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Leasehold Ownership vs Fee Simple Ownership
When you purchase a FEE SIMPLE property you buy the improvement and the land that it sits on. When you purchase LEASEHOLD property you buy the improvement and you lease the land it sits on. Generally the land lease will have 30 to 50 years remaining. Prior to the end of the lease you may or may not have the opportunity to purchase or re-lease the land.
To compare a Fee Simple property with a Leasehold property you should consider the remaining term of the lease, the lease payment, the value of the land compared to the lease payment and the tax advantages, you may be able to deduct the lease payments vs not being able to depreciate the land in a fee simple purchase. You should consult your tax expert on how this would effect you.
Pro's of Leasehold Ownership
Con's of Leasehold Ownership
- Lower purchase price - some times as low as 50% of similar FS property
- Lease payment may be tax deductable where FS land can not be deprecated or written off against income.
- Same rental income as higher value fee simple property
- Your investment could end at end of lease
- Lease payments could increase during term of lease, most leases state the increases.
- Your property value will decrease near the end of the lease term