Fee Simple vs Leasehold in Real Estate

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Video Transcription
Aloha. This is George Krischke with Honolulu HI 5.

Today we’re going to talk about Fee Simple, versus Leasehold. Fee Simple is the most complete form of ownership, and is most common throughout the US and Hawaii. Fee Simple means you own the building and you also own the land underneath. Most Hawaii properties are Fee Simple. Leasehold means you own the building, but someone else owns the land – that is the landowner, and you pay a month lease rent to the landowner.

Now, there are several risks that come along with Leasehold. First of all, the lease rent could go up over time. Second, you may be able to buy the land eventually, but usually at a high price that is determined by the seller, by the landowner I should say. That’s at a ‘take it or leave it’ type of a price level. Sometimes, the lease gets extended, but usually at less favorable terms. So, that’s not good.

The biggest risk of all with Leasehold properties is when it actually comes to the lease expiration, because you have to be prepared to give it all up; it all goes back to the landowner. This is called “reversion.” Now, you can understand why Fee Simple is better than Leasehold, less risky. That is why we always recommend Fee Simple. Thanks for watching.

Until next time, ~Aloha.


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