Why Leaseholds Can Be An Overlooked Opportunity

Friday, May 17, 2019

So you’re in the market for an apartment. Something in the False Creek, perhaps. Maybe something with a view. You’ve done your research; you know roughly what it’s going to cost you. But then, you come across a listing that’s well under market value. If this is the case, you've likely stumbled upon a leasehold agreement property.

What exactly is a leasehold agreement, you might ask? A leasehold agreement grants you the exclusive rights to occupy a property for a limited period of time (typically between 50 and 99 years from the onset). In Vancouver, these properties are most commonly owned by the City of Vancouver, but are also owned by the federal government, universities, Indian Bands and even private individuals. So when you are purchasing a lease, you are buying the rights to the property for the period (or remaining period) of the lease agreement as well as the structure and any common property in question.

So what makes them a good potential opportunity?

In Vancouver, you can most often find leasehold apartments sprinkled around the West End and False Creek, and leasehold houses and duplexes on Vancouver’s Westside in Point Grey and on the University Endowment Lands. To the right buyer, snagging a leasehold property in such an expensive locale can be an awesome deal. 

While it’s true that a leasehold purchase may not exactly equate to the classic dream of home ownership, that doesn’t mean it can’t be a great opportunity. Leasehold properties tend to be located in desirable areas, and are almost always cheaper than purchasing the freehold equivalent. Given the lower price point, you might be able to buy into a better lifestyle than you could otherwise afford – this could mean living in a more popular area, being closer to amenities and attractions that are important to you, or maybe buying a larger or nicer unit. 

The important thing to remember is that as the lease gets closer to its expiry date, the market value of the property as a whole will diminish. This is because of the uncertainty for leasehold owners when a lease expires. If a lease agreement is renewed, it will be done in current-day dollars, which will almost certainly represent an increase in price. If the lease is not renewed, you will be paid fair market value for your asset, but you will have to move on and out to somewhere else. This can play to the savvy investors benefit as the market value may be well above your purchase price, especially if the city is planning to redevelop the land into high rise condos.

There can also be uncertainty with regards to financing. Banks will generally ask for a hefty down payment (25-30%) when dealing with a leasehold property. Lenders also use the expiry date of a lease when determining the amortization period for a loan. So, the fewer years left on your loan, the shorter the amortization period will be. For this reason, leasehold properties tend to be popular with individuals who have already built up equity elsewhere.

All this talk throwing your head for a loop? The most important thing to consider when buying a leasehold property is the amount of time left on the lease when you purchase it, relative to the amount of time that you intend to hold the property for. If you're planning on living in the property, ask yourself if you’ll be willing to pay an increased price or to move on and out when the lease eventually expires. 

Leasehold properties aren’t for everyone. Like anything, you need to have a long-term plan. But if you value lifestyle factors and can find a property with a timeline to suit your needs, a leasehold property could be the deal of a lifetime!

Intrigued? Get in touch with one of our superstar realtors for more information. Or, if you want to start the hunt for a leasehold property to call your own (for the period of the lease, of course), you know where to find us!

Check out Shawn's leasehold listing in False Creek below:

1069 Scantlings | $969,000



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