TEMPORARILY OFF MARKET
TEMPORARILY OFF MARKET
While a very common form of tenure for holding real estate in some countries like England, here in the U.S., except for commercial leaseholds, most all leasehold private real estate is in the Hawaiian islands. This form of tenure came about in an effort to offer expensive properties to a larger pool of buyers. Properties that developers wanted to hold for long periods for various financial reasons were offered under split ownership to reduce the cost to the buyer, yet allow the developer to offset development costs and, at the same time, have cash flow over a set period of time. For many buyers and developers, this has been a mutually beneficial arrangement.
There are two general leasehold categories in Hawaii: condos and farms.
Basically, with leaseholds you have the right to use the land and the structures until the end of the lease term. However, regardless of what you may hear, it’s not true that you automatically have to leave the property once the lease is over. As mentioned, this is more applicable to condo leases. Kamehameha Schools doesn’t want to repossess your land nor sell their fee simple interest in the property. So, if you have been good stewards of the land and have taken good care of the property, they will usually always offer to extend the lease for another long term - usually 35 years. I'm told that, to date, no owner in good standing has ever been asked to vacate the premises when their lease expired.
Many real estate agents will recommend you stay away from leasehold properties due to these 'myths', and sadly, in some cases may be due to reduced commissions from the lower selling price compared to fee simple properties.
As an owners of a leasehold farm, you will be asked via the lease terms to maintain the planted crops, pay a low yearly land lease rent, (ours is $2,420/year) and share a tiny percentage of any proceeds (our percentage rent averages about $35/year). Kamehameha Schools may periodically inspect the property to make sure it is being maintained, (usually every 2 years), and all structural additions must be approved by them as well as the local government. However, there is no HOA fee and you can paint your house whatever color you want and have any sized dog or cat in (almost) any quantity. Any remodeling improvements to the home are between you and the county as far as permits are concerned. KS/BE doesn't get involved unless you are adding a separate structure.
Why would anyone want to buy a leasehold farm? Because, (1) It can be a very inexpensive way to acquire prime Hawaii farmland. Leasehold properties can often be purchased for 50% less than the equivalent fee simple property. (2) There are tax advantages and leasehold assets can be depreciated. (3) Much of the best farmland is leasehold. (4) Most of the leasehold farms were royal properties with great locations.
Let's do some back-of-the-envelope math: Say you want to live in a million dollar property and you have a million dollars to spend. You could buy our "million dollar" leasehold property for almost half price and invest the other half of your money in whatever you want. Since a fee simple property like this would cost well over a million dollars, your property taxes will be also be half and you can write-off all farm expenses and depreciation against any ordinary income from the farm, a job or online business.
In 30 years, or so, you can get a new lease, (you don't have to buy it again, just pay a small legal transfer fee), and can either keep it in the family or sell it for a perceived profit due to market inflation. (Most savvy investors don't seek profit by selling their family home - but if you make some extra money - so much the better.) Of course, if you sell it with only a couple of years left on the old lease, then you won't get much for it, but you will get something. However, it is always best to get your new lease first.
Several local banks do finance condo and residential leaseholds. However, farm leaseholds require specialty banks. In addition to the regular qualifications for obtaining a loan, the banks require that the term of the lease be at least 5 years longer than the term of the mortgage. Therefore to obtain a 30-year mortgage, the banks require a lease of at least 35 years in length (30 years for a 25 year mortgage, etc.).
NOTE THAT FINANCING FOR THIS PROPERTY CAN BE OBTAINED FROM:
FARM PLUS FINANCIAL
866-929-5585
" ... an active provider of Hawaii farm loans, agricultural land loans & farm operating loans to the over 7,500 farms throughout the state of Hawaii."
The purchase process can be lengthy as the KS/BE Trust can take a long time to process the paperwork and accept a new lessee. They have the right of refusal on any offer made on a leasehold property of theirs. Extra time therefore must be allowed in the purchase process - but well worth it. We have "been there, done that", so we will help any buyer with needed crop plans and other qualifying documents to make a smooth transaction.
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