Now is the time to buy real estate in Kauai. With the economy turning around, tourism on the upswing, and prices at or near rock bottom, your best opportunity to buy an investment property that will produce positive cash flow, or just to finally get your retirement or second home is now.
Condominiums that were selling for $250,000 to $450,000 at the height of the market back in 2006 have leveled off at about $80,000 to $150,000 now. When the economy crashed, many of Kauai’s properties were held by mainland owners as rentals, or second/third homes. When the financial troubles hit owners at their primary residence, they did what was often the only financially prudent thing to do: they left their Kauai properties to the local banks, while tending to financial woes at home. Now, fully three to four years later, those properties are a hot prospect and the banks are ready to let them go in quick, seamless transactions for qualified buyers.
Cash is King, But Financing is Available
Are you able to buy with cash? This is the ideal situation for income property buyers in Kauai. Banks are holding reasonably-priced condominiums (commonly referred to as “REOs” –Real Estate Owned—properties that are in the possession of a bank/lender and subject to foreclosure)) ranging from studios to one- and two-bedrooms for well under $150,000 right now. In many cases, they are only accepting cash deals, but are willing to close escrow in as little as two weeks.
But the time to act is now, as more and more of these properties are being snatched up by people who have waited the recession out. According to Robb Wall, a longtime Kauai resident and Realtor, “The Kauai real estate market is currently experiencing a shortage of listings
in the lower price ranges. For example, Islander on the Beach, which recently had 10 to 15 active units for sale now has only one! (a vacation rental studio – furnished for $89,000). The Kauai tourism industry has been carrying the islands financially and we are now up to 23,000 daily visitors here on Kauai, a dramatic increase in just one year.”
Financing is still available in some circumstances. The banks have been offering 6% over five years for the condos on the lower end of the price scale. According to Wall, “Because sellers are still competing with short sales and Bank REOs, the first time home owner market is also one of the best markets I have seen in years. I am getting clients into three bedroom, two bath homes for the mid- to high-$300,000 range which was unheard of back before the economic crash. Most homes I am selling now were in the high $500,000 range in 2005-2006. Financing of course has never been cheaper and we now have a USDA zero down product which is very popular with local principal home buyers.”
Rental Programs can be Cash Positive from the Get-Go
The Kauai tourism market is outstripping the rest of the Hawaiian Islands right now and has been consistently on the upswing for the last two years. Kauai also features several high-quality rental and on-site management programs that are producing positive cash income for new owners starting at the first month.
For example, cash-purchased properties at the Islander on the Beach condominiums in Kapa’a, maintain an overhead of about $800 per month, including homeowner association (HOA) fees, taxes, and insurance. Gross income from rentals on those properties currently run approximately $900 to $1,600 a month – a net of $100 to 800 per month depending on the unit (garden vs. ocean view).
This means when you visit your property for a few weeks out of the year, you are staying for free while realizing an income throughout the rest of the year. Of course, if you have a modest loan, these numbers are reduced, but still help buffer the mortgage payment.
The positive rental cash flow is also important because it has provided the banks with incentive to keep the properties in quality condition in order to continue to rent them while seeking buyers. While REOs have a national reputation for being abandoned or run down, the Kauai REOs are generally in much better condition, requiring little or no refurbishing.
However, Wall advises his clients, “These properties are typically priced at the County Tax assessed value and are sold “as is”, so definitely do hire a good building inspector and you should be fine.”
The Hawaiian Island chain is the home to unmatched tropical beauty. Though it is sometimes hard to imagine that it’s part of the US, that’s the advantage of buying in Kauai: tropical beauty in the 50th State, subject to US laws. You won’t be burdened with foreign translation issues, having to hire foreign lawyers, or being subject to a 99-year lease such as in Mexico. Some of the Hawaiian Islands only make property available as a lease-hold, which also diminishes the property’s value. In Kauai you can purchase in fee simple and own a piece of paradise forever, using all of the insurance and legal tools available on the mainland.
Your management company and anyone you hire to care for your property is also bound by US laws and standards. You speak the same language as those you hire and have telephone and email access that is as easy as communicating with your next door neighbor.
This has to be the safest and most secure tropical island investment available today.
Not Ready Yet? Rent a “Research” Property for a Week & Take a Tax Write-Off
Many mainland buyers will do “on the ground research” before buying. And what could be a better way to conduct business research than taking a trip to Kauai? If you intend to purchase a rental property, this becomes a business trip that is subject to a tax write-off. Consult with your tax advisor about actual deductions, which generally include airfare, as well as rental car costs and meals on the days of actual research into properties.
You should consult various websites for properties similar to those you want to consider. For example, www.kauaiislandcondo.com features a cash-positive studio condo at Islander on the Beach typical of many on the island. It is also an affordable base for your research tours.
Expected Costs & What to Look For
For well-maintained properties on Kauai, the costs are fairly finite, as long as you build in some contingency costs. Look for HOA fees in the $600-800 range. High HOA fees usually mean that the property has high overhead or is subject to more extensive repairs in an aging facility. Taxes and license should be no more than an additional $150-300 annually.
Look for a condo in a strong HOA. The HOA board should be responsive and board members should be willing to talk with you about your prospective purchase. Ask to see the current Reserve Study to see if the HOA fees are keeping up with the inevitable costs of replacement of large items such as roofs, plumbing, electrical systems, common pool maintenance and so forth. If special assessments have been levied against the property owners in recent years, this indicates several possibilities: poor management, inadequate reserve studies and reserve accounts, or other indicators that you may want to consider different properties.
Ask about local owners. Are the properties owned by Kauai residents? This is particularly important for mainland owners, as their Kauai-based co-owners will have regular, first-hand knowledge of anything that happens on the property. As you get to know your co-owners, you will also be able to communicate with them about events and other factors on the island, such as large conventions that can fill up rental properties, or bad weather, and even local politics.
Ok, You’re Ready to Go!
Now is the time to buy Kauai property. Robb Wall sums it up best: “All in all, this may be your last market to grab a piece of glorious Kauai before the lack of inventory squeezes values northward like the days when there were literally no listings of any kind on Kauai under $500,000.”
www.kauaiislandcondo.com is a good start to see what an affordable, cash-positive property looks like. It is also an affordable jumping off point for your real property tour of the Garden Island.
www.robbwall.com is the website for longtime resident and Realtor Robb Wall. Wall has a great deal of experience in not only Kauai rental properties, but single-family homes for your retirement or your second home.
http://www.kauai-hawaii.com is the Kauai County Visitors Bureaus website with helpful hints on what to do and see while researching properties on the island.
www.burningpier.com is a surf website that has information, photos, and videos of Kauai surf.