What’s the Difference Between a Freehold and a Leasehold?
An example of this would be you and your family buying a home in California in a residential suburb. When the real estate transaction closes, you’ll receive the title to both the house and the physical land upon which it sits. Leaseholds, meanwhile, are a type of leased property. These agreements tend to last longer than a typical lease agreement on an apartment, for example, and they have a fixed end date. When entering into a leasehold, you are able to build and own property that is affixed to the land—that is to say—you’re able to build your own home on the property that will belong to you when the lease ends. This is common outside the U.S., although some states, such as Arizona, still employ this type of housing. Let’s say that you’re looking to purchase a property in Scottsdale, Arizona. Leaseholds are common in this part of the country, and you’re wondering whether it’s a good option for you. Since you aren’t actually buying the land that sits under the house, however, prices are lower and much more affordable. You opt to buy the house and enter into a lease on the property for a duration of 99 years. One important note to consider is that you can choose to buy and sell leaseholds on the open market. You’ll simply need to remember that the land itself is held by the landlord and you’ll need to renew your lease when it expires or risk needing to move your house altogether.
Occupation
It may seem like common sense that when you buy a home, the dwelling and the land it sits on are yours for good. This is certainly the case with freeholds, in which you own the property and everything on it without stipulations. More specifically, you own your home and land for an indefinite period of time. Leaseholds, on the other hand, are long-term leases. This means that they’ve got a fixed end date, whether that’s in 10, 20, or even 120 years from now.
Which Is Right For You?
So which is right for you, a freehold or a leasehold? This will mainly depend on where you live and whether both are an option for you.
A freehold may be a good option for you if…
You want to own your property and the land it sits on without restriction. This means that once it’s paid off, it’ll belong solely to you—and no one can take that away. Freeholds are common in the U.S., so it’s more likely that these are what you’ll find in your area.
A leasehold may be a better option for you if…
You’re looking for affordability when buying a home. Leaseholds can be much cheaper than freeholds since you aren’t purchasing any land. This can be a boon for you, especially when your mortgage loan—such as an FHA loan—comes with a maximum loan limit.
The Bottom Line
In the end, the decision whether to get a freehold or a leasehold comes down to you. If you’re looking for a more affordable option or are in a location with few freeholds available, a leasehold may be a good choice. If you’re otherwise wanting to own both a home and land and can afford the cost, a freehold could make sense for you.
