Leasehold vs. Fee Simple in Kailua-Kona Explained

Are you seeing both “leasehold” and “fee simple” in Kailua‑Kona listings and wondering what it means for your purchase? You are not alone. The difference affects everything from financing and appraisal to long‑term costs and resale. This guide breaks down each ownership type in plain language and shares a Kona‑specific due‑diligence checklist so you can move forward with confidence. Let’s dive in.

Fee simple vs. leasehold basics

Fee simple in simple terms

With fee simple, you own the land and the structure. You have the broadest property rights allowed under local rules, taxes, and any HOA requirements. In Kona, fee simple is the default for many single‑family homes and numerous condos.

Leasehold in simple terms

With leasehold, you own the building or unit but lease the land from a separate landowner for a set term. Leases can run for multiple decades and may include rent increases over time. In Hawaii, leasehold is more common than on the mainland, especially in some resort and older condo developments, including parts of Kailua‑Kona.

Records and where details live

Ownership and lease terms are recorded with the State of Hawaii Bureau of Conveyances. Hawaii County handles property tax assessments. Condo declarations, CC&Rs, and lease documents name the landowner and outline rent terms, resets, and renewal options.

Financing: what changes with leasehold

Lenders look closely at leaseholds and may apply extra rules. Expect the lender to review:

• Remaining lease term compared with your loan term.
• Ground‑rent escalations and how they affect monthly costs and future marketability.
• Whether the lease allows assignment and whether a lender can foreclose on the improvements.

What this means for you:

• You may face stricter underwriting or higher down payment requirements.
• Some loan programs have added requirements for leaseholds. Do not assume FHA, VA, USDA, or conforming options are available for every leasehold.
• Talk to lenders early and share the lease terms. Policies vary by lender and product.

Appraisal and value signals

Appraisers value the specific interest you are buying. For leaseholds, they consider the remaining term, transfer rules, and ground‑rent adjustments. They also try to use leasehold comparables rather than fee simple comps when possible. Leaseholds often appraise at a discount to similar fee simple properties. The size of the discount depends on lease length, rent resets, and buyer demand in that micro‑market.

Taxes, title, and insurance

• Property taxes. In Hawaii County, assessed values for leaseholds may reflect the leasehold interest or only the improvements. Confirm how a specific property is assessed with the County.
• Title insurance. Title policies for leaseholds insure your leasehold interest and will list the lease and any easements or landowner rights.
• Insurance duties. Review the lease to see who is responsible for insuring the structure and any additional requirements from the landowner and lender.

Resale and marketability in Kona

Leaseholds tend to attract a smaller buyer pool because of limited land rights, financing hurdles, and lease resets. They often sell for less than comparable fee simple properties, though the discount varies by building, lease length, and demand. In Hawaii, many older resort‑area condos on leased land have shown lower prices. Always check recent sales in the specific Kona community you are considering.

Lease expiration, resets, and conversions

• Lease expiration. When a lease ends, land ownership stays with the landowner, and your rights depend on the lease language. Renewal or extension options are not guaranteed.
• Rent resets. Many leases include scheduled rent increases or formulas tied to indexes or appraisals. These can raise your costs over time.
• Converting to fee simple. Some leaseholds can convert by purchasing the land interest. Feasibility and cost vary widely by landowner, lease, and timing. Do not assume conversion is available or affordable.

Long‑term costs to budget

If you consider a leasehold, plan for:

• Ongoing ground rent and potential step‑ups at reset dates.
• Possible consent fees for assignments or refinancing, if required by the lease.
• Legal review and negotiation costs if you pursue an extension or conversion.
• For condos, HOA strategies to manage the master lease, reserves for rising lease costs, and any planned talks with the landowner.

Due diligence for Kona buyers

Before you remove contingencies, request and review:

• Full ground lease with all amendments. Verify start and end dates, renewal options, escalation formulas, assignment rules, and termination clauses.
• Current rent schedule and historical payment record.
• Condo documents: declarations, bylaws, CC&Rs, master lease or sublease if applicable.
• HOA meeting minutes, reserve studies, and financials, with focus on lease obligations and any planned negotiations.
• Title report showing the lease, easements, and recorded agreements.
• Estoppel letters from the landowner and HOA confirming current status and amounts due.
• Appraisal using leasehold comparables and notes on how the lease was analyzed.
• Insurance requirements and any lender conditions.

Key questions to ask:

• What is the exact remaining lease term, and are there renewal options?
• How are rent increases calculated, and are they capped or formula‑based?
• Has the lease been renegotiated or extended before? Are talks underway now?
• Is assignment allowed, and what consent or fees are typical?
• Are there any rights that could affect the improvements at expiration or default?
• Which lenders have recently closed loans in this project?
• For condos, who pays the master lease, and how is the HOA planning for increases or possible conversion?
• Are there any disputes, defaults, or liens involving the lease?

Recommended professionals:

• A Hawaii real estate attorney experienced in leaseholds, title, and conversions.
• Mortgage lenders and brokers who regularly close leasehold loans in Kona.
• Local appraisers with leasehold experience.
• A title company familiar with Hawaii Bureau of Conveyances records.
• A Kona real estate team with a track record in leasehold transactions.

Which option fits your goals

• You value long‑term ownership and simpler financing. Fee simple typically fits better because you own the land and structure, and the buyer pool is wider at resale.
• You want a lower entry price and accept extra homework. A leasehold can work if the price reflects the lease terms and you understand the reset schedule, financing options, and exit strategy.
• You plan to own short to medium term. A leasehold may be acceptable if the remaining term is strong and your lender is comfortable. Still, model your costs at the next reset and consider resale demand.

Practical next steps in Kona

1. Confirm whether each listing is fee simple or leasehold by checking the MLS and preliminary title.
2. Request the full lease and condo documents early in your search.
3. Share the lease with a lender to verify loan options for that specific property.
4. Engage a local real estate attorney to review risks and estimate renewal or conversion costs.
5. Order an appraisal that uses leasehold comparables when relevant.
6. Verify Hawaii County property tax treatment for the property type.
7. For condos, review HOA minutes and reserves to see how lease costs are managed.
8. If resale is likely, study recent Kona leasehold sales to gauge pricing and market time.

If you want a steady, experienced partner through the Kona leasehold process, we can help you gather documents, coordinate with lenders, and manage a clean, well‑timed closing. Connect with Team Kuessner Davis to map out your next steps.

FAQs

What is the difference between leasehold and fee simple in Kailua‑Kona?

• Fee simple means you own the land and the structure, while leasehold means you own the unit or improvements but lease the land for a set term under a ground lease.

Can you get a mortgage on a leasehold in Kona?

• Often yes, but lenders apply extra criteria, and some loan programs have added requirements for leaseholds, so confirm lender policy for the specific lease early.

How do ground‑rent escalations affect costs?

• Many leases include scheduled increases or formulas that raise ground rent over time, which can impact your monthly budget and future resale.

What happens when a Hawaii ground lease expires?

• Rights at expiration depend on the lease; land ownership remains with the landowner, and your options hinge on renewal provisions or other negotiated terms.

Can a leasehold property convert to fee simple in Kona?

• Sometimes, through a negotiated purchase of the land interest, but cost and feasibility vary widely, so do not assume conversion is available.

How are leasehold properties taxed in Hawaii County?

• Assessment can reflect only the leasehold interest or improvements, so verify the specific treatment with the County Real Property Tax Division for that property.