Lofts and artist space in trendy Dumbo Brooklyn.

In the U.S., leaseholds are more common in commercial real estate. (Getty Images)

Owning real estate seems fairly straightforward. But depending on where the property is located, ownership can mean a few different things.

While it’s not common everywhere, some states are known to have different types of ownership: fee simple and leasehold. Here’s what you need to know about both.

[Read: The Guide to Understanding Your Home Value]

What Does Fee Simple Mean?

Fee simple ownership is the absolute ownership of real property, in which the owner holds unconditional power over the land, as well as any improvements – including buildings – that sit on it.

You may pay a mortgage and property taxes, but with fee simple ownership you have the ability to sell the entire property, or parts of it, at your choosing.

What Does Leasehold Mean?

A leasehold is an agreement between the fee simple owner and the lessee, or the person or group that will occupy the property in some form.

“A leasehold is a contractual relationship that the lessee enters into with the property owner – so there is a fixed term on that contract,” says Brad Tisdahl, CEO of Tenant Risk Assessment, a tenant credit consulting firm based in New York City. “The lessee is able to enjoy the use of that land for the purposes outlined in that lease for the term of that lease. In that situation, the lessee is paying rent and sometimes operating expenses … for the use of that land.”

When the term of the lease ends, the rights of use and enjoyment of the property revert back to the owner. This may include any improvements, such as buildings, constructed on the land by the lessee. In cases where the contract specifies what happens to the improvements at the end of the lease, the lessee may remove the improvements instead.

Leaseholds in residential real estate are not particularly common in the U.S. outside of specific states or metro areas, such as Hawaii, in and around Baltimore and parts of Florida, but happen more often in commercial real estate. However, homebuyers appear to be more likely to encounter leaseholds for residential property throughout the United Kingdom and in parts of the British Commonwealth.

[Read: Which Home Is the Best Layout for You?]

There may be cases where you hear a leasehold described as a "ground lease" between the property owner and the lessee. However, depending on where you live and how the term is used, this may not be correct. A ground lease allows the lessee to develop the property as desired and own the developments for the entire term of the ground lease.

“With a ground lease, you essentially have the rights as an owner of the land and the property or buildings that are on it for the period that you have it, whereas with a leasehold you are going to have significantly more restrictions for what you can and can’t do on that property,” Tisdahl says.

In some places, however, the two may appear more interchangeable. Leaseholds for Maryland residential properties are called “ground rent,” and all properties with ground rent ownership are tracked through an online registry by the Maryland Department of Assessments and Taxation. For properties where the rightful owner cannot be found, lessees may keep ground rent payments in escrow for up to three years in case the landowner reveals him or herself eventually.

What’s the Difference Between Fee Simple and Leasehold Ownership?

The simplest difference between fee simple ownership and a leasehold is whether you own real property in perpetuity. The preference to have fee simple ownership or have a leasehold agreement depends on the individual and the property’s use. In many cases, homebuyers in the U.S. prefer fee simple ownership for the sake of full rights over the property and the ability to sell the property in full.

When the property is being used for a business, a leasehold is often seen as preferred over fee simple ownership. “Most companies and individual (business owners) are not going to be in the position that they want to own the real estate and run the business,” Tisdahl says.

Fee simple ownership requires no rent be paid, though property taxes still must be paid to the local and state government where applicable. A leasehold requires rent be paid to the true property owner, and depending on the terms of the lease, the lessee may also pay property taxes.

How much you pay in leasehold rent varies widely by the type of property, value of real estate and where the property is located. Live Baltimore, a nonprofit working to attract residents to the city and create a healthy housing market, notes that ground rent in the city often ranges between $50 and $150 per year.

In Hawaii, on the other hand, leasehold condos can require a few hundred or even thousands of dollars per month in lease rent, which does not include homeowners association fees for maintenance and upkeep of the community.

[See: Which Architectural Style Should Your Home Have?]

With fee simple ownership, your association with the property lasts as long as you want to keep it, and after your death you can pass on to your next of kin. A leasehold has an established term, though the term can be quite long.

“You might have a leasehold in a multifamily project that has a long term – could be 50 years, could be 100 years,” Tisdahl says. “You could have leaseholds in industrial (properties) that last 15 years or 10 years. You could have leaseholds in commercial and retail that last five to 10 years, so there is some nuance in asset class.”

According to the IRS, a leasehold can only be considered the same as fee simple real estate in a sale of the leasehold if the lease term is 30 years or more.

If you’re trying to sell a leasehold condo with a 15-year term, for example, it’s considered personal property rather than real estate. As a result, it’s often valued lower. You wouldn’t get the same capital gains tax break that you would with selling a property with fee simple ownership. Additionally, your buyer may have a harder time getting a mortgage.


Types of Roads That Can Have a Big Impact on Home Sales

The rule is "location, location, location" for a reason.

The urban view of  vehicle light trails on the road.

(Getty Images)

A homebuyer’s must-have list often includes a certain number of bedrooms, updated appliances and a garage or backyard. But one detail that’s sometimes overlooked is just outside the property lines – and it’s a major deal-breaker for many. The road your house is located on, backs up to or is even in the general vicinity of can have a significant impact on your quality of life as well as your home’s resale value and how long it takes for you to find a buyer. Before you buy your dream home on a busy street or near a railroad, consider how these roads and locations can become a major turnoff for future buyers.

Updated on Nov. 1, 2019: This story was published at an earlier date and has been updated with new information.

High-traffic road

High-traffic road

The urban view of  vehicle light trails on the road.

(Getty Images)

Living off of a road that sees a lot of traffic throughout the day can make for a hassle getting in and out of the driveway. And when you decide to sell, potential buyers will worry about its resale value, says Greg Hague, CEO of Hague Partners and 72Sold.com, real estate brokerages based in Scottsdale, Arizona. “The biggest detractor in home values (on a busy road) is the fear that buyers have that these homes will be harder to sell,” he says. It might take more time on the market and a lower asking price to entice buyers over a similar home on a quieter street.

Cul-de-sac

Cul-de-sac

Aerial view looking directly down on a cul-de-sac in a planned exclusive residential community in the Scottsdale area of Arizona.

(Getty Images)

A cul-de-sac is a dead-end road with only one entrance and exit to other streets, and on residential streets it often includes a circle for cars to turn around. Often located deep within a subdivision or at the end of a neighborhood, a cul-de-sac means minimal traffic, which will be a big selling point down the line. The farther inside the neighborhood you go, the less traffic you’ll experience and the more desirable the houses typically become, explains Roberta Parker, a real estate agent for Berkshire Hathaway HomeServices Fox & Roach, Realtors in Princeton, New Jersey. A cul-de-sac may also back up to a wooded area or undeveloped land, so homeowners benefit from the added privacy of having no neighbors behind them. As Parker says: “A cul-de-sac is your best investment.”

Dirt road

Dirt road

One of the streets of the village of Tsevlo in the Pskov region

(Getty Images)

Some people prefer to get away from heavy traffic so much that they’ll leave pavement altogether. A dirt or gravel road will certainly attract fewer cars, and properties on a dirt road are often larger with more land. While a buyer should expect his house and car to be dirtier because of the dust or mud of the road, many homeowners consider it a fair trade-off. “We don’t really find that that is a detractor in value – it’s a lifestyle,” Hague says. While you may not have the same size buyer pool for your house as a home in a developed subdivision, you shouldn’t have to worry about would-be buyers seeing your dirt road as a negative in terms of home value.

Near a traffic light

Near a traffic light

Traffic light on red, Manhattan, New York, America, USA

(Getty Images)

Even if your area doesn’t experience high traffic volume throughout the day, having a traffic light within eyesight of your home can be irritating. Timothy Somers, a real estate appraiser and partner at the appraisal firm Davis M. Somers Co. in Ann Arbor, Michigan, lives near a traffic light. For him, it’s the noise from idling cars at the red light that can be a bit bothersome, although he’s gotten used to it over the years. “It can get noisy at times – not so much the traffic, but the loud music and that sort of stuff is annoying,” he says. Potential buyers may feel that way too.

Alley

Alley

Stunning sunset of famous posh residential area in Jiyugaoka, Tokyo, Japan.

(Getty Images)

An alley is a narrow street between buildings, often in a city setting, that may not even be marked on a map. But in older cities and historic districts, you may occasionally find property addresses that take you to a door in the alley rather than on a main street. It may be hard for visitors or potential buyers to find, but Hague explains an alley entrance is considered a plus for home value: “You obviously have no traffic – just foot traffic. It’s unique, and people like unique.” The feeling of privacy and exclusivity can play up the desirability of the home and make a buyer willing to pay more for it.

Double yellow line

Double yellow line

Asphalt road with yellow double line

(Getty Images)

The area might not seem busy if you visit on the weekend, but if the home is located on a two-lane road with a double yellow line to prevent cars from passing each other – most often found in less-populated suburban or rural areas – Parker says it’s a red flag that a lot of cars use the road. “A double yellow line is an indication that there is more traffic, and it’s not typical of just a neighborhood. A double yellow line is a serious road,” she says. Expect it to be difficult to turn left out of your driveway during peak traffic hours. Also expect speeds higher than 25 miles per hour, which may make spending time in the front yard feel unsafe if you have pets or young kids.

Highway within sight

Highway within sight

Multiple Lane Highway

Pete Farrington/EyeEm/Getty

Regardless of how far you travel to work, a home next to an on-ramp is not ideal due to the noise pollution and the difficulty you’ll have trying to sell it in the future. It's better to live in a neighborhood that is set up to provide easy access to commuting options and where you won't have to see or hear traffic from a highway.

Railroad

Railroad

train passes a crailway crossing by night at route 66

(Getty Images)

With a railroad near your home, you have a whole new type of car to be concerned about. Trains are loud to begin with, and if you live near a tunnel, train station or railroad crossing, expect even more noise as conductors sound horns and bells to ensure the track is clear. “Some people would shy away from a location like that. … When a freight train rolls through, it clanks, and there’s horns and more noise,” Somers says. If you’re considering buying a house near a railroad track, find out how often it’s used and the times of day trains will pass by. A regular midnight freight train could keep you up at night in your new home.

Brick or cobblestone paving

Brick or cobblestone paving

Stone street

(Getty Images)

A brick or cobblestone street often comes with the assumption that the houses on that street are as old as the paving. You may even live in a historic district of your city or town. “They’ve kept that (paving) because it has a such a historic and a kind of cool feel,” Hague says. A well-maintained house on a historic street will attract many potential buyers willing to pay top dollar for the location and overall look. Living in a historic district also means you’re expected to maintain your home to historic standards, so you’ll likely need to seek approval to paint your house, renovate the kitchen and even update the plumbing. All of these projects are likely to be more expensive for historic houses, as you may need to hire contractors with experience working on historic properties.

Corner lot

Corner lot

Typical family house neighbourhood in downtown Toronto. Fall season, no leafs on the trees, sunny day.

(Getty Images)

Attitudes about corner lots within a neighborhood can vary depending on an individual’s preference, but Somers says preferences have evolved to favor interior lots. “Corner lots back in the ‘50s and ‘60s were a premium site. Today people will steer clear of them; they don’t like them as well,” Somers says. “Because of the yard configurations, they usually end up with a small backyard and large side yard. It’s less appealing than the standard interior lot. Plus, they’ve got twice the sidewalk to shovel.”

One-way street

One-way street

Photo Taken In United States, Sapulpa

(Getty Images)

One-way streets are often found in more urban settings and often close to downtown to reduce gridlock. While it might prove inconvenient at times to live on a one-way street when you’re running late and need to head in the opposite direction, people don’t seem to let it affect their preference. Somers says he doesn’t see any change in desirability for a property located on a one-way street. So don’t be concerned about attracting potential buyers – the appeal of living close to downtown will likely outshine any downsides of living on a one-way street.

Types of roads that could affect your home value:

Types of roads that could affect your home value:

This is a picture of a cul de sac

(Getty Images)

  • High-traffic road.
  • Cul-de-sac.
  • Dirt road.
  • Near a traffic light.
  • Alley.
  • Double yellow line.
  • Highway within sight.
  • Railroad.
  • Brick or cobblestone paving.
  • Corner lot.
  • One-way street.

Read More

Tags: real estate, housing, renting, new home sales, existing home sales, pending home sales


Devon Thorsby is the Real Estate editor at U.S. News & World Report, where she writes consumer-focused articles about the homebuying and selling process, home improvement, tenant rights and the state of the housing market.

She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.

Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at dthorsby@usnews.com.

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