{"id":77823,"date":"2022-08-19T08:13:34","date_gmt":"2022-08-19T15:13:34","guid":{"rendered":"https:\/\/www.redfin.com\/blog\/?p=77823"},"modified":"2025-02-13T13:45:22","modified_gmt":"2025-02-13T21:45:22","slug":"fee-simple-vs-leasehold","status":"publish","type":"post","link":"https:\/\/www.redfin.com\/blog\/fee-simple-vs-leasehold\/","title":{"rendered":"Fee Simple vs. Leasehold: Two Very Different Types of Ownership"},"content":{"rendered":"

You’re browsing real estate listings when something catches your eye: a house that looks just like others in the area, but priced $100,000 less.<\/span><\/p>\n

Then you notice the word “leasehold” on the listing. You don\u2019t remember seeing that on other listings. Is it too good to be true? Let’s find out.<\/span><\/p>\n

\"leasehold<\/p>\n

Fee simple<\/span><\/h2>\n

Fee simple ownership means “complete” ownership. It’s a legal term that means the property owner owns the land and any structures on the land, including the home. The leasehold listing that caught your eye earlier was <\/span>not <\/span><\/i>fee simple.<\/span><\/p>\n

Fee simple owners can build equity over time. If their property gains value, they get to keep the profit if they decide to <\/span>sell their home<\/span><\/a>. But they’ll also be on the hook if they sell the property for less than they paid.<\/span><\/p>\n

When people think of <\/span>buying a home<\/span><\/a>, they usually think of owning it “in fee simple.” It’s the most common type of home ownership in the U.S.<\/span><\/p>\n

Leasehold<\/span><\/h2>\n

A leasehold is a lot different from fee simple ownership. It gives someone ownership of a home or structure on the property, but someone else owns the land itself. The leaseholder pays the fee simple owner to use the land for a set period. You might also see this called a <\/span>land lease <\/span><\/i>or <\/span>ground lease<\/span><\/i>.<\/span><\/p>\n

Leaseholders are called <\/span>lessees <\/span><\/i>instead of owners since they only own the structure for so many years. Leaseholds are usually much cheaper than fee simple properties since they don’t build equity and the <\/span>freeholder <\/span><\/i>(fee simple owner) keeps so much control.<\/span><\/p>\n

The idea of a leasehold property<\/a> might seem strange if you’re only familiar with fee simple ownership, but it’s not that unusual in places like Hawaii, California, or New York.<\/span><\/p>\n

So a leasehold is just a rental home?<\/span><\/h3>\n

Yes and no. When a renter leases a run-of-the-mill <\/span>rental home<\/span><\/a> from a landlord, they sign a <\/span>lease agreement<\/span><\/a> that gives them the exclusive right to live in the home for a certain number of months or years. They don’t have to “buy” anything upfront.<\/span><\/p>\n

With a residential leasehold property, the lessee temporarily owns the structure, but it comes at a price. They have to buy the leasehold from the fee simple owner, then pay them <\/span>ground rent<\/span><\/i> to use the property.<\/span><\/p>\n

Leasehold ownership gives someone more control over the home than a traditional renter. While renters usually need their landlord’s permission to make changes to the home, a leaseholder can usually remodel whenever and however they want to.<\/span><\/p>\n

A leasehold term is typically longer than one that comes with the average rental home. Instead of 12 or 24 months, a leasehold might last 10 years, 25 years, or even longer. If the leaseholder wants to leave before then, they’ll need to find a buyer for the remainder of the contract.<\/span><\/p>\n

All ownership returns to the original owner if and when the leasehold expires. Unless the property owner and lessee strike a deal to extend the lease or sell the property outright, the lessee walks away empty-handed. This is called <\/span>reversion<\/span><\/i>.<\/span><\/p>\n

\"leasehold<\/p>\n

Examples of fee simple and leasehold properties<\/span><\/h2>\n

Here’s one example of fee simple ownership:<\/span><\/p>\n