Honua Kai Investment Analysis

*Note: The Honua Kai micro-market continues to evolve. This article was originally written in 08/2013 based on then-current conditions. To better reflect the market, this post has been updated/edited in 02/2020. Periodically, we will update this post but contact us for specific information*

With more and more attention by potential investors in purchasing condos for sale at Honua Kai, one of the main questions (if not THE most critical) boils down to profitability. First, let us state the obvious: Maui is a strong long-term equity market, not a short-term cash flow market. Thinking of putting 20% down for a 12 cap rate? Then Maui is not a viable option. But if one is considering investing long-term and seeing appreciation that oftentimes far outpaces the rest of North America, then Maui can be a perfect vehicle to reach that objective -  that becomes more poignant on specialty beachfront properties, such as the luxury Honua Kai Resort and Spa. Being beachfront on one of the most acclaimed beaches in the world certainly has its benefits.

And although Honua Kai units have been outperforming most other Maui properties in terms of return on investment, there are strong performers within this micro-market. Which condo to buy then becomes a reflection of which best meets one's real estate objectives (investment versus personal enjoyment preferences) and the budget allocated for the purchase.

Honua Kai Condos Known/Fixed Costs

First, let us explain the most common on-going costs associated with ownership of a Honua Kai condo to be used as a vacation rental:

*  Property Taxes - Units that are zoned and used as vacation rentals are taxed (effective July 1, 2016) at $8.71 per $1K of its assessed value - same rate for the structure and for the land. Tax rates are County-wide and there are no special provisions to further tax the subject property (i.e. Ka'anapali, Honua Kai).

*  Maintenance Fees - As of the writing of this article (late early 2017), maintenance fees are approximately $1.41 per square foot of interior living space. These fees include water, refuse collection, sewer, maintenance and repair of common elements, basic cable, reserves, insurance, and utilities to common elements.

*  Utilities - The cost for electricity on Maui is quite substantial - and oftentimes shocking to potential buyers. The cost of kilowatt hour, to include all applicable surcharges (and it seems as though these are neverending) has hovered around 40 to 45 cents. Clearly the cost of electric will be dependent on usage, but allocating approximately 7 to 8 cents per square foot for monthly electric costs is adequate under current rates. Honua Kai is constructed particularly well to enjoy energy-efficiency in comparison to other older Maui properties. Basic Cable is included in the HOA fees. In addition, phone and internet services can be purchased through Hawaiian Tel for approximately $70 per month.

*  Insurance - Individual Honua Kai condo owners would behoove to get their own insurance, to cover for loss to contents and for liability.  If hiring property management firm, there may be contractual requirements of the minimum insurance coverage that must be procured. All in all,  the cost will vary depending on the amount insured and other tangible variables, but allocating $500-1,500 per year would cover most scenarios - with the variance based on unit size and coverage desired.

*  Property Management - One of the aspects that will most significantly affect net income payable to the owner is the cost for property management. There are many firms operating high-level rental programs that charge as much as 50% of the gross, however for Honua Kai owners, there is a plethora of options. The on-site program is said to charge approximately 35% of the gross (but please contact them directly for information on the benefits/cost of their rental program), depending on the type of unit, length of contract, etc. and there are many off-site property managers who have proven to be very successful in obtaining high occupancy percentages at fair market rates for their clients. Their fees can vary, but 30% of the gross income seems to be a good basis, with one particular outstanding property management company doing it for 25%. Caveat:  The above property management costs are subject to change and are not guaranteed - we do not claim any relationship with any of the property management firms, we refer our clients to various vendors to conduct due diligence and see which best fits the client's overall objectives. Contact us for information.

*  Debt Management (if any) - Financing Honua Kai condos has become more prevalent in the past 12 months, with lenders seemingly loosening their qualifying criteria and a couple of lenders offering mortgages with as little as 25% down. View general information on Honua Kai Financing and contact us for details - there are only a handful of lenders who finance this type of property and we have strong working relationships, we provide all relevant contact information to our clients as part of our representation. 

The above includes most of the ongoing costs for owning a Honua Kai luxury condo, but it is by no means to be all inclusive nor apply to all circumstances. Feel free to contact us to discuss specific scenarios at alex@mauirealestatesearch.com or call 808.385.5034 any time.

Honua Kai Rental Analysis 

Below we will list examples based on actual units for sale, but due to changing inventory, we will discuss in general terms. Also, property taxes are based on assessed values, which are based on an automated valuation model covering the previous fiscal year, so to account for possible variance we will round up from the current year's tax rate. Furthermore, two variables need special consideration: property management and debt service. First, as there are many options, we will make our assumptions below on property management fees of 30% of the gross. And debt service can vary significantly based on prevailing rates, terms of loan, etc. As such, we will not include debt service below, but for those interested in purchasing a Honau Kai condo, contact us and we can go into the specifics applicable on individual cases. **To err on the side of caution, we are rounding up most figures, except for gross income on which we are making VERY conservative estimates**

Conclusion 

The above examples are for 'best in class' units, as such proper selection is absolutely critical - contact us, we know the Honua Kai market intimately well and know which units have proven to be standouts within their respective categories. And furthermore, the cost of acquisition is based on today's fair market values (updated February 2020) and is likely to trend upwards in the foreseeable future. It is worth noting that the 3 bedroom projection above is for the tower 3 bedroom units, does NOT include Luana Garden Villas which are set to be one of THE strongest values anywhere in Hawaii. Contact for details on its projected rental revenue.

The Honua Kai Resort and Spa offers a plethora of options, from studios, to mountain-view 1 bedroom units, to penthouse-level luxury properties unlike any others in the Kaanapali market. Which unit to purchase then becomes a function of both objective, personal preference, and budget. Our objective remains simple: remain strong advocates for our client's best interests at all times while providing all relevant data on which they can make informed decisions. Let our passion for Honua Kai be your advantage - contact us today for a private consultation. 

* Disclaimer: The above information is for informational purposes only, to illustrate hypothetical scenarios based on reasonable observations. It is by no means any type of financial, investment, legal, or taxation advice - please consult the proper professionals for counsel.  *