A good leasehold buy at Princeville’s Pali Ke Kua
Generally speaking, leasehold property does not sell as well as fee simple. First, many do not understand what leasehold means, second, most are hesitant to buy fearing the lease fee will go up dramatically (and sometimes it does) and third, they don’t know what to expect when the term of the lease expires. However, now and again a leasehold property is priced so competitively that it warrants a second look. For example, Pali Ke Kua unit 238 is a leasehold unit listed for $350K while other leasehold units in the same complex are $530K, $649K, and $695K. All of these units have ocean view- some more or less than others, but ocean view nevertheless. Here are all the Pali Ke Kua units currently on the market:
Copyright 10/9/2007 by Hawaii Information Service
174822 T A 495 4-5-4-12-9-28 LH $350,000 Pali Ke Kua Iii #238 993 #238 1/1.5
200136 T A 49 4-5-4-12-9-26 LH $530,000 Pali Ke Kua Iii #236 1,135 #236 2/2.0
197847 T A 102 4-5-4-12-8-24 LH $649,000 Pali Ke Kua Ii #130 1,100 #130 2/1.5
192740 T A 211 4-5-4-12-5-28 LH $695,000 Pali Ke Kua Incr I, ii, iii #210C 1,127 #210C 2/2.0
196893 T A 124 4-5-4-12-9-30 FS $899,000 Pali Ke Kua Iii #242 1,135 #242 2/2.0
173096 T A 569 4-5-4-12-9-24 FS $950,000 Pali Ke Kua Iii #234 1,135 #234 2/2.0
196871 T A 112 4-5-4-12-8-20 FS $1,100,000 Pali Ke Kua Ii #227 993 #227 2/2.0
194640 T A 152 4-5-4-12-9-27 FS $1,100,000 Pali Ke Kua Iii #237 1,135 #237 2/2.0
This information has been supplied by third parties and has not been independently verified by Hawaii Information Service and is, therefore, not guaranteed.
So why is 238 so much less? Basically, because the seller is Motivated! It is listed as a 1 bed 1.5 bath, but actually has a second floor “loft” bedroom with a full bath which is open to below making it a 2 bedroom unit. Although lacking the privacy of the downstairs master bedroom, the openness of the loft bedroom ensures that it stays cooled by the trades.
$350K buys you a leasehold 1 bedroom plus loft, 2 bath unit which is quite a bit less than the $899K asking price of the least expensive fee simple unit. Although the leasehold rent is $764 a month, this is much less than the approximately $2,600 a month more you would be paying on a mortgage for the cost difference between the two. Also, on a leasehold property, you are able to write off the maintenance fee, the mortgage interest along with the entire leasehold fee. Quite a substantial write off.
As for lease rents going up; you will receive a copy of the lease agreement as part of the condo documents in escrow. During this time you can review the document to determine how the lease rent is calculated, and see when future lease rent negotiations will take place. The reason for the dramatic jump in lease rents at Pali Ke Kua was because property values had jumped so dramatically since the last negotiation. Also a major factor is that there are only 8 leasehold properties in the complex, meaning that any increase is borne by this small number of units.
What happens at the end of the lease? Technically what happens when a leasehold agreement expires is that the land reverts to the lessor. That- or a new contract is negotiated. Then again, the lessor may decide to offer the “fee” and sell the right to the land under the condo, thus converting it from leasehold to fee simple.
Clearly, the owners of 238 are MOTIVATED. Their unit has been on the market 495 days, starting out at $699K and slowly working it’s way down to $479K as of 11/06. In 2/07 they reduced dramatically from $479K to $399K and then reduced again from $399K to $350K on 8/2007. Even the county assessment on this unit shows the building valued at $644,600, which means your first trip after closing is to the tax assessor’s office to dispute the assessment valuation. If you want the write offs, the rental income and a the ability to get into an ocean view condo relatively inexpensively, this may be just the unit for you. Just my thought for the day…
Aloha, Elaine
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