cases, owning a leasehold property is much more affordable than fee simple ones. However, with changing rent and possible future increases, you must still be financially sound to adapt to the changing costs.

Homebuying in Ewa Beach: HI Velocity Mortgage

With that out of the way, we hope you have a better understanding of whether you should own a leasehold property or a fee simple property. Put simply, if you want a more affordable way to own a property and do not mind paying monthly rents and future increases, leaseholds are the way to go. However, if you do not want to bother negotiating with the lessor and want to own both land and property, a fee simple property is the better route.

That being said, weigh out your options and compare as many properties and deals as you can. This way, you can make the best possible decision to own a property—whether it’s a leasehold or a fee simple.

HI Velocity Mortgage is a mortgage broker in Ewa Beach that specializes in helping clients get through the home buying and lending process. Contact us at (808) 727-1055 and start the process of getting your dream home in Hawaii!