Photo by David Kovalenko on Unsplash
By Shannon Smith, REALTOR® CRS | Team Hawaii Real Estate | teamhawaii.realestate
Last week we covered the basics: leasehold means you own the unit but not the land, and fee simple means you own both. This week, let's talk about what can go wrong with leasehold — and why those risks don't always show up in the listing price.
The Lease Clock Is Always Ticking
Every year that passes, the remaining term on a leasehold property gets shorter — and so does its value and its appeal to lenders. When a lease drops below 30 years remaining, most conventional lenders will no longer finance it. That means your eventual buyer would need to pay cash, shrinking your buyer pool and often your sale price along with it.
Ground Rent Resets: The Surprise That Catches Owners Off Guard
Leasehold properties come with ground rent — a payment to the landowner for use of the land. What many buyers don't fully understand until they own is the rent reset provision. At defined intervals — often every 5 to 10 years — the ground rent is recalculated based on current land values. In a market where land values have climbed steadily, those resets can be dramatic. There are Oahu buildings where owners saw their ground rent triple or quadruple at a reset point, fundamentally changing the economics of ownership overnight.
Always ask: when is the next rent reset, and how is it calculated? This is not a small-print question — it can be the difference between an affordable unit and an unaffordable one.
Financing Is More Complicated
• VA loans: Not eligible on most leasehold properties. Full stop.
• FHA loans: Only if the lease extends 10+ years beyond the loan term.
• Conventional loans: Most lenders require 30+ years remaining on the lease.
• Local Hawaii banks and credit unions: Often the only lenders willing to work with shorter-term leasehold — typically at higher rates.
The Resale Problem
When you're ready to sell a leasehold property, you face the same challenges your original seller did — amplified. The lease is shorter. The buyer pool is smaller. The financing options are fewer. In buildings where leases are winding down with no clear path to fee conversion, some units are effectively becoming unlendable.
When Leasehold Can Still Work
Leasehold isn't always the wrong answer. If you're a cash buyer with a defined ownership horizon and no plans to pass the property along, a leasehold unit can offer real value per dollar. The key is going in with a full picture of the risks and a clear exit strategy.
Next week: 'Fee Available' — what it means when a leasehold building offers buyers the option to purchase the land and convert to fee simple, and whether that opportunity is worth taking.
Seeing a leasehold listing that looks tempting? Let's look at the lease terms, ground rent history, and resale outlook together before you make a move. teamhawaii.realestate
