Curious to get everyone's thoughts here on buying leasehold properties from an investment standpoint. I'm looking to purchase a condo in the $400-$800k range, and plan on making it a STR. Undecided if I will self-manage or hire a property manager.
I've been excluding all lease-hold condos from my search, but on second thought, maybe it makes sense? I know the property will appreciate far less, but the reduced price would significantly increase my cash flow.
Leasehold properties in Hawaii have an enticing low price-point, however, it can be a slippery slope with a bunch of strings attached... Worst case...it may be a money loser. You definitely want to crunch the numbers and check it twice before you move on anything. Here are come things to consider, High Lease Rent, Lease expiration, Co-op Restrictions, Recent Comps (very high DOM), etc. I closed on one last year and can share my experiences and numbers with you. Please PM me if you are interested.
@Jeremy Segermeister It would definitely depend on the numbers and your projections for STR. LH is usually not good from a long term perspective, since the value goes to zero at the end of the lease. However, if it's a short term play, it might be worthwhile to explore.
I started investing long before there was a BP and maybe before Josh was out of grade school. Standard logic at the time, for me, was to avoid leaseholds.
Then I moved to the UK. Leaseholds are very common. Mostly for units which look and feel like a USA condo yet different in terms of the law. These days I say I have property from Hawaii to London. It turns out my London leaseholds have made me the most money from the appreciation.
So, I would advise you to learn the details of how leaseholds work in HI. Study the fine detail. The stuff around the edges (lease extensions, when a lease terminates, how they are bought and sold, the HOA and other shared costs, etc). I am not saying HI will be like London. Just that there could be money in leaseholds once you get a good grip on what they are all about.
BTW, given HI has a strong connection to the UK, I wonder if the use of leaseholds comes from the UK.
@Jeremy Segermeister I have found LH properties do not cash flow well, much less positive. At the first of the month, you're writing two big payments (HOA and LH) that your STR has to cover. Then you still have mortgage, insurance, utilities, property management.
Also I see many LH properties are listed within two to three years of the renegotiation date. That is an unknown expense that will likely increase.
Now if you can find one with 6-7 years left, you might have a short term appreciation play.
Anyway, just my two cents based on looking at them for my clients.
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