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Are leaseholds a bad deal?
Old 01-11-2009, 03:34 PM   #1
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Are leaseholds a bad deal?

Made an offer on an oceanfront condo in Florida (40% less than the current owner paid in 2004.) Just got the condo documents only to discover that this is a "leasehold" situation. In otherwords, you own the condo but not the land that the building sits on. You pay a land lease amount each month. There's 65 years remaining on a 99 year lease. It's kinda freakin' me out to know that, even though I won't be around in 65 years, the owner of the land could elect not to extend the lease and take all of the condos back with no compensation to me (or my estate.)

It just doesn't feel right to me. My biggest concern isnt' really, that it could be worthless in 65 years, it's knowing that, more than likely, I'll want to sell the condo in 10, 15, 20 years and there won't be buyers...because of the land lease.

I still have time to back out of this deal and am leaning towards doing so.

Thoughts? Feedback?

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Old 01-11-2009, 03:42 PM   #2
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If it bothers you then move on. There must be no lack of available condos to choose from in FL.
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Old 01-11-2009, 03:49 PM   #3
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All I can add is that I wouldn't do it. I own an apartment and would have never purchased it if I didn't get a portion of the land below. But I wish to leave property to my children, so that plays into it for me.

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Old 01-11-2009, 04:05 PM   #4
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In 20 years there's still 45 years left on the lease. A buyer could still get 30 year financing and enjoy it free and clear for 15 years. Most leaseholds have lease renegotiation periods every so many years. A lot of the Hawaii leasehold properties made the mistake of stating a low percentage or dollar amount in the original document instead of renegotiation at some percentage of current market value and fee holders were left holding million dollar properties and getting $10 lease rents with annual $10increases for extended periods. Most sold the fee to the leaseholders at current market rather than being saddled with a property with a nil return for decades. Also there was political pressure to force the fee sale to owner occupants. That is no longer true and there are properties that will revert to the fee owner. Pretty much anything that has at least 25 years is able to be financed but under that you're usually on your own. There are properties in Waikiki that you can buy for under $50,000 that have just a few years left.

If the property is discounted enough it could be worth it as you'll be getting more space/better location etc that you could get for the same price. I wouldn't do it if it was my only property but I may consider doing this in Honolulu if I got a much better place for my final years.
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Old 01-12-2009, 04:14 PM   #5
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Originally Posted by ARB57 View Post
I still have time to back out of this deal and am leaning towards doing so.
The last 20 years have gradually killed off Hawaii's leaseholds. Banks don't like lending to it and it's almost always bad publicity/politics to raise renegotiate the fee. About the best you can say for it is hot potato that it might beat a long-term lease on a rental property, but you don't have to get a mortgage or put a bunch of capital into a rental property and then hope to be able to sell it when you move out.

Recently a leaseholder kicked out their property tenants. The residences lost value in direct proportion to the remaining months on the lease and the residents had no legal recourse.

Kailuan attorney files for an appeal | | Business | /2008/04/23/ | Business | /2008/02/08/

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Old 01-12-2009, 04:59 PM   #6
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ARB57 If you're going forward you should know that there is a BIG difference between expired leaseholds, those that only have a few years and those with 65 years left. There are properties in Honolulu that still appreciate quite well that have expirations in 2034 and 2059. If you're getting a good discount from fee simple value and only plan to hold 10 or so years I'd say you might have a good deal. Is the fee available now and what would it cost? What is the difference between price of a comparable fee simple property?

Here's a leasehold that sold in 2008 for almost a mil and it expires in 2024
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Good news
Old 01-12-2009, 06:38 PM   #7
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Good news

I spoke with my agent this morning and her response was, " way!" Turns out the condo docs that I had been given were ORIGINAL (1974.) The building bought the land many, many years ago. This is a FEE SIMPLE transaction. Thanks all for the feedback.
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Old 01-14-2009, 11:34 AM   #8
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That's good news, but get it in writing. I'd ask to see the deed or other proof of landownership.
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