You’re browsing real estate listings when something catches your eye: a house that looks just like others in the area, but priced $100,000 less.
Then you notice the word “leasehold” on the listing. You don’t remember seeing that on other listings. Is it too good to be true? Let’s find out.
Fee simple
Fee simple ownership means “complete” ownership. It’s a legal term that means the property owner owns the land and any structures on the land, including the home. The leasehold listing that caught your eye earlier was not fee simple.
Fee simple owners can build equity over time. If their property gains value, they get to keep the profit if they decide to sell their home. But they’ll also be on the hook if they sell the property for less than they paid.
When people think of buying a home, they usually think of owning it “in fee simple.” It’s the most common type of home ownership in the U.S.
Leasehold
A leasehold is a lot different from fee simple ownership. It gives someone ownership of a home or structure on the property, but someone else owns the land itself. The leaseholder pays the fee simple owner to use the land for a set period. You might also see this called a land lease or ground lease.
Leaseholders are called lessees instead of owners since they only own the structure for so many years. Leaseholds are usually much cheaper than fee simple properties since they don’t build equity and the freeholder (fee simple owner) keeps so much control.
The idea of a leasehold property might seem strange if you’re only familiar with fee simple ownership, but it’s not that unusual in places like Hawaii, California, or New York.
So a leasehold is just a rental home?
Yes and no. When a renter leases a run-of-the-mill rental home from a landlord, they sign a lease agreement that gives them the exclusive right to live in the home for a certain number of months or years. They don’t have to “buy” anything upfront.
With a residential…