One of the places in Kauai I am most frequently asked about is Kiahuna Plantation in Poipu. With prices starting in the $40,000-range, it sure is intriguing, especially to people who live on the mainland and are dreaming of a vacation home. But what is the catch that makes this fabulous beachfront condominium development so cheap in comparison to most other south shore condominiums? Oh yeah—it is LEASEHOLD, which is different than the more familiar FEE-SIMPLE form of ownership. What exactly does that mean, you ask?
Tenants of a Leasehold Estate
- What you are purchasing is the particular condo, and not the land. Typically in fee-simple ownership, condominium owners share ownership in the common areas. In Leasehold Ownership, condominium owners still have access to the shared common areas and grounds, they just don’t officially own it.
- Leasehold property comes with a land lease for a particular amount of time. There are no guarantees that the lease will be extended. If a new lease is not re-negotiated prior to the end of the lease term, all the buildings will go back to the land-owner. On the other hand, there is always the possibility that prior to the expiration of the lease period the landowners will convert the land to fee simple and offer it for sale to current owners. Over the last several decades, many of the leasehold estates have been converted to fee-simple estates. There is also the likelihood that during the duration of a lease, the rent amount will go up.
- In Hawaii, the properties that are typically in a leasehold estate are some of the most desirable properties, and they were the lands allocated as “Crown Lands” during The Great Mahele of 1848.
- It is sometimes more difficult to finance leasehold properties. Typically, a lender will want to see at least 30+ years remaining on the lease term to lend money. Not all lenders can offer financing, though I do know of at least two or three here on Kauai that do.
Views of the Ocean from this Kiahuna Plantation one-bedroom condo
For many home buyers, it does not make sense to purchase a leasehold condo. Often times once they hear the word “leasehold” they lose interest. One downside to a leasehold property is that over time, it just won’t appreciate in value the same way a fee-simple estate will. The value of the land usually raises at a higher rate than the value of the structure. But, in certain situations, there are actually benefits of owning leasehold property. So, when would it make sense to buy a leasehold condo, instead of a fee-simple condo? Here are a few examples of when it might be worth considering.
Benefits of Purchasing a Leasehold Condo
- Affordability – This beachfront condo pictured above is currently listed for $199,000. By contrast, a comparable one-bedroom oceanfront fee-simple condo in Poipu currently starts at $599,000 and goes up from there. Let’s say you are obtaining a mortgage on your condo, and putting 20% down. In the fee-simple scenario, assuming a 30-year fixed rate mortgage at 4.5%, your monthly payment would be $806.64 + taxes ($332.22 in 2017 for this unit), insurance, HOA fees ($1,456 for this unit) and leasehold rent ($1,035.75 for this unit). So before contents insurance, monthly payments would be $3,630.72. In scenario B, a comparable mortgage with 20% down for 30 years at 4.5% would have a payment of $2,428.04. Taxes are an additional $511.66 per month, and monthly HOA fees are $1,600, for a total of $4,539.71, before content insurance. So to recap, in scenario A, the leasehold condo, you would need to put $39,800 down, and your payments would be approximately $3,630.72. In scenario B, the fee-simple condo, you would need to put $119,800 down, and your monthly payments before insurance would be approximately $4,539.71. That is a difference of approximately $80,000 upfront and $900 per month. Plus over the life of the loan, the total interest paid in scenario A would be $131,192.68, versus $394,891.56 in scenario B. A leasehold property is clearly more affordable.
- Lifestyle Considerations – If your objective while living in Kauai is lifestyle related and you want access to resort amenities, Kiahuna Plantation delivers. It is located on one of Poipu’s best sandy beaches. There are walking paths throughout the complex. Kiahuna Plantation is in close proximity to shopping and restaurants, and comes with access to the Poipu Beach Athletic Club, which offers a resort-style pool with waterslide, hot tub, gym, tennis and pickle ball courts, and group fitness classes. Though the comparable property is also on the ocean, it does not have direct access to a sandy beach. As I mentioned earlier, some of the most desirable properties in Kauai were designated as “crown lands” during the Great Mahele, and The Kiahuna Plantation is one of them. It is prime property. You simply could not have these amenities for this price in a fee simple estate.
- Opportunity for Income – Because Kiahuna Plantation is on one of Kauai’s prime sunny south shores beaches, it is popular with tourists. It was even voted best beach in Poipu by Conde Nast Magazine. You can generate pretty good revenue by offering your unit in the vacation rental pool. The amount you can charge varies by unit and fluctuates depending on the season. Ocean views and oceanfront condos command the highest prices, but also cost more to acquire. You will want to factor in times when your unit may be vacant. Vacancy rates for hotels are calculated and tracked by the state, but they do not include vacation rentals. The popularity of vacation rentals has drastically risen in the past decade and many people are choosing to stay in condos and homes where they can save money and eat healthier by having a kitchen to cook in. You can read more about investing in a vacation rental here.
One of Many Walking Paths at Kiahuna Plantation Leads you to the pristine Kiahuna Beach, where a monk seal is relaxing.
More About Kiahuna Plantation
Situated on over 34 acres and fronted by a crescent-shaped white sand beach, Kiahuna Plantation Resort is a popular spot for tourists and locals alike. The beach is protected by a reef, providing calmer waters for swimmers, boogie boarders, and beginning surfers. In fact, Kauai Surf School has a cabana located on the property and offers daily surf lessons and board rentals. You can also pick up beach chairs, towels, and gear from the beachfront cabana.
There are 333 one and two bedroom condos in Kiahuna Plantation, all of which are individually owned. They range from garden views to ocean front. Developed in 1979, the property features gorgeous mature tropical landscaping and gardens, ponds, lush green rolling lawns, the renowned Moir Cactus Garden, and an onsite restaurant, Plantation Gardens. It is interesting to note that depending on which phase of the development the condo is located in, the length of time and amount payable on the land lease varies. At the time of this blog post, there are currently 33 active listings in Kiahuna Plantation, ranging in price from $49,000 – $699,000. The median price of active listings is $135,000, and the average days on market is 222. There are currently two units under contract, with list prices of $29,900 and $59,000 respectively. Four condos have sold in the past year, with a median price of $28,500, and an average market time of 128 days.
Kiahuna’s Onsite restaurant, Plantation Gardens, is located inside a renovated historical sugar Plantation Manager’s Cottage and features Pacific Rim cuisine.
When friends and family come visit Kauai, I often recommend staying at Kiahuna Plantation if they are looking for the independence and convenience of a condominium. I think it is a great property with a fantastic beach.