Thinking about buying on Oʻahu and keep seeing “fee simple” and “leasehold” in listings? You are not alone. These terms change what you own, how long you own it, and how lenders view your purchase. In this guide, you will learn the key differences, how Oʻahu’s market treats leaseholds, what to check in a lease, and a simple process to compare options with confidence. Let’s dive in.
Fee simple vs leasehold: quick definitions
Fee simple in plain English
You own the land and the building outright. You can keep it indefinitely, sell it, mortgage it, lease it, or pass it on. Many single-family homes and newer condos in Hawaiʻi are fee simple. Buyers often prefer fee simple because ownership is permanent and financing is usually straightforward.
Leasehold in plain English
You buy the right to use the property for a set period, but you do not own the land. You pay lease rent for the ground beneath the home or condo, based on a written lease. The lease spells out the term, rent increases, renewal options, and what happens when the lease ends. Unless renewed, the right to use the property ends at expiration, and the landowner’s rights take over based on the lease language.
Why the difference matters
- Duration: Fee simple has no end date. Leasehold has a clock. The years left on the lease drive value and financing options.
- Financing: Short remaining lease terms can make loans harder to get and may require higher down payments or shorter loan terms.
- Monthly costs: Lease rent can be billed directly or included in association fees. Some leases include regular increases, and some have market-based resets.
Oʻahu market patterns
Leasehold is a normal part of the Oʻahu landscape, especially in parts of Honolulu and Waikīkī, and in many older condominium projects. Large private landowners and public entities historically leased land for development rather than selling it fee simple. You may see original lease terms that started at 55 to 99 years, with various amounts of time remaining today.
Market behavior reflects these realities. Buyers coming from the mainland often value fee simple higher, since it feels more permanent and is easier to finance. Leasehold properties on Oʻahu typically sell at a discount compared to similar fee simple options, and the size of that discount usually tracks the lease’s remaining life and its renewal and rent rules.
Lease terms that matter most
Remaining lease term
This is the number to write down. More years remaining usually means more buyers, more financing options, and stronger resale value. Fewer years remaining narrows the buyer pool and can push the property into cash-only territory.
Renewal or extension rights
Some leases allow automatic renewals, some require a new negotiation, and some have renewal options the tenant can exercise based on a formula. The details change value. Clear, tenant-friendly renewals usually support better pricing and financing.
Ground-rent escalations
Rent can rise on a fixed schedule, track inflation, or reset to market value at set intervals. Predictable increases are easier to plan for. Market resets create uncertainty and can lead to sharp jumps when the reset hits.
Reversion at lease end
Some leases state that improvements revert to the landowner at expiration. Others define compensation or removal rules. Know exactly what the lease says happens at the end.
Assignment and approvals
Some leases require the landowner’s approval before you sell your leasehold interest. Understand what approvals are needed and how quickly they are granted.
Subordination and lender protections
“Subordination” defines which document has priority, the lease or the mortgage. Many lenders want the lease to include protections so a borrower’s mortgage is not wiped out if the lease is terminated. An “estoppel certificate” is a document where the landlord confirms key lease facts for the lender, like rent and remaining term.
A simple example
A 99-year lease with 70 years left and rent linked to inflation behaves very differently than a 55-year lease with 10 years left and a market reset at expiration. Lenders, and therefore buyers, view the second case as higher risk, which affects price, loan choices, and resale.
Financing impacts on Oʻahu
Lender rules differ by program and change over time, but the themes are consistent.
- Remaining term vs. loan term: Many lenders want the lease to last well beyond the mortgage. Short leases can force a larger down payment or a shorter loan.
- Lease language: Terms about rent resets, reversion, assignment, and landlord approvals can affect eligibility.
- Condo projects: For condominiums, lenders also review the project’s ground lease. If the project-level lease is unfavorable, financing can be limited.
- Loan programs: Conventional loans, FHA, VA, and portfolio lenders each have specific guidance for leaseholds. Your loan officer should confirm program rules for the exact building and lease.
What to ask your lender right away:
- Will you finance this specific leasehold, and under which programs?
- How many years must remain on the lease for the loan I want?
- Are lease extension, landlord consent, an estoppel certificate, or subordination/non-disturbance required?
- How will ground rent be counted in my debt-to-income ratios?
- What documents do you need from the seller and landlord to underwrite the loan?
Compare options: a step-by-step process
Step 1 — Gather documents
- Get the full land lease and all amendments.
- Confirm how ground rent is billed, either in HOA dues or separately.
- For condos, collect the project lease and declarations.
Step 2 — Note key terms
- Remaining years on the lease.
- Renewal or extension rights and how they work.
- Escalation method for rent, fixed, inflation-linked, or market reset.
- What happens at expiration, including any reversion.
- Assignment rules and whether landlord approval is needed for sale.
Step 3 — Confirm financing
- Ask your lender to review the lease and the project.
- Verify the minimum required remaining term and any limits on loan length.
- Get pre-approved for this property type, not just in general.
Step 4 — Analyze value and resale
- Compare recent sales of similar leasehold and fee simple properties nearby.
- Model future costs using the lease’s escalation language.
- Consider the buyer pool, since leaseholds often attract fewer financed buyers.
Step 5 — Mitigate risk and negotiate
- Ask for price adjustments or seller credits to offset lease risk.
- Have your attorney seek protections such as assignment clarity or subordination and non-disturbance.
- If a renewal or reset is near, include a contingency tied to favorable terms or landlord approval.
Common red flags
- Very short remaining lease, which limits financing and resale.
- Undefined market resets or broad landlord discretion at renewal.
- Large or unpredictable rent increases.
- Unclear language about reversion of improvements at lease end.
- Landlord approval required for sale with vague standards or timelines.
When a leasehold can still make sense
Leasehold is not always a deal-breaker. It can work well if you have a defined time horizon, the remaining term is long, and the rent increases are predictable. Some buyers value the lower purchase price versus fee simple, then plan to own for a period that fits well within the lease’s remaining life. Properties with long leases and clear, tenant-friendly terms often trade closer to fee simple values and can be easier to finance.
Work with a local guide
Choosing between fee simple and leasehold is part numbers, part timing, and part comfort with risk. You deserve clear answers and a calm, step-by-step plan. If you want help reviewing a lease, modeling future costs, or finding the right lender fit, reach out to Nate Gaddis. Our team will bring local context, a straightforward process, and steady communication from first tour to closing.
FAQs
What is fee simple ownership on Oʻahu?
- Fee simple means you own the land and the building indefinitely, with the right to sell, lease, mortgage, gift, or bequeath the property.
How does leasehold ownership work in Honolulu County?
- You buy the right to use the property for a set term, pay ground rent per the lease, and follow rules for renewals, rent increases, and what happens at expiration.
Can you get a mortgage for a leasehold condo on Oʻahu?
- Yes, but it depends on the lease and the lender’s program. Many lenders require the lease to outlast the loan and may adjust down payment or loan term.
What happens when a leasehold expires in Hawaiʻi?
- Unless renewed, your right to use the property ends, and the lease terms control any reversion or compensation related to the improvements.
How do ground-rent increases affect my budget?
- Fixed or inflation-based increases are easier to plan for. Market resets can trigger larger jumps, so you should model future costs from the lease language.
What lease items should I review before making an offer?
- Remaining years, renewal mechanics, rent escalation method, reversion rules, assignment and approval rights, and any project-level lease terms.
Are leasehold homes always cheaper than fee simple on Oʻahu?
- Leasehold homes often sell at a discount, especially with short remaining terms or uncertain renewals, but long, predictable leases can narrow that gap.
