Stop Foreclosure Now Before It’s Too Late…

Stop Foreclosure Now

Foreclosure is a stressful and unpleasant experience, not to mention the impact it has on your credit score, your ability to obtain a mortgage and it may even affect your employment for the years to come. No one wants to have to go through the foreclosure process.

But life happens…job loss, divorce, unforeseen illness/disability, death in family, underemployed, business loss, etc.

No matter the situation that brought you to defaulting on your mortgage payment and facing potential foreclosure, we have the solution for you.

Related article: Protect Your Home with Life Insurance

The most important thing to remember is that you always have options.

We’ll help you understand your situation and what options are available and best for you.

What options are available to avoid or stop a foreclosure?

Option #1: Selling Your Home Quickly

This is the simplest option of all if you don’t own more than the home is worth. You can easily sell your home in the conventional way with a real estate agent, listing on the MLS.

Or you can sell your home to us without any agent’s commission, as we’re not real estate agent. We’ll buy your home in “as in” condition.

You’ll get your money quickly as this would be a cash transaction. A traditional home buyer with bank loan would need a minimum of 30 days to close on the transaction.

Option #2: Short Sale

A short sale is similar to option #1, except you owe more than your home is worth. For example, your mortgage balance is $500,000, but your home is now worth only $350,000.

This option is not as easy as the first because when you took out the mortgage initially the bank created a lien on your property.
You’ll need to get the bank’s approval to sell your home for less than what you owe because the bank is losing money.

Many banks would agree to such option because the short sale is a lot easier and less expensive than a full on judiciary foreclosure.

Related article: What is a Short Sale?

Option #3: Loan Modification

If your goal is to stay in your home, a loan modification is what you need. A loan modification can help you work with your bank to modify the loan term to help you stay in your home.

Check out MakingHomeAffordable.gov. Hurry, programs expiring December 31, 2016.

See…you still have three options to stop foreclosure.

Don’t delay…contact us now or fill out the form above.

I am a real estate investor and can buy your home in "as-is" condition as an investor (not as a real estate agent).

Therefore, you pay no commission or service fees to me at all.

Search Short Sale and Foreclosure

Invest in Short Sale and Foreclosure Properties

Hawaii presents a very unique real estate market, not only in that it is super expensive, but the opportunities to build wealth with short sale, foreclosure and bank-owned homes.

Short sale and foreclosure homes provides a unique opportunity for investor to salvage unmarketable homes back to health, and help it re-integrate into the community.

I guess that’s why we call it “rehab” when referring to renovating a real estate property.

Many local residence have bad impression of real estate investors. Many thinks that it is the bottomless pockets of real estate investors who is manipulating the real estate market to the point, where “affordable” housing is NOT affordable to them.

I’m sure there are many crooks out there doing just that.

But, the way I see it is that real estate investors’ job is to help local community by rehabbing poor-conditioned properties back to life and back to sellable condition.

Many short sale and foreclosed properties are in such disarrayed condition that banks would not lend money on. Which means, these properties are only available to cash buyers, who are real estate investors with the cash or connection to money lenders.

They’re the ones with vision and willingness to take the risk and borrow expensive hard money cash to buy and rehab the properties, bringing them back to life putting more available properties back to the market.

Hello…supply and demand…so now more credit-worthy individuals can now qualify for conventional mortgage from banks to purchase these properties.

Browse these Sources of Short Sale and Foreclosure Real Estate Properties:

Auction.com.

Bank Foreclosure Sales.

Bank of America Foreclosure Listings.

HomePath Homes.

Hubzu.com.

HUD Homes.

Star Advertiser Notice of Foreclosure Sale.

Zillow Foreclosure Homes in Honolulu.

Hawaii Foreclosure 101

Hawaii Foreclosure Process

What is a Foreclosure?

A foreclosure is a legal process by which a homeowner’s right to the property is terminated, usually due to default. It typically involves a forced sale of the property at public auction with the proceeds applied toward the mortgage debt.

In Hawaii, mortgage lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure.

In judicial foreclosure or “foreclosure by action”, the mortgage lender files the appropriate documents with the court to rule that the homeowner is in default.

The mortgage lender then delivers the notice of default to the homeowner, or publishes the notice if they have trouble contacting the homeowner.

The homeowner has 20 days to respond. If the homeowner does not respond in 20 days, the court would find the homeowner in default and the mortgage lender can proceed with scheduling the foreclosure sale.

However, the homeowner has 30 days after the notice of default to file a notice of appeal.

A commissioner is usually appointed to sell the property at the public auction, which are usually held at the court house steps. The commissioner publishes the notice of foreclosure sale in the local paper showing the auction dates and open house dates, if any.

Any party may bid at the auction and the winning bidder is required to pay 10 percent of the bid cash or cashier’s check.
Unfortunately, the highest bidder does not automatically get the property. Additional bidding may continue at a confirmation hearing. If the court find the price fair at the confirmation hearing, then the sale is confirmed.

Non-judicial foreclosure or “foreclosure by sale”, does not involve any court action.

The mortgage promissory note usually contain a provision called a “power of sale” clause, which allows the mortgage lender to foreclose on the property upon default to satisfy the unpaid mortgage loan.

In a non-judicial foreclosure, the mortgage lender’s attorney would publish a notice of foreclosure sale once a week for three (3) consecutive weeks in a local newspaper in the county the property is located.

The last publication cannot be less than fourteen (14) days before the sale.

The copy of notice must be posted on the property and mailed or delivered to the homeowner no less than 21 days prior to the foreclosure sale.

The foreclosed property is auctioned off to the highest bidder. The auction maybe rescheduled, which happens frequently. And the notices of sale must be re-sent and re-published.

The homeowner has up to the three (3) days prior to the foreclosure sale to save the default by paying the defaulted debt along with any costs and reasonable attorney’s fee.

Hawaii offers no right of redemption for homeowners once the sale of the property is confirmed. However, homeowners in Hawaii do have up to one (1) year to redeem a tax lien foreclosure.

After the foreclosure sale, a homeowner may still face deficiency judgement if the proceeds from the foreclosure is not enough to pay off the mortgage promissory note IN FULL, meaning the property was sold SHORT.

A foreclosing mortgage lender who completed a non-judicial foreclosure of residential property is prohibited from pursuing a deficiency judgement against the homeowner unless the debt is secured by other collateral.

Read Avoid Foreclosure at All Cost.

Owner Financing Win-Win for Both Sellers & Buyers

What is Owner Financing?

Owner financing or seller financing, is as the name implies, the owner finance the deal, meaning the own is now also the bank. Instead of the buyer getting a loan from the bank, and paying monthly payment to the bank, the buyer will pay the owner a monthly payment.

Owners usually offer owner-financing to make their properties easier to sell because the seller now has a larger pool of buyers, who are unable to obtain mortgage from banks. Sellers may finance part of the purchase price - 30% or 50%. Sometimes they may even finance up to 100%.

A typical owner-financing deal looks something like this. The owner or seller has a property that he/she wants to sell for $500,000. With more stringent bank requirement, mortgage loans are hard to come by. So the seller offers owner financing to less qualified buyers. The seller finance 50% of purchase with a small down payment, which means the buyer only has to come up with the other 50% from the bank. So instead of coming with $100,000 down payment (20% of the purchase price) and getting a $400,000 conventional loan, the owner may only require a $10,000 down payment, and owner-finance the $250,000. The buyer now would need only to borrow $240,000 from the bank for this purchase.

Seller financing are usually short-terms 3-5 years long, at which time the buyer, hopefully with better income and credit score, would be able to re-finance with the bank. Most seller financing charges higher interest rates, something around 5-6% now, for 3-5 years, then balloon payment at the end of term.

Why is Seller Financing a Win-Win Strategy for Both the Sellers and Buyers?

The benefit for the seller is that he/she would earn the interest that would normally goes to the mortgage bank. The seller is acting as the bank and the money he/she is lending is secured with the property, which means if the buyer default or is not able to refinance at the end of the financing term, the property goes back to the seller.

The benefit for the buyer is that he/she can buy the property now, instead of waiting to save up enough down payment or repair their credit score, or whatever their reasons for not getting a mortgage from the bank.

Hopefully at the end of the owner-financing term, the property would have increased in value or equity either through appreciation and/or consistent monthly payment. Now with more equity in the property, the buyer should be able to refinance to a conventional mortgage easily.

Isn't it brilliant?

Owner Financing

Sell Your Home as Rent-to-Own

Rent-to-own homes

Rent-to-own, also known as lease option, is an investing strategy that can be benefit both home buyers and home sellers.
For home sellers, rent-to-own may be the perfect solution to ensure you get top dollar for your home in a buyer’s market. It may even generates some extra income for the seller before the actual sale of the home. The rent-to-own strategy also increases the number of potential buyers for your home to include those who do not qualify for the conventional mortgage from banks.
In a rent-to-own or lease option, the homeowner rents his/her property to a potential buyer (lessee) with the exclusive right to purchase the home within a certain time period, usually 3 years or longer. The homeowner cannot legally sell the property to anyone else during the period defined by the lease option. The homeowner and lessee would negotiate in the beginning of the lease the term of the lease to include the purchase price, option or earnest money, monthly payment in addition to the rent.

Decide if a rent-to-own is for you. Rent-to-own isn't for everybody. If you need all the money from the sale of your home right away, you're better off with a straight sale. In addition, the majority of rent-to-own aren't exercised, so you may have to begin the process of selling your home all over again after the lease terminates.

You might also have to consider if you want to, or aren't able to, keep up with the responsibilities of continuing to own the home. In the a rent-to-own scenario, the homeowner must continue to pay property taxes and insurance and is generally still responsible for major repairs during the lease period.

Do a background and credit check on the applicants. At this point, you have to look at potential buyers as potential tenants, and you don't want to do a rent-to-own with somebody who you wouldn't rent to. Look for someone with good references, a steady source of income, and the ability to pay the rent plus, if applicable, the additional monthly option money.

As far as the applicant's credit history, you probably don't want someone with serious credit trouble, but at the same time you may want to be somewhat lenient. Many buyers who choose rent-to-own do so because they have some blemishes on their credit and want to improve their profile before applying for a loan.

Pre-qualify your lessee. It's a good idea to contact a loan officer or mortgage broker to at least discuss the potential buyer's prospects for obtaining a mortgage at the end of the lease term. There is more uncertainty (and, hopefully, more chance of improvement) the longer the lease term, but both you and the potential buyer can get a realistic idea of whether they'll be able to buy the house.

This step is essential if it's important to you to sell the house at the end of the lease. But ethically, and perhaps legally, it's important regardless of your preference because if you take option money and above-market rent from a tenant who can't possibly buy the house at the end of the lease, you're just ripping the tenant off.

Provide the potential buyer with a seller's disclosure form. The disclosure form lists any known problems with the house. You attest, to the best of your knowledge, to the condition of the house. This form is standard for other purchase transactions but is sometimes left out in a rent-to-own. Make sure you give the buyer this form to help him or her make an informed decision and to protect the integrity of the contract and sale. The buyer should also have an independent home inspection done.

Prepare a lease agreement with option to buy and collect option money. You can get fill-in-the-blank rent-to-own forms online, but you're better off getting them from a local real estate agent or attorney. The contract is sometimes added as an addendum to a standard sales contract. Unless you really know what you're doing, get help with the details of the contract from a real estate attorney, not a or broker.

The most important thing to remember is that you've got to cover not just the money issues but also who is responsible for what types of repairs and other complications that are bound to come up.

◦ Agree on the purchase price of the home, which should be fixed on the lease contract. You'll be obligated to sell at this price, so you want to make sure it's something you can live with. Ideally, the agreed-upon price should be at least at fair market value and maybe slightly more (especially for lease terms of 1 year or more) to compensate for the convenience to the buyer and for the likely appreciation of the property over the term. You and/or the buyer may want to pay for an appraisal to validate the price. Banks and other lenders will only loan against the appraised value, regardless of the price that you agreed on with the buyer.

◦ Determine how much option money to collect. Some states and municipalities have laws specifying a maximum amount of option money that can be taken, but in general the initial option money or option fee can be almost any amount. A typical figure is 2-4% of the purchase price. You will keep this money no matter what. If the lessee decides to buy, the money will be credited toward the down payment or the purchase price, and if the lessee doesn't buy, he or she forfeits the option money to you. Keep in mind that many buyers choose lease options because they can't come up with a big down payment, so don't expect to be able to get a huge amount of initial option money.

◦ Decide how much of the lessee's monthly payment will be credited toward the option. Anywhere from 0-100% of the monthly payments can be credited toward the purchase price, although the amount is sometimes subject to state or local laws. In general, the monthly payment will be calculated at fair rental value plus a set amount that will go toward the purchase price. This, like the initial option money, will either be credited toward the down payment or the purchase price or, if the tenant doesn't buy, will be forfeited to you.

◦ Decide on the term of the lease. Lease options typically run anywhere from 6-24 months. Less than six months usually doesn't make sense for the buyer, and more than 2 years (sometimes more than 1 year) may cause tax or legal complications. Shorter lease terms generally result in sales more than longer terms, simply because there are so many variables over the long term, but the length of the lease should be adequate to ensure that the lessee has time to get his or her financial ducks in a row. Keep in mind that if housing prices appreciate quickly, you may be getting a bad deal on a long lease, since you're obligated to sell at the agreed-upon price. If housing prices decline, however, you may be getting a good deal, but if they've declined significantly, the lessee is unlikely to buy the house. You still get to keep the option money, however.

Get the right home insurance coverage. Since you will no longer be the owner-occupant of the house, you may need to update your homeowners insurance policy to a dwelling policy. Check with your insurance agent to determine what policy is necessary and what coverage you need. Your tenant should also be insured to cover his or her liability and, depending on your state, any gaps in your coverage that may result from the lease option.

Collect monthly payments. Now, all you need to do is collect the payments each month. Keep track of the payments received so you'll have a record when the time comes for the lessee to exercise the option (or, in the the worst-case scenario, when you have to go to court to settle a dispute).

Sell the home. At the end of the lease term, the lessee can exercise the option to purchase your home for the price specified on or before the date specified. The total option money paid (including the initial option money plus any credit from the monthly payments) will go toward the down payment. Thus, the buyer already has equity in the home and should find it easier to qualify for a mortgage.

Read Buy Your Perfect Home with Rent-to-Own.

Homeowners’ Guide to Avoid Foreclosure at All Cost

Short Sale vs Foreclosure

Homeowners facing economic hardships may have a foreclosure looming, but are often too proud or uninformed to do anything about it, until its too late.  Before considering bankruptcy or allowing the bank to foreclose, consider a short sale.  

Unlike a short sale, foreclosures are initiated by lenders only. The lender moves against delinquent borrowers to force the sale of a home, hoping to make good on its initial investment of the mortgage.

Also, unlike most short sales, many foreclosures take place when the homeowner has abandoned the home. If the occupants have not yet left the home, they are evicted by the lender in the foreclosure process.

Once the lender has access to the home, it orders its own appraisal and proceeds with trying to sell the home. Foreclosures do not normally take as long to complete as a short sale, because the lender is concerned with liquidating the asset quickly. Foreclosed homes may also be auctioned off at a "trustee sale," where buyers bid on homes in a public process.

In most circumstances, homeowners who experience foreclosure need to wait a minimum of five years to purchase another home. The foreclosure is kept on a person's credit report for up to seven years.

Although there is no guarantee your lender will agree to a short sale, here is a list of the benefits of participating in a short sale, versus being foreclosed upon. 

Benefits Of A Short Sale Versus Foreclosure

• Homeowner can apply for a short sale even if they're not behind in payments.

• There in ZERO COST to the homeowner in short sale. The lender pays all the selling costs and real estate commission. Meaning the homeowner has nothing to lose!

• The homeowner receives professional guidance from real estate agent when doing a short sale.

• A short sale may postpone the foreclosure action to allow enough time for house to be sold.

• Homeowner may qualify for financial or relocation incentives from the lender, and receive up to $10,000 for relocation from a government program called HAFA which provides an option for homeowners transitioning out of their mortgage.

• A short sale only affects your credit score between 50-70 points vs 200-400 points with foreclosure.

• Homeowner may qualify for another mortgage loan as soon as 2 years, as compared to 7 years with a foreclosure.

• Doing a short sale avoids foreclosure and waives the full deficiency owed by the homeowner. They can now walk away from the property free and clear.

• Possible tax relief from cancellation of any debt income.

• Short sales are not likely to affect jobs that require a security clearance.

• It is easier to recover financially and emotionally from a short sale than a foreclosure.

If you plan to simply pack up, leave and “let the bank have the property”. This is the worst idea ever for the following reasons:

• If you leave the house, you will still owe the balance on the mortgage plus penalties and late fees (which in many cases is tens of thousands of dollars). This means that by law you are responsible for paying off this balance over the next 10 to 20 years for a property you no longer own!

• If you walk away from the house, the bank will still try to recover the money. They can legally do this by garnishing your future wages and investments!

• If you let the property go into foreclosure, your credit score can be affected up to 400 points. This means that it is going to be hard to find somewhere to rent (if they do credit checks). It is going to be hard to get another mortgage for a very long time with a foreclosure on your record. It is also going to be hard to get credit (in general) with a foreclosure on your record.

• Having a foreclosure on your record can also be a hindrance in getting a job, especially ones that require security clearance.

Read What is Short Sale?.

 

Short Sale vs Foreclosure

Invest in Short Sale?

Short Sale Timeline for Buyers

Read What is Short Sale?.

A short sale can be a good deal for a cash buyer or investor. And it can help the seller avoid having a full foreclosure on his or her credit record.

Because in a short sale, the proceeds from the home sale are less than the amount the seller needs to pay off the mortgage debt and the costs of selling, so for this deal to go through, everyone who is owed money must agree to take less -- or possibly no money at all. This is one reason why short sale can be a very complex transaction that move slowly and often falls through.It is a lengthy and paperwork-intensive transaction that may take up to a whole year to process.

If approved for short sale, the buyer or investor negotiates with the homeowner first, then seeks approval on the purchase from the bank. It is important to note that no short sale may occur without the lender’s approval.

Before you rush in, consider the following issues.

1. Know what you are getting into. Buying a short sale is not a do-it-yourself project. Find a real estate professional (even attorney), who understands the short sale process in your state. Having an experienced and knowledgeable real estate agent (or fellow investor) on your side who knows how short sales work will increase the chances of closing the deal without loosing your shirt. Even under the ideal circumstances, short sales can take a long time to close and may require extra effort on the part of the buyer.

2. Be wary of the condition of the property. If the seller is in financial distress, chances are the home may not be well-preserved. The seller also may be reluctant to reveal serious maintenance issues. Proceed carefully and get the property inspected by a knowledgeable person before you commit.

3. Make sure the deal can close. If you've decided to go for it, the first step is to determine the status of the short sale. Below are items that most lenders require from a short seller. If the seller is unable or unwilling to provide this information, the short sale won't close and any buyer is wasting his or her time.

A hardship letter. The seller must explain why he/she cannot keep up with making payments. The sadder the story, the better. A seller who is simply tired of struggling probably won't be approved, but a seller with cancer, no job and an empty bank account may. The most common acceptable reasons are divorce, bankruptcy, loss of job or some kind of emergency.

Proof of income and assets. It is in the best interest of the lender to recover funds from the home owner. If the lender discovers that the home owner has other assets, including retirement funds, they may prefer to liquidate these assets for payment on the mortgage, and denies the short sale. The proof of income and assets must include income tax and bank statements, going back at least two years. Sometimes sellers are unwilling to produce these documents because they conflict with information on the original loan application, which may have been fudged. If that's the case, this deal is unlikely to close.

Comparative market analysis. This document shows that the value of the property has declined, which essentially means the home owner has no equity in the property, and it won't sell anytime soon for the amount owed. The comparative market analysis should include a list of comparable properties on the market and a list of properties that have sold in the past six months or have been on the market in that time frame and are about to close. This analysis is very similar to the Broker Price Opinion, which is less formal but often more informative than a property appraisal. The prices should support the seller's contention that the property is worth no more than the short-sale price.

A list of liens. The home owner must be at least 3 months behind on the mortgage and has been served a lis pendens from the court indicating that the lender intends to foreclose on the property if they do not receive payment in the near future. There may be more than one lender or liens on the property, and all lien holders have to agree to take less -- or possibly no money at all..

If there are first and second mortgage liens, the question becomes: What's the plan to satisfy these lien holders? If there is a third mortgage lien, reaching any deal is very iffy.

Deal killers include child support liens, state tax liens and homeowners association liens. If they exist and there are no obvious solutions, walk away, Thompson says.

Because a short sale generally doesn't cover the whole amount owed or other liens, it can trigger mortgage insurance. If the property is covered by a mortgage insurance policy that doesn't have to pay off until the home has been in foreclosure for 150 days or some similar length of time, chances are the insurer will hold up the sale because it won't want to pay any earlier than necessary and hopes the foreclosure will just disappear. Often the mortgage insurer will simply go silent. Thompson says: No response, no approval.

4. Be realistic. Short sale is a waiting game. This is not your game, if you're in a hurry.
Part of the slow down in short sale is potential buyers’ lowball offers, which are ultimately rejected.

Another factor is the increasing number of government programs aimed at keeping people in their homes. According to the Mortgage Bankers Association, about 50 percent of defaults never go as far as foreclosure. So lenders see short sales as potentially the least attractive option and aren't willing to expedite them.

To avoid getting stuck in an extended process of negotiation, start by negotiating with the seller and the seller's agent that your offer will be the only one presented to the lender. If the lender isn't flooded with offers, it will be more motivated to move forward.

5. Have your cash ready. Once you have a deal, you should have your money ready, preferably cash. If you're getting a loan, you need bank approval in advance.

As with any deals like REOs, short sales, foreclosure, or auctions -- make sure you have money lined up ready to go. Cash is always the best financing option in all these deals.

Search Hawaii Hard Money Lenders.

Buy Rent-to-Own Homes: Win-win for Both Buyers and Sellers

rent-to-own home buyers

Rent-to-own, also known as lease option, is an investing strategy that can be used by both home buyers and home sellers.

For home sellers, lease option may be the perfect solution to ensure you get top dollar for your home in a buyer’s market. It may even generates some extra income for the seller before the actual sale of the home. The rent-to-own strategies also increases the number of potential buyers for your home to include those who do not qualify for the conventional mortgage from banks.

In a rent-to-own or lease option, the homeowner rents his/her property to a potential buyer (lessee) with the exclusive right to purchase the home within a certain time period, usually 3 years or longer. The homeowner cannot legally sell the property to anyone else during the period defined by the lease option. The homeowner and lessee would negotiate in the beginning of the lease the term of the lease to include the purchase price, option or earnest money, monthly payment in addition to the rent.

For home buyers, rent-to-own make sense if you don’t qualify for conventional mortgage because you don’t have a down payment, poor credit score, limited employment history, high debt-to-income ratio. This allows home buyers time to save up the required down payment, improve credit scores, establish a longer job history, or whatever they need to do to get a mortgage.

Rent-to-own homes also allow family to move into their dream home and give them time to save enough for a d down payment to buy the home, without worrying that home being sold to someone else.

The rent-to-own or lease option is one strategy with 2 real estate transactions - the leasing portion and the option portion.

The lease portion is very similar to any lease agreement between the landlord and tenant. And, then, the is the option portion, which should be a separate agreement in which owner agrees to give the lessee exclusive right to purchase the property within a specific period of time and for a predetermined price.

Remember, the option agreement only grants the lessee the “option” to buy the home. The lessee is not obligated to buy the home. On the other hand, the homeowner is legally obligated to sell the home to the lessee under terms set forth in the option agreement. Therefore, the option is only binding for the homeowner.

In the rent-to-own or lease option home, there is an option fee, which is an up-front charge, similar to a down payment. The option fee can be whatever amount the homeowner and lessee agreed on, usually dependent upon the value of the home.

If you’re the buyer, it is in your best interest to negotiate the lowest fee possible. The option fee is generally non-refundable, but will be applied toward the lessee’s down payment when the time comes to apply for a mortgage.

If the lessee later decides to not execute the purchase option, the seller can keep the fee.

And if the parties do not renew the rent-to-own lease the buyer continues to live in the property as a month-to-month renter. Or, the homeowner can sell the home to a retail buyer.

Search Zillow’s Homes for Rent.

Fee Simple vs Leasehold Homeownership

Fee Simple vs Leasehold

n most areas of the United States, land is owned in fee simple. A fee simple owner has ownership of the entire property, including both the land and buildings. Fee simple ownership is the most common and complete form of land ownership.

Leasehold ownership was a very common method of ownership on Oahu 30-40 years ago with most residential homes being owned in leasehold. It enables homebuyers to purchase a properties at far lower cost than if the properties were purchased as fee simple.

A leasehold interest is a rental agreement created between a land owner (the lessor) and a lessee, who is leasing the land from the fee simple owner.

This rental agreement is called a ground lease. It is usually written for a period of 55 years with 30 or 40 years at a fixed rent and then a slightly higher rent for an additional 25 or 15 years. The lease rent is usually renegotiated every 5 years. Lease extensions or renewals are common so leasehold homeowners or buyers could obtain long-term mortgages for refinancing or purchases.

A lessee acquires leasehold rights similarly as fee simple rights. However, the leasehold interest does differ from a fee simple interest in the following five aspects:

(1) The buyer of residential leasehold property does not own the land and in almost all cases, pays a ground rent to the lessor.
(2) The use of the land by the lessee is limited to the remaining years covered by the lease.
(3) When the ground lease ends, the land returns to the owner or lessor. If there is a surrender clause in the ground lease, the buildings and other improvements on the land may also revert to the lessor.

NOTE: Most of the ground leases on Oahu contain a surrender clause; i.e., the buildings and other improvements revert to the lessor at the end of the lease.

That’s why I prefer to purchase leasehold properties in buildings that have a mix of fee simple, leasehold or fee available. This way I know the building will continue to exist when the grand lease expires, and the fee is available for sale.

(4) The use, maintenance, and any alterations made to the leased land are subject to local ordinances as well as any restrictions contained in the lease.
(5) a lessee can sell or transfer the ground lease to another party, referred to as an assignment of lease; however, the sale or transfer is usually subject to the review and approval of the lessor.

So, what happens when the ground lease on a condo expires where the fee has never been offered?

Well, no one knows.

The ground leases on the first two leasehold complexes expired in 2007. It was hoped that a precedence would be set by these first two complexes, but that did not occur. Both complexes were quite small. The first lessor reluctantly caved-in to community pressure and agreed to sell the fee interest to the leasehold owners. The second lessor went to court where a judge ruled early in 2008 that the lessees would have to surrender their homes. Unusual circumstances existed with each of these complexes, but similar unusual circumstances are likely to exist with other complexes.

Leasehold ownership on Oahu has become increasingly unpopular in view of all the uncertainty. If the fee is available, many buyers will purchase it simultaneously with purchasing a unit in leasehold. Therefore, the leasehold value for a unit is usually the fee value for a comparable unit less the cost of the fee and fee closing costs. The cost to buy the fee is a combination of the unencumbered value of the land offset by the remaining years on the lease. As the lease gets progressively shorter, the fee price usually gets progressively higher, particularly near the end of the lease.

Mortgage financing also becomes an issue. As the lease gets progressively shorter, it becomes increasingly more difficult to find lenders that make loans on the property. When there are less than ten years remaining on the lease, the leasehold property is virtually unsellable except to a buyer that is willing to pay cash at a very discounted price.

There is also a 30-year requirement on the land lease for a leasehold property to qualify for a 1031 exchange, which means there must be at least 30 years remaining until the expiration of the lease (not renegotiation).

If you are the owner of a leasehold property, we advise you, in most cases, to buy the fee as soon as practicable, as the cost of the fee will continue to increase with time. If buying the fee is impracticable, in most cases, you should sell your property in leasehold as soon as practicable, as the leasehold value will likely continue to decline with time. If you decide to wait to sell for the next period of rising prices on Oahu, you may find that the cost of the fee has increased more than the increase in value of your leasehold home; i.e., you will net less from the sale. This general advice obviously varies with the leasehold property and the owner’s situation.

So are there good buys in leasehold?

Leasehold is considerably less expensive than fee simple, with the value decreasing toward the end of the lease. But some buyers are more concerned about what they’re able to do today than what may happen tomorrow.

The fact that a home is leasehold has no impact on the rent that it produces. So, some investors opt to buy in leasehold because leasehold properties can generates a pretty handsome cashflow.

The mortgage payment for some leasehold homeowners (offset by tax deductions) is less than the cost to rent a comparable home. So, some homeowners also opt to buy in leasehold. It may enable them to own in a complex that otherwise would be too expensive.
As long as you understand the implication of owning a leasehold property, there are many good buys in the leasehold to generate a good cash flow for investors.

Read more on Why Buy Leasehold Properties from Cash Flow

Buy Leasehold Properties for Cash Flow

Leasehold Properties for Cash Flow

Hawaii real estate is unique in that many land on which building stands are owned by separate owner. The Bishop Estate owns many land in Hawaii, and so are many private owners.

What is leasehold properties?

Leasehold properties are buildings or structure that stand on a leased land. The owner of the building or structure own all of the structure on the land, but pays lease rent for the land on which is the building or structure sits.

Most home buyers shy away from leasehold properties because they are afraid of the lease rent and lack of control. Most home owners wants to own their home AND the land under it free and clear. Besides, lease are renegotiated every so many year, so there is chance that the new negotiated fees may be more than what the owner wants to pay, and this makes many people uncomfortable with purchasing leasehold.

Besides, it is generally more difficulty to get financing from banks, especially if you don’t have the cash, and needs financing. Most banks require the leasehold properties to have at least another 50 years remaining on the lease.

Some banks may be able to finance your leasehold properties purchase with portfolio lending.

At lease expiration, it is up to the lease fee owner to either extend the lease for or take the land back. In the case, where the lease fee owner decides to take the land back, that means the building on the land has to go “poof” or demolished or the lease fee owner may take the building and do whatever they want.

This is the biggest fear of leasehold properties purchase.

But Why You Still Want to Buy Leasehold Properties for Cash Flow?

For a savvy real estate investor, purchasing leasehold properties make sense. If you ask 10 people, 9 of those would tell you Honolulu is a horrible place for real estate investors because real property price is too high to provide good cash flow.

These people are missing out on a big lucrative market.

The purchase price of a leasehold property is usually a lot cheaper than fee simple. Of course, you’re not buying the land. You’re only paying for the structure. You pay the lease rent, or should I say your tenant pays the lease rent for you. But YOU write off the lease rent as tax deduction as operating expense.

This is how you can get properties with CAP rate of 6% or more. If you manage your property well and put it into good use, you can get even up to 30% CAP rate.

I can show you how.

If you get yourself a good deal, and you recooperate most of your initial investment before the lease expiration date, you’ll not have to worry about the lease fee owner taking the land back because you would have made your money back many times. If the lease fee owner extends the lease, that’s even better for you, your property continues to generate cash flow for you.

Here's another trick, I generally look for condo buildings where the lease fee is available to purchase. This gives me more control, and I know it will be my choice to give up the condo when the lease expires.

The other benefit is that when I'm ready to refinance, I can purchase the fee and own the condo free and clear.

The best time to buy a leasehold condo is when the condo AOAO just purchased the lease fee for the building and selling to the owners. This usually put pressure on the condo and many would choose to give up and sell their condo as leasehold. This makes them motivated to sell as many does not have the mean to purchase the lease fee or to get financing to purchase the fee.

Leasehold Property and Sandwich Lease

The concept of using leasehold property for investment is sort of similar to a sandwich lease.

In sandwich, you, the investor rent (lease) a condo from the owner, and you turn around to sub-lease the unit to a renter.

Say, you found a really nice rental property in a nice, highly desirable neighborhood with good school. The owner is asking for $2,000 a month rental income. You know you can rent this for $2,200. You rent the unit from the owner for $2,000, then you find a renter who is willing to pay you $2,2000 per month for this same unit. In this case, you cash flow with none of your own money $200 per month. No maintenance on your part either, because you’re not the owner.

Before you to start doing this, you need to be sure that the owner is okay with you sub-leasing. Just common courtesy.