What to know more about leasehold vs fee simple, and if you’re beginning your home search on Hawaii’s Big Island—whether in Kailua-Kona, Waikoloa, Kohala, Hilo, or Waimea—you’ll quickly encounter two types of property ownership: leasehold and fee simple.
For many buyers, this is the first major point of confusion. Why is one condo priced at $600,000 while an identical unit in the same building is listed for $300,000? Why do some homes have renegotiation dates or expiration years? And what does it mean for your equity in the long term?
This guide breaks down everything you need to know about leasehold vs fee simple, using real-world examples and insights from the transcript provided. Whether you’re a first-time buyer, investor, or someone dreaming of island living, you’ll learn what each option means—and how it affects your lifestyle, budget, and long-term plans.
Understanding the Basics: Leasehold vs Fee Simple
In most states, when you buy property, you receive fee simple ownership, meaning you own both the land and the structure. But in Hawaii, you’ll also find leasehold properties, especially in condo communities and agricultural lands.
What Is Fee Simple?
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You own the land and the home outright.
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You can sell, gift, refinance, or pass it on to heirs.
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This is what most buyers expect when they think of property ownership.
What Is Leasehold?
As explained in your transcript, leasehold means someone else owns the land, and you are essentially leasing the right to live on or use that land for a specific number of years.
Important points:
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You pay a yearly lease fee, renegotiated periodically (typically every 10 years).
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Lease terms vary by property type (condo, farm, home).
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When the lease ends, you may lose the right to occupy the property entirely.
Leasehold ownership is similar to long-term renting—you can use the structure, but you do not control the land.
Why Do Prices Vary So Much? The Real Cost Differences
A major reason buyers stumble onto leasehold properties is the shockingly lower prices.
Example from your transcription:
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Condo A (fee simple): ~$600,000
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Condo B (leasehold): ~$300,000
Why?
Because with leasehold, you may only have a limited number of years left before the property reverts back to the landowner—not you.
Additional considerations:
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Lease fees typically range from $2,000–$5,000 per year.
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HOA may handle negotiations for condo complexes.
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Some leases have very long terms (e.g., 2079), while others have less than 20 years remaining.
Investors often look at return on investment rather than appreciation, which is why leasehold can still make sense in certain contexts.
What Happens When the Lease Ends? Two Possible Outcomes
This is the biggest concern buyers have—and rightly so.
There are only two outcomes:
1. The Lease Is Renewed
The landowner and your attorney negotiate a new lease 3–5 years before expiration.
However:
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There is typically a large fee associated with extending a lease.
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This fee is often $100,000+, depending on the property.
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Lease payments may also increase based on market rates.
2. The Lease Ends and You Must Vacate
If the landowner chooses not to renew:
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You lose occupancy rights.
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You lose your equity.
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You must vacate the property.
This scenario is more common for agricultural leaseholds than condos, but it can happen to any leasehold property.
Pros and Cons of Leasehold vs Fee Simple
Advantages of Leasehold
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Much lower purchase prices
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Higher income potential for short-term rentals
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Allows buyers to live in premium locations (e.g., Alii Drive) at a fraction of the cost
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Great for investors if the numbers make sense
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Ideal for buyers who want to fix their rent rather than rent from others
Disadvantages of Leasehold
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No ownership of land
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Loss of equity at the end of lease
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Lease fees can increase
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Financing is more limited
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Some lenders require 35+ years left on a lease
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Not ideal for long-term primary residence unless lease term is long
Who Should Consider Leasehold?
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Investors looking for high cash flow
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Long-distance owners wanting a vacation rental
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Local residents who want affordable fixed housing
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Farmers or business owners seeking land at lower upfront cost
Financing Leasehold vs Fee Simple: What Banks Actually Look For
Contrary to popular belief, leasehold properties can be financed, but only if specific conditions are met:
To qualify for financing:
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The lease should have 35+ years remaining
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You typically must put 25% down
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It is treated like an investment loan, not a primary residence loan
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Rates may be slightly higher
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Income projections may be required
Properties with short remaining leases are generally cash-only purchases.
Lifestyle & Investment Scenarios: When Leasehold Makes Sense
For Investors
Example from transcript:
A leasehold condo making $100,000/year gross could pay for itself in 3 years if purchased at ~$300,000. With a long lease in place, the ROI can be extremely strong.
For Locals
Some local residents buy leasehold condos because they offer:
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Predictable monthly costs
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Amenities like pools, cable, internet, water
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Prime oceanfront locations they otherwise couldn’t afford
For Agriculture Buyers
Farm leaseholds can cost a fraction of fee simple farms—opening opportunities for:
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Starting an orchard
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Coffee farms
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Commercial agriculture
However, lease terms for farms vary greatly and require careful contract review.
When Fee Simple Is the Better Option
Fee simple is ideal for buyers who want:
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Long-term stability
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Guaranteed equity
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Potential appreciation
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Traditional financing options
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To pass property down to heirs
Most residential buyers in markets like Kailua-Kona, Waimea, Hilo, Waikoloa Village, and Kohala Coast choose fee simple for these reasons.
Choosing Between Leasehold vs Fee Simple on the Big Island
Both property types serve different purposes. Leasehold can be an excellent opportunity—if the numbers make sense and your lifestyle goals align with the time frames. Fee simple is the more secure, traditional form of ownership with long-term benefits.
The best way to avoid costly mistakes is to work with a knowledgeable local agent who can break down these nuances and help you evaluate each property’s risks and advantages.
Whether you’re buying your first home, investing in a leasehold property, or relocating to Kona, I’m here to help you navigate the details.
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