If you have been searching for property in Kona and noticed that some listings say "fee simple" while others say "leasehold," you are looking at a difference that matters more than most buyers initially realize. It affects how you finance the purchase, how much it costs to own over time, and how easy it is to sell when you are ready to move on. In Hawaii, leasehold ownership is more common than on the mainland — particularly in older resort-area condo developments and some communities along the Kona coast. Understanding the distinction before you write an offer is not optional. It is essential.
Thirty-five years of real estate law taught me that the buyers who get into trouble with leaseholds are almost always the ones who did not read the lease carefully before they got attached to a property. The numbers look attractive. The view is stunning. And somewhere in a stack of documents is a ground rent reset clause that changes the math entirely. This post is about making sure that does not happen to you.
Key Takeaways
- Fee simple means you own the land and the structure. Leasehold means you own the improvements but lease the land from a separate landowner for a set term.
- Leasehold properties are more common in Hawaii than on the mainland, especially in older resort-area and Ali'i Drive condo developments in Kona.
- Financing a leasehold is possible but more complicated — lenders apply extra criteria and some loan programs are unavailable for certain leasehold properties.
- Ground rent resets can significantly increase your monthly costs over the life of ownership. Model those increases before you buy.
- Leaseholds typically sell at a discount to comparable fee simple properties, and the buyer pool is smaller at resale.
- Request the full ground lease and review it with a Hawaii real estate attorney before removing any contingencies.
The Basic Difference
Fee simple is the simplest form of ownership and the one most mainland buyers are familiar with. You own the land and whatever sits on it. You pay property taxes on both. You can sell, rent, renovate, or pass the property to your heirs without needing anyone's permission beyond what local zoning and any HOA rules require. In Kona, fee simple is standard for most single-family homes and a majority of condos.
Leasehold is different. You own the building or unit, but the land underneath it belongs to someone else — a private landowner, a trust, or in some cases a family estate that has held the land for generations. You pay ground rent to that landowner under the terms of a recorded ground lease that runs for a set term, often decades. When the lease expires, your rights to the land depend entirely on what the lease says about renewal. The land stays with the landowner.
Ownership and lease terms are recorded with the State of Hawaii Bureau of Conveyances, which is where recording happens in Hawaii rather than at the county level as on the mainland. Hawaii County handles property tax assessments. If you are buying a leasehold condo, the condo declaration and master lease are also part of the document stack you need to review.
What Leasehold Does to Your Financing
This is where many buyers get their first surprise. Lenders treat leaseholds differently from fee simple properties, and the scrutiny starts with the lease itself.
The first thing a lender looks at is the remaining lease term relative to your loan term. Most lenders want meaningful runway beyond the loan payoff date — some require the lease to extend at least 10 years past the loan maturity, others have different thresholds. If the remaining term is short, your financing options narrow significantly.
Lenders also look at ground rent escalations and how they affect your debt-to-income ratio over time. A lease with scheduled rent increases or a reset formula tied to an appraisal can change your monthly costs in ways that affect whether you qualify today and whether a future buyer can qualify when you sell. They will also review whether the lease allows assignment — meaning whether your interest can be transferred to a buyer — and whether a lender can foreclose on the improvements if needed.
The practical result is that some loan programs simply are not available for certain leasehold properties. Do not assume FHA, VA, USDA, or standard conforming options are on the table for every leasehold. Talk to lenders early and share the actual lease terms before you get emotionally invested in a property. Policies vary by lender and by the specific lease, and finding out late in escrow that your financing is unavailable is an unpleasant and avoidable situation.
Ground Rent, Resets, and What They Actually Cost
Ground rent is the recurring payment you make to the landowner for use of the land. On the surface it may look modest. The number that matters more is what it becomes at the next reset date.
Many Hawaii ground leases include scheduled rent increases or reset formulas tied to indexes or appraisals. A lease that resets to fair market value every 10 or 15 years can produce a dramatically different number than the current ground rent suggests. Before buying any leasehold, model what your costs look like at the next reset under a realistic range of scenarios. That exercise alone will tell you whether the purchase price reflects the actual risk.
For leasehold condos, there is an additional layer. The HOA typically pays the master ground lease and passes the cost to unit owners through monthly dues. If the master lease resets and the HOA has not been building reserves for the increase, you may be looking at a special assessment or a sharp jump in monthly fees with limited notice. Review the HOA financials and meeting minutes specifically for any discussion of the ground lease, upcoming resets, or negotiations with the landowner.
Appraisal, Value, and Resale Reality
Appraisers value the specific interest you are buying. For a leasehold, that means the appraiser considers the remaining lease term, the ground rent and any scheduled increases, transfer rules, and how comparable leasehold sales have performed in that community. When leasehold comparables are available, a good appraiser uses them rather than fee simple comps. When they are not, adjustments are made — and those adjustments typically result in a lower value than a comparable fee simple property.
The resale picture follows the same logic. Leaseholds attract a smaller buyer pool because of the financing complexity and the lease risk. They typically sell at a discount to comparable fee simple properties, and that discount tends to widen as the remaining lease term shortens. If you are buying a leasehold with an eye toward eventual resale, study recent sales in that specific building or community to understand how the market has been pricing the lease risk before you make your offer.
Lease Expiration and Conversion
When a ground lease expires, the land stays with the landowner. What happens to your improvements depends on the lease language — some leases provide for renewal, some do not, and some include provisions that give the landowner rights to the improvements at expiration. This is not hypothetical language buried in fine print. It is the core risk of leasehold ownership, and it needs to be understood clearly before you close.
Some leaseholds can convert to fee simple through a negotiated purchase of the land interest from the landowner. Feasibility and cost vary enormously depending on the landowner, the lease terms, the current land value, and whether the landowner is even willing to sell. Do not assume conversion is available or affordable. If conversion is part of your thinking, get a realistic assessment of the cost and timeline before you factor it into your decision.
Due Diligence Checklist for Kona Leasehold Buyers
Before you remove contingencies on any leasehold property in Kona, you should have reviewed and understood all of the following:
- The full ground lease with all amendments — verify start and end dates, renewal options, escalation formulas, assignment rules, and termination clauses
- Current ground rent schedule and historical payment record
- For condos: declarations, bylaws, CC&Rs, and master lease or sublease if applicable
- HOA meeting minutes, reserve studies, and financials — specifically any discussion of lease obligations, upcoming resets, or negotiations with the landowner
- Title report showing the lease, easements, and all recorded agreements
- Estoppel letters from the landowner and HOA confirming current status and amounts due
- Appraisal using leasehold comparables with notes on how the lease was analyzed
- Lender confirmation that financing is available for the specific lease — not just for leaseholds in general
The professionals you need for this process are a Hawaii real estate attorney experienced in leaseholds and Bureau of Conveyances records, mortgage lenders who regularly close leasehold loans in Kona, a local appraiser with leasehold experience, and a title company that knows Hawaii title well. Having a real estate team with leasehold transaction experience keeps the process from stalling when questions come up during escrow.
Which One Is Right for You
Fee simple is the simpler choice for most buyers. You own the land, your financing options are broader, and your buyer pool at resale is larger. If two otherwise comparable properties are available and one is fee simple, the fee simple property carries less complexity and less long-term risk.
Leasehold can make sense if the price genuinely reflects the lease terms, if you understand the reset schedule and have modeled your costs at the next reset, and if your lender has confirmed financing is available for that specific property. Buyers who plan to own for a defined shorter term sometimes find leasehold acceptable if the remaining lease is strong and the numbers work. The key word is if — all three of those conditions need to be true, not just one of them.
What does not work is buying a leasehold because the entry price looks attractive without understanding what drives that lower price. The discount exists for a reason. Your job as a buyer is to understand whether the discount is appropriate for the risk or whether the market has underpriced what you are taking on.
Frequently Asked Questions
What is the difference between leasehold and fee simple in Kailua-Kona?
Fee simple means you own the land and the structure outright. Leasehold means you own the unit or improvements but lease the land from a separate landowner under a recorded ground lease for a set term. In Hawaii, leasehold is more common than on the mainland, particularly in older resort-area and condo developments along the Kona coast.
Can you get a mortgage on a leasehold property in Kona?
Often yes, but the process is more complex. Lenders review the remaining lease term, ground rent escalations, and assignment provisions before approving financing. Some loan programs — including certain FHA, VA, and conforming products — have specific requirements or limitations for leaseholds. Share the actual lease terms with your lender early, before you get deep into the transaction.
How do ground rent resets work and why do they matter?
Many Hawaii ground leases include scheduled rent increases or reset formulas tied to appraisals or indexes. At each reset date, your ground rent — and for condo buyers, potentially your HOA fees — can increase significantly. Before buying any leasehold, model what your costs look like at the next reset under realistic scenarios. That exercise will tell you whether the purchase price reflects the actual risk.
What happens when a Hawaii ground lease expires?
The land stays with the landowner. What happens to your improvements depends entirely on the lease language. Some leases include renewal options, others do not, and some give the landowner rights to the improvements at expiration. This is the core risk of leasehold ownership and needs to be understood clearly — not assumed — before you close.
Can a leasehold property convert to fee simple in Kona?
Sometimes, through a negotiated purchase of the land interest from the landowner. Feasibility and cost vary enormously depending on the landowner, the lease terms, and current land values. Do not assume conversion is available or affordable. If conversion is part of your thinking, get a realistic assessment of the cost and timeline before you factor it into your purchase decision.
How are leasehold properties taxed in Hawaii County?
Hawaii County property tax assessments for leaseholds can reflect either the leasehold interest alone or only the improvements, depending on the specific property. Confirm how a particular property is assessed with the County Real Property Tax Division before closing. Do not assume the tax treatment matches what you would expect from a fee simple property.
If you are looking at a leasehold property in Kona and want to walk through what the lease actually means for your specific situation, that is exactly the kind of conversation we have with buyers before they write an offer. Reach out to us at Kona Homes for Sale or call 808-854-5432.
Mark Davis, Esq. is a licensed real estate broker (RB-23769) with Kona Homes for Sale at Coldwell Banker Island Properties, Kailua-Kona, Hawaii. He practiced as a transactional and litigation real estate attorney for 35 years before moving to the Big Island full time. He currently serves as a member of the Hawaii County Real Property Tax Board of Appeal. Brenda Kuessner holds the ABR, CRS, e-PRO, GRI, and GREEN designations and has sold real estate on the Big Island for 35 years. Together they serve buyers and sellers across the Kona and Kohala Coast market. This post is for general informational purposes only and does not constitute legal or tax advice.
