Should you buy a fee simple condo or consider a leasehold in Metro Honolulu? If you have browsed Ala Moana, Waikiki, or Kaka‘ako listings, you have likely seen both options side by side at very different prices. It is normal to feel unsure about what those terms mean for cost, financing, and resale.
In this guide, you will learn how leasehold compares to fee simple ownership in Honolulu, what lenders look for, and how to protect yourself with smart due diligence. You will also get a simple checklist to help you compare total cost of ownership, not just the purchase price. Let’s dive in.
Leasehold and fee simple at a glance
Fee simple means you own the land and the building. It is the most common form of ownership in the United States. You can sell or finance it more easily, subject to zoning and any HOA rules.
Leasehold means you own the unit or improvements for the length of a lease with a separate landowner. You pay ground rent according to the lease, and your rights come from that lease. When the lease ends, the landowner’s rights depend on the lease language.
Why leasehold appears in Metro Honolulu
In Honolulu, large landowners and developers historically used long-term ground leases to build hotels, apartments, and condos. Many older towers in Ala Moana and Waikiki, and some properties in Kaka‘ako, were created with leaseholds. Newer projects may still use ground leases for tax, financing, or development reasons.
Where you are likely to see it
Leasehold is more common in older urban condo inventory than in most single-family neighborhoods. Exact counts change over time. Always verify tenure in the MLS listing, the condo declaration, or county records for any specific property.
Key differences in rights and costs
Rights and control
- Fee simple: You control the land and improvements, within zoning and HOA rules. Transfer is straightforward and lenders are familiar with it.
- Leasehold: Your rights are defined by the lease. Use, transfer, and subletting may need lessor consent and can be limited by the lease or condo rules.
Financial obligations
- Fee simple: You pay your mortgage, taxes, insurance, and any HOA fees.
- Leasehold: You pay all of the above plus ground rent. Many leases include rent escalations at set intervals, which raise your total cost over time.
Lease expirations and renewals
Some leases include renewal or extension options, renegotiation formulas, or conversion paths. Terms and costs vary widely. If a lease ends without a workable extension or conversion, certain rights may revert to the landowner based on the lease language.
Transferability and approvals
Leases may require lessor consent to sell or assign. Condo projects may also have a right of first refusal or transfer fees. Some leases include subordination or non-disturbance provisions that lenders review during underwriting.
Financing and appraisal realities
Lender availability and appetite
Lenders treat leasehold differently than fee simple. Some do not lend on leasehold. Others will lend but may require a higher down payment, a shorter loan term, or a higher interest rate. Government-backed programs and investor guidelines have specific rules for leaseholds. Work with loan officers who have Hawaii leasehold experience and compare options.
What underwriters and appraisers review
- Remaining lease term in years
- Ground rent schedule and any escalation formula
- Identity and credit strength of the lessor
- Lease clauses that affect title or lender priority
- Condo documents and how the lease interacts with the declaration
Appraised value and market discount
Appraisers often assign a discount to leasehold compared to similar fee simple units. The size of that discount depends on the years left on the lease, rent escalations, any renewal or conversion options, and local comparable sales. A lower appraised value can reduce the loan amount or require a larger down payment.
Typical borrower impacts
- Some programs may not be available for the property
- Lenders may limit the loan term based on remaining lease years
- You may need a higher down payment or see different pricing than fee simple
Resale, pricing, and exit plans
Buyer pool and marketability
Leasehold properties appeal to a smaller buyer pool. Many buyers prefer fee simple for simplicity and long-term security. That can lengthen time on market. Some buyers, however, seek leaseholds when the price reflects the lease terms and the location fits their lifestyle or investment plan.
Pricing and negotiation levers
Sellers usually price leaseholds lower than fee simple to reflect the economic life of the lease and the smaller buyer pool. Depending on the lease and project rules, buyers and sellers may negotiate around:
- Price adjustments to reflect remaining lease years and escalations
- Contributions toward lease extension or conversion costs if allowed
- Allocation of lender-driven fees or title endorsements
Planning for lease end
You should plan your exit strategy the day you buy. Understand the lease expiration date, renewal or conversion rights, and likely costs. If a lease cannot be extended or converted on acceptable terms, your ownership rights can change at expiration. Early planning helps you manage risk and timing for resale.
Total cost of ownership matters
A low purchase price can be offset by rising ground rent. When you compare options, look at the full monthly and long-term picture, not only the listing price. Include mortgage, taxes, insurance, HOA fees, and current and future ground rent based on the lease schedule.
Two common scenarios to watch:
- A lease with aggressive rent escalations can raise your monthly costs faster than expected.
- A lease with modest rent today but a short remaining term may look attractive now but could face steeper value loss as expiration approaches.
Due diligence checklist for buyers
Before you write an offer, gather and review:
- The recorded lease and all amendments, riders, and addenda
- Ground rent schedule and escalation formula
- Lease expiration date, renewal or conversion clauses, and any stated costs or formulas
- Lessor identity and evidence of land ownership in a title report
- Any subordination or non-disturbance agreements required by lenders
- Condo declaration, bylaws, house rules, and any lease-related amendments
- Estoppel certificate from the lessor, if available, showing current rent status
- Condo association budgets, financials, and any assessments tied to the ground lease or buyout proposals
- County tax assessments and how assessments apply to leasehold versus fee simple interests
- Insurance responsibilities for land and improvements
- Litigation and title exceptions affecting the lessor, HOA, or project
- Lender pre-approval specific to the leasehold you are buying
- An appraisal that addresses leasehold comparables and remaining term
Quick questions to ask
- Is the lease assignable, and what consents are required to sell?
- What is the process and cost to extend or convert the lease, if available?
- Have there been proposals to buy out the ground lease or change rent terms?
- Are there planned capital projects or special assessments related to the leasehold?
- Will my lender require specific title endorsements or escrow holdbacks?
Which path fits your goals?
Choose fee simple if you want long-term ownership of land and improvements, the broadest financing options, and a larger resale pool. Choose leasehold if the lower entry price and location fit your plans, and the lease terms align with your holding period and budget.
Use these guiding questions:
- How many years remain on the lease relative to my intended holding period?
- How does total monthly cost change with each scheduled rent escalation?
- Will my preferred loan program finance this lease, and on what terms?
- What are my likely exit paths before the lease reaches a critical stage?
If the answers support your time horizon and cash flow, a leasehold in a prime Metro Honolulu location can be a strategic buy. If not, fee simple may deliver more flexibility and peace of mind.
Work with senior guidance
Leaseholds reward careful planning. You deserve a senior advisor who will unpack the lease, coordinate lender and title reviews, and help you compare total cost across real options in Ala Moana, Waikiki, and Kaka‘ako. If you are weighing a purchase or preparing to sell, connect for a tailored plan that matches your goals and timeline.
Ready to move with clarity? Reach out to Akimi Mallin for discreet, senior-level representation and market-tested guidance.
FAQs
What is the difference between leasehold and fee simple in Honolulu?
- Fee simple includes ownership of land and improvements. Leasehold grants rights to the unit for the lease term with separate ground rent and lease rules.
Can I get a mortgage on a leasehold condo in Metro Honolulu?
- Yes, but approval depends on lease terms, remaining years, and the lender’s policies. Work with lenders experienced in Hawaii leaseholds.
Are leasehold condos always cheaper than fee simple?
- They often list at lower prices, but you must compare total cost of ownership, including ground rent and escalations, not just the purchase price.
What happens when a leasehold expires in Honolulu?
- Outcomes depend on the lease. Some allow renewal or conversion. Others may revert rights to the lessor. Review the lease and consult local experts.
What should I review before buying a leasehold unit?
- Obtain the recorded lease and amendments, rent schedule, expiration and renewal terms, condo docs, title items, and a lender pre-approval specific to the leasehold.
