Leasehold: Smart Deal or Long-Term Burden? Find out here!

You may have heard the term “leasehold” before—from your neighbors, a real estate agent, or that one uncle who’s always investing in real estate. But what exactly is it? Why are more and more people, especially when it comes to vacation homes or apartments on the coast, opting for this time-honored arrangement?

You may be thinking about investing in real estate, but your budget is limited. Or perhaps you want to generate a return without first making a major investment in land. In that case, a leasehold could just be your “secret weapon.” Living Stone explains why!  

What exactly is a ground lease?

With a traditional purchase, you buy both the land and the building. But land… doesn’t generate any income on its own. It costs money. And in popular areas? Land prices can get quite high there.

A leasehold works differently.

You don’t buy the land, but you do get full use of the building on that land, usually for a period of 15 to 99 years. The owner retains ownership of the land; you become the leaseholder and pay an annual fee: the ground rent.

That means:

• You only pay for the building

• Your initial investment is much lower

• You can renovate and rent out the property in accordance with the terms of the contract

Sounds interesting, doesn't it?

How does it work in practice?

Here's a quick, clear, and straightforward example:

Apartment value: €200,000: land: €50,000 + building: €150,000

Full purchase: You pay the full amount plus registration fees → €206,000.

Leasehold: You pay only for the building (€150,000) plus registration fees → €154,500. In addition, you pay an annual ground rent of, for example, €1,200.

In the long run, a ground lease can become more expensive, especially if the ground rent increases every year. But if you want to start with a smaller investment, it can be a smart choice.

The benefits (oh yes, there are plenty!) 

• Lower entry price: you don’t have to pay the full purchase price up front. This makes getting into real estate much more accessible.

• Complete freedom and flexibility: you can renovate, rent out, and modernize without having to ask for permission every time (except for standard contractual provisions).

• Lower tax burden: Since you are not purchasing the land, you pay lower registration fees. In some cases, the ground rent is even tax-deductible.

• Long-term security: The leasehold runs for up to 99 years and can be renewed. Ideal for investment properties or vacation homes.

• Ideal for generating returns: You can rent it out, share it, or pass it on to your children… Plus, you’ll start seeing returns sooner thanks to the lower purchase threshold.

However, there are also drawbacks

because no formula is perfect.

• No full ownership: since you do not own the land, a leasehold is less suitable as a permanent family home.

• Not available everywhere: mainly found in coastal apartments, vacation resorts, or specific developments.

• Maintenance remains your responsibility: you must maintain the property and keep it in good condition.

• You're still responsible for the taxes: even though you don't own the land, you're still responsible for the ongoing taxes.

• Expires: After the agreed-upon term, your right to use the property expires, unless you renew the lease.

Is a ground lease right for you?

A leasehold can be a smart, accessible way to get into real estate, especially if …

• you want to invest less startup capital

• You're looking for a second home

• you want to generate a return through renting

• flexibility and low upfront costs are important
  
  

However, it requires planning, insight, and a long-term vision.