Understanding Fee Simple versus Leasehold Ownership

One factor that makes the Texas Hill Country real estate market unique from others is the presence of two different types of real estate ownership: fee simple and leasehold. While these are not totally unique to Texas you may find more of these in vacation rental properties and different types of ownership. 

Keep reading for what you need to know about these two types of ownership so you can be confident and well-informed as you look for your new home.

Fee Simple

Fee simple ownership is probably what comes to mind when you think of buying real estate. This is where the price you pay for the property includes any structures within the property lines and the land itself, and is yours until you decide to sell it. Another way of saying it is "complete" ownership.

In this type of ownership, whether you own the property outright or are paying on a mortgage, you benefit from appreciation and are on the hook for depreciation. You own the property until you can no longer afford it or decide to sell it.

Leasehold

Leasehold properties are often listed for far lower than fee simple properties, and there is a reason why. When you buy something leasehold, you are purchasing the structures on the property but not the land itself. The land is leased to you as a part of the purchase, also called a land lease or a ground lease.

In a leasehold scenario, you are called the lessor, not the owner, because you do not own the land. Instead, you are entitled to a (usually long term) lease for a set period of time.

What is the difference between a leasehold and renting a home?

There are many similarities to renting a home and buying a home leasehold, but they are not exactly the same. First of all, a leasehold is generally for a far longer period of time than renting a home. A typical lease for a rental home might be 6 to 24 months, while a leasehold is nearly always going to be many years. It is common to see a leasehold for 25 years or even more.

When you purchase a home leasehold, you are also going to have far more freedom with the home than you would as a renter. Renters are generally quite limited when it comes to remodeling or home improvements, needing approval from the landlord and often prohibited altogether in the lease agreement. When you have a leasehold, you can treat the home as a homeowner would, making any changes you would like.

The most significant similarity between renting a home and a leasehold is that when the term comes to an end, the property returns to the owner. Buying a home as a leasehold does not mean you actually own the property long term.

When should I consider a leasehold?

You may be wondering why someone would ever consider a leasehold instead of fee simple ownership. One of the reasons you will see so many leasehold properties in Texas is because it can offer a compromise between renting a home and fee simple ownership. Leaseholds are going to be listed for significantly less than fee simple properties, and may allow you to secure a home much more long term than a lease if you are not ready to invest in a fee simple property. By carefully reviewing the terms of the leasehold, you may find that the amount of time and the monthly leasehold fees will work for your unique scenario and allow you a happy medium between renting and buying fee simple in Texas and specifically around Horseshoe Lake when it comes to vacation properties. 

.