Is fee simple vs lease hold profitable?

[Danielle Dorien]

Needing some guidance as I am a first time home buyer, single mom, and I work as a registered nurse. I have the flexibility to travel around and was looking into taking a minimum of a 2 year contract either in Hawaii (downtown Honolulu) or Guam. Upon searching for condos I noticed majority of them and what I can afford falls under Fee Simple VS Leaseholds. I understand leaseholds is basically temporary ownership of the unit but not the land itself and based on how many years is left on the lease. Say if I were to go this route is there possibility for profit and am I able to rent it out once I choose to leave for the remainder of the lease? 

I live in Arizona and have my heart set on living in the pacific temporarily. But if it is not a wise financial decision then I had planned to buy a starter home locally or a condo I can invest in with hopes to rent it out eventually before purchasing my dream home. Any guidance or advice is appreciated! 

[Daniel Kong]

Hi Danielle, welcome to the forums! Leaseholds here are tricky. If you buy a leasehold property here in Hawaii, it may seem like a good deal because they are a lot cheaper. However, a few things to be aware of - you need to check the terms of the lease to see how many years are left and what the monthly fee is. If there aren't a lot of years left (I wanna say 35 but don't quote me), then a conventional bank won't give you a normal loan on the property. Thus for these cheaper "deals" you will need to come in with all cash or a lot more expensive commercial loan. Also, unlike normal properties here in Hawaii, typically leasehold properties go down in value as time passes. A house you bought for 200K 5 years ago, may only be worth 150K now. Just something to keep in mind when you are planning for the future. Often the lease fees can be upwards of $1,000 a month. If you have an HOA fee of $500, a mortgage of $2500, property taxes and insurance, you can see how your monthly costs add up quickly. Usually if you rent it out it won't cover all these costs. So if you move away and rent it for 2500 a month, you are now paying $1,500 a month out of your pocket in negative cashflow to keep an asset that is going down in value and in 20 years will be worth $0. If you sell it, you will probably take a loss, since it lost value since you've had it - factor in realtor fees when selling as well. Not trying to scare you or anything, those are just some of the things people may not be aware when dealing with leasehold.

That being said, Hawaii is an amazing place to live and I hope you can make it out here!! :)