Thinking about buying a leasehold condo in Honolulu? Before you make your move, it’s crucial to understand the “end game”—what happens when the lease runs out?
Leasehold properties in Hawaii can offer lower purchase prices compared to fee simple condos, but they come with unique risks that buyers must consider. In this post, I’ll break down the three possible outcomes when purchasing a leasehold condo and how to prepare for the future.
The 3 Possible Leasehold Endings
1️⃣ Best Case: The Landowner Offers the Fee for Sale
🏡 You get the chance to buy the land and convert to fee simple
The best possible scenario for leasehold condo owners is when the landowner decides to sell the land beneath the building. If this happens, you can purchase the fee and convert your condo into fee simple ownership, meaning you now own both the condo unit and the land it sits on.
✅ Example: This recently happened at Discovery Bay in Waikiki, where leasehold owners were given the opportunity to buy the fee.
Key Takeaway: If you’re considering a leasehold purchase, check if there are plans to sell the fee—this can greatly impact your investment.
2️⃣ Good Case: The Land Lease Gets Extended
📜 The lease is renewed, allowing new buyers to get financing
Another favorable outcome is when the landowner extends the lease, which can preserve property values and allow buyers to get mortgage financing (since banks typically won’t finance short-term leaseholds).
✅ Examples:
- Sans Souci (Diamond Head) & Wailana at Waikiki both had their leases extended, making them more attractive to buyers.
Key Takeaway: If you’re buying leasehold, ask about lease extensions—it could make a big difference in your condo’s long-term value.
3️⃣ Worst Case: The Lease Expires & You Walk Away
🚨 When the lease runs out, you lose ownership of the condo
The biggest risk of leasehold ownership is that when the lease expires, you no longer own the property. You might have spent years paying for the condo, but when the lease ends, the landowner takes back the property, leaving you with nothing.
❌ Example: This happened in Kailua, where leasehold condo owners lost their investments when the lease expired.
Key Takeaway: Always plan for the worst-case scenario—unless the fee is available for purchase or the lease is extended, assume you’ll eventually have to walk away.
How to Protect Yourself When Buying Leasehold
✅ Check if the fee is available – This could turn your leasehold condo into a fee simple investment.
✅ Understand the lease expiration date – The shorter the lease, the bigger the risk.
✅ Ask about lease extensions – Some buildings get lease renewals, others don’t.
✅ Consider the financing options – Most banks won’t lend on leases with less than 30 years remaining.
Pro Tip: If the lease ends in 20 years or less, assume that you’ll lose your investment when the lease expires.
Final Thoughts: Is Leasehold a Smart Investment?
Leasehold condos can be great short-term investments, especially if you’re paying less upfront and not planning to hold the property long-term. However, buyers must understand the risks and always have an exit strategy.
📞 Thinking about buying a leasehold condo in Honolulu? Call me at 808-371-3509—I’ll help you navigate the market and find the right investment!
Would You Buy a Leasehold Condo?
Drop a comment below and share your thoughts—smart investment or too risky? 👇