Ever see a Honolulu condo priced far below similar homes and wonder what the catch is? You likely found a leasehold property. Understanding how leasehold compares to fee simple can save you time, money, and stress as you search on Oʻahu. In this guide, you’ll learn what each form of ownership means, how financing works, what to expect for long‑term costs, and the key questions to ask before you make an offer. Let’s dive in.
Fee simple basics
Fee simple means you own both the land and the improvements, like the house or condo unit. You generally control how you use the property, can mortgage it, and can sell it without a landlord’s consent. This is the most common ownership type for single‑family homes on Oʻahu and many condos.
Leasehold basics
Leasehold means you own the unit or building, but you lease the land from a separate landowner through a ground lease. Leases often run for decades and spell out ground rent, when rent can increase or reset, options to extend, and what happens at the end of the lease. On Oʻahu, some condos and resort or urban properties sit on leased land, so you become both a unit owner and a ground tenant at the same time.
Oʻahu context: where you see each
You will find more fee simple ownership among single‑family homes in Honolulu and across the island, but leasehold properties exist for both houses and condos. Many older developments and some buildings in neighborhoods like Waikīkī and resort or urban zones were built on leased land. Leasehold listings often show lower asking prices than similar fee simple units nearby. The lower price reflects tradeoffs, including financing limits, exposure to future ground rent changes, and a smaller pool of buyers when you resell.
Financing rules to know
Lenders focus on the remaining lease term. Many loan programs require a minimum number of years left on the lease from the date your mortgage starts. They also review lease language that affects lender security, such as subordination, consent, and the ability to place a mortgage on the improvements.
Government and conventional loans have different rules. FHA, VA, Fannie Mae, and Freddie Mac each publish guidance on when leasehold loans are allowed and for how long the lease must run. Some programs are more restrictive than others, and requirements change over time. Always confirm the exact rules with your lender for the specific property you are considering.
Expect a smaller lender pool and stricter terms for leaseholds. Some lenders charge higher rates or require larger down payments on leasehold loans. Ground rent may be counted in your debt‑to‑income ratio, which reduces how much you can borrow. Refinancing or cashing out later can also be harder if the lease term has shortened.
Before you write an offer, ask your lender for written confirmation that the lease terms meet their requirements. This step can save you from a last‑minute loan denial.
Resale value and long‑term costs
Leasehold units often sell at a discount compared to similar fee simple homes. The buyer pool is smaller, which can lengthen marketing time and reduce offers. If you plan a shorter hold or can buy with cash, the discount may be attractive. If you need broad financing access and maximum resale flexibility, fee simple is usually simpler.
Long‑term costs include ground rent today and potential increases later. Many leases include scheduled escalations or market‑based resets at specific years, which can raise your monthly costs beyond your mortgage, HOA, taxes, and insurance. Some owners choose to pursue a lease extension or a fee conversion, which can involve a substantial payment and coordination with the landowner and association. At lease expiration, some documents require improvements to transfer to the landowner or set other obligations, so it is important to understand the end‑of‑term rules.
Legal and title checkpoints
Get the ground lease and all amendments early in your due diligence. Review the full lease, condo declarations and bylaws if applicable, estoppel certificates, title report with lease exceptions, association financials, and insurance.
Focus on these clauses and dates:
- Remaining lease term and expiration date.
- Ground rent formula, escalation schedule, and market reset method.
- Renewal or extension options and who controls them.
- Assignment and subordination, including any need for lessor consent.
- Who owns the improvements at lease end and obligations at expiration.
- Lender protections and notice requirements.
- Use, maintenance, and insurance requirements.
Work with a Hawaiʻi real estate attorney and a title company that understands Oʻahu ground leases. Many leases require lessor consent, estoppel certificates, or lender notices before closing.
Is leasehold right for you?
Leasehold can fit if you want a lower upfront price, expect to own for a shorter period, or are focused on a specific location where fee simple is out of reach. It can also work for investors who can model rent, vacancy, and reset risk, and for cash buyers or those using lenders experienced with leaseholds.
Fee simple usually fits long‑term homeowners who want more predictable costs, easier financing, and wider resale appeal. If you value maximum flexibility and fewer moving parts, fee simple may be the better path.
Model your total monthly cost
To compare options, build a simple cost picture for each property:
- Mortgage payment based on your loan terms.
- Current ground rent, if leasehold.
- HOA or condo dues.
- Property taxes and insurance.
- A projection for the next ground rent reset using the lease’s formula or timing.
Run a few scenarios. Look at today’s payment, then estimate costs at the next scheduled escalation or reset year. This helps you see the impact on your budget and potential resale timing.
Buyer checklists: questions to ask
Questions for your lender
- Will you finance this specific leasehold property and under which programs?
- What minimum remaining lease term do you require for purchase and refinance?
- How will ground rent and future resets affect my debt‑to‑income ratio and approval?
- Are any lease provisions unacceptable to your underwriting?
Questions for the seller or listing agent
- Please provide the complete ground lease, all amendments, and the current ground rent statement.
- When is the next escalation or market reset and how is new rent calculated?
- Are there any pending negotiations with the landowner or past disputes?
- Has the association or owners explored a fee conversion or lease extension?
Questions for the title company or attorney
- What lease‑related exceptions will appear on the title policy and are any lender endorsements needed?
- What are my obligations for the improvements at lease expiration?
Questions for the condo association
- How is the ground lease treated in the governing documents and budgets?
- Any history of special assessments tied to rent resets or lease actions, and how is the association planning for future changes?
Next steps
If a leasehold listing catches your eye, get the lease documents, speak with an experienced lender early, and build a clear cost model. If you prefer simplicity and long‑term flexibility, focus your search on fee simple. Either way, having a team that understands Oʻahu’s ground leases will make your decision easier.
Ready to talk through a specific property or lease? Connect with Daniel Ulu for Real Estate with Aloha and a practical plan for your goals.
FAQs
What is the main difference between leasehold and fee simple on Oʻahu?
- Fee simple means you own the land and the home or unit, while leasehold means you own the improvements but rent the land under a ground lease.
How do lenders treat leasehold properties in Honolulu?
- Lenders focus on remaining lease term, lease provisions, and ground rent, and may require stricter terms, higher down payments, and add rent to your debt‑to‑income ratio.
Why are some leasehold condos priced lower than fee simple units?
- The discount reflects ground rent costs, future rent reset risk, a smaller buyer pool, and more limited financing options.
Can a leasehold be converted to fee simple later?
- Sometimes, through negotiation with the landowner or coordinated association action, but costs can be substantial and depend on the lease and agreements.
What happens at the end of a ground lease?
- The lease controls the outcome, which can include transfer of improvements to the landowner or other obligations, so review the lease carefully with your advisors.
When is fee simple usually the better choice for Honolulu buyers?
- If you want long‑term predictability, broad financing access, and stronger resale flexibility, fee simple often provides the simplest path.
