If you've been looking for smoking deals on Kauai it is likely you keep running into listings that say "This is a leasehold property". One of the places I get the most questions about is Kiahuna Plantation in Poipu
, a leasehold property where the prices start under $100,000. The price tag sounds tempting for a condo in Kauai, so what's the catch?
A leasehold is a form of ownership in which you own the building, or portion thereof, but not the ground underneath it. This is different from your typical fee-simple form of ownership in which you own the land and the buildings attached to it (or portions of the building if it's a condo). With a fee-simple condo you and your neighbors all own the land and other common elements together and you decide together as an HOA (Home Owner's Association) how it will be maintained. But with a leasehold none of you own the land, nor any of the common elements, but are instead granted permission to use them through your lease agreement.
The lease agreement is set for a certain period of time from when the lease was originally created and at set increments throughout the time of the lease the terms of the lease, including the cost of the lease rent, may be renegotiated. A concern that many people don't realize at first with leasehold properties is that the lease rent is in addition to the HOA or maintenance fees for the condo association. There are no guarantees that the lease rent will stay the same or that it will be extended when it expires. If at the expiration of the lease an extension of the lease hasn't been negotiated, all buildings will go back to the land owner. There are, however, quite a few instances over the years, of leasehold estates being converted to fee-simple estates.
One last concern about leasehold properties is that they can be difficult to finance. Lenders who will loan on leaseholds will typically want to see at least 30 or more years remaining on the lease term to lend money. Without financing you must be prepared to pay cash.
If you are willing to take the risk of losing the property at the expiration of the lease, and willing to put up with the lease rent increasing at each renegotiation period, and you have the cash to put pay for it outright a lease may actually be a great thing for you to consider. Leasehold properties are often some of the most desirable properties and "Crown Lands". Kiahuna Plantation is a prime example of desirable with the longest stretch of sandy beach in Poipu, beautiful tropical gardens and ponds, and the quintessential Hawaiian Plantation feel.
Is it worth it? Leaseholds aren't for everyone. They typically work well for people who don't want to tie up larger sums of cash in a property and aren't worried about using the property for many years into the future or passing it down to heirs. And if you love the location and nothing else will do, well then it might be right for you!
Dani Dooley is a Realtor in Kauai, Hawaii. She was awarded the Coldwell Banker International Diamond Society in 2020 for being in Coldwell Banker's top 11% of agents internationally. She is ePro certified and a Certified Luxury Home Marketing Specialist (CLMHS). Follow @DaniDooley.Kauai.Realtor