Q. What is the difference between Leasehold and Fee Simple? A. Here is an article from "Real Estate Maui Style" magazine which answers this question.

The best way to describe Fee Simple, is to say that it is the type of ownership that most people are accustomed to. You purchase property, receive title and it is yours or your heirs forever, or until such time as you or your heirs sell it, donate it, will it or give it away.

Leasehold, conversely, is property to which title remains yours for a specified period of time, at the end of which the property reverts to the party that holds the title in Fee Simple.

The most common use of Leasehold title is to convey land upon which improvements have been or are to be made, such as a condominium or single-family residence. The lease is usually for a period of time in excess of fifty years during which time you may exercise the rights of ownership as if you held title in fee. Your probable immediate negative reaction to this type of purchase may be erased by a little insight into the reasons for and the benefits of conveying this type of title to you.

The first reason is that the Fee holder wishes the property to remain in his estate but would to derive some income from the property. Secondly and predominately, it makes the property affordable. Let's take for example a three-acre parcel of land, oceanfront and zoned apartment. The market price for the land alone is $4 million dollars. The developer constructs forty condominium apartments of equal size and sells them Leasehold on a seventy-five year lease. The lease payments are fixed for a term of thirty years at which time the lease is renegotiated. The fixed payments are $200 per month for the first ten years, $250 per month for the second ten years and $300 per month for the third ten years.

Now compare these monthly payments to the payment that you would make if you had purchased the apartment fee simple. The price would be $100,000 more for each apartment. Your down payment would be at least $20,000 more and you would be financing an additional $80,000, representing an additional monthly payment of over $630 depending on the interest rate. This higher down payment and monthly payment could well take the property out of an affordable price range for you.

There are tax benefits in purchasing Leasehold properties. However, taxes are unique to the individual and you are advised to consult your tax expert.

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