Leasehold Properties – The Pros and Cons
It’s certainly an exciting time in real estate. There is so much going on, and the pace, oh, the pace is outstanding! Properties are listed one day and sold the next. It’s really quite something. Maybe you’ve been looking for a property for some time now and you’ve noticed house prices are pretty high and holding, but wait a minute…you’ve discovered a listing well under market value in an area you’ve only dreamed to live. More than likely, this isn’t too good to be true, it’s a leasehold agreement property.
Leasehold? What is a leasehold agreement property you ask? A leasehold agreement gives you the right to occupy a property for a limited amount of time—typically between 10 and 99 years. In the Greater Vancouver area, leasehold properties are most commonly owned by First Nation Bands, Universities, the City, and even private individuals. When you enter into a leasehold agreement, you are buying the exclusive rights to the property for a limited period of time.
Some of you may be asking…why would anyone want to own a property for a limited time? Well, the answer is simple really. True, leasehold doesn’t have the same ring as classic ownership, but what if you could live in a highly-coveted area? Leaseholds are commonly found in high-end and well-established neighbourhoods like False Creek, Point Grey, and on the University Endowment Lands. For the right person, living and owning exclusive rights in a swanky area can be an ideal situation.
Leasehold properties not only offer dreamy locations, but as mentioned earlier, they have a lower price point. This price reduction can offer a better lifestyle to many cash strapped individuals—especially considering today’s expensive property market.
It’s important to remember that as the leasehold gets closer to its expiry date, the market value of the property as a whole will change. This is due to the uncertainty when a lease expires. If a lease agreement is renewed, it will be done at the current-day market value. If the lease is not renewed, you are entitled to receiving fair market price. This can have some benefits. For example, if the leasehold owner plans to redevelop the land, a higher valuation would likely be reflected.
Another important aspect to consider when purchasing a leasehold property is financing. Banks generally ask for a larger down payment ranging from 35% when financing a leasehold property, and they use the leasehold expiry date when calculating the amortization period. This can be a bit tough for some, but ideal for others. Further, there are now only two banks in Vancouver who will offer a mortgage on these type of homes.
Buying a leasehold property isn’t for everyone, and there are a lot of things to consider from limited timeframes to extra financing hurdles, but contrasted with fabulous locations and the overall price reduction—leasehold properties could be the answer to your real estate quandary.
Want to know more? Contact us and let’s chat about leasehold properties – 604.676.0770