You’re starting to put together some of the necessary information for purchasing a home. You have an idea of the kind of home, neighborhood, price range and other factors but there are some terms that keep popping up that you don’t fully understand. What is the difference between “fee simple” and “lease Hold” or oceanfront versus beachfront property? Here, I’ll try to enlighten you on some of these terms and other tips for buying a home.
Fee Simple Versus Lease Hold
Although fairly common in the real estate world, the terms fee simple and lease hold are foreign to the average home buyer. Simply put, these terms refer to the two ways a Hawaiian property owner holds a title to property.
Fee simple is the most common way that real estate is owned in the United States and is a kind of freehold ownership. Moreover, fee simple ownership represents total ownership over a piece of property limited only by certain government powers like taxation. In effect, fee simple ownership means that you own both the land and all improvements on the land.
On the contrary, leasehold is another type of ownership where you pay for the right to occupy some land for an agreed length of time. In this case, you own only the improvements on the land, rather than the land itself. Generally, the land where the improvements sit is owned by a third party who owns a long term lease on the land and collects monthly rent for you to use the land.
Clearly, many buyers prefer the fee simple ownership situation because they are more confident with their rights over the land. Because leasehold ownership started in 1961 and the majority of the leases were 50 year terms, these leases are going to come to terms very shortly. If you enter into a leasehold agreement you need to be careful that you fully understand the terms of the lease and when the lease is up for renegotiation.
In theory, the market value of a fee simple property and a leasehold property are the same but there are certain factors that make a real world difference. Future lease payments and the growth rate of comparable Maui real estate have a moderate effect on the value of leasehold properties.
Oceanfront Versus Beachfront Property
We all want to live by the water, don’t we? Sitting on your patio, sipping cocktails, and entertaining guests while the sun descends over the ocean is our ultimate Hawaii dream. And so we come to talk about the difference between oceanfront and beachfront property.
So let’s talk about beachfront; and these properties are exactly what the name implies. A beachfront property would be adjacent to one of Maui’s sandy shores. Essentially, you would be able to walk from your house directly onto the beach.
Oceanfront property on the other hand are homes that are adjacent to the ocean but do not have a beach. This means you are right on the water but you likely have some rocky coast or cliffs in front of you rather than a soft, sandy beach.
Regardless of whether you have oceanfront or beachfront property, your property line stops at the vegetation line, the point where natural vegetation ceases. Typically, the vegetation line is a few feet past the highest tidal point. Under Hawaii law, any area between the vegetation line and the coast line is public property and fully accessible by the public.
Residential Versus Vacation Condos
Next we can take a quick moment to talk about the difference between residential condos and vacation condos; and this is an important distinction since you can save quite a lot on property taxes for residential condos. The main difference between the types is how you use the land. Residential condos are your primary or secondary residence while vacation condos are used for the purpose of renting out to secure income. Certain bylaws may restrict using condos as vacation property so be sure to speak to your Realtor® about your options.
Property Tax Exemption
The Maui County property tax exemption is available to anybody who has bought or is planning to buy a new home and will make that home their principle residence. This is available for any residential property type, whether single family dwelling or condominium, so long as you plan to live here full time and it is your primary residence. Secondary residences, vacation homes, and investment properties are not eligible for the property tax exemption; however, if you have recently purchased or are going to purchase a new home, you can save yourself as much as a third of your annual property tax.
Getting the property tax exemption is simple. Just ask your Realtor® to provide you with the property tax exemption form and they may even fill it out for you. The property must be your primary residence and the forms must be completed and filed before December 31st of the previous year to qualify for exempt status in the following year. In other words, to qualify for the property tax exemption in 2011 you must submit your forms before December 31st, 2010.
Posted in Maui Real Estate |
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