Condotel in Maui - first investment property

Buying & Selling Real Estate
6yFollow

Condotel in Maui - first investment property

Jennifer Phillips
Member since 2020 · 4 posts · 2 votes

Hi all - first post here, and I'm hoping for some honest feedback on an investment/personal use property at a condotel resort in Maui. Cut me some slack, as I'm just now learning some of the investment terms used on this site. We intend to use the property probably about 6 weeks of the year, during slow season. Annual occupancy without our use is about 77%. First, the loan will be 35% down, which apparently is typical for Maui condotels. Since we intend to use the condo long-term, we are looking at this as an investment in equity - money we would have had in the stock market otherwise. The resort does EVERYTHING for me - booking, cleaning, paying utilities, etc. - for $1300/mth. I am paying closing costs in cash, as my loan to value is maxed out at 65%, so that's another $10k out of pocket. I ran the BP analysis/report, and it's telling me my NOI is $21k, and cash-on-cash ROI is 1.86%. Gross rent multiplier is 5.8, and income-expense ratio (2% rule) is 1.40%. I'm seeing annualized total return at 7% year 1, 10% year 2, 11% year 3, and then it drops back down to 10%, 9%, 8%, etc. Cash flow is positive, but not hugely, and honestly we'll probably spend that vacationing there. Keeping in mind - we intend to use the place ourselves, and hope to make a little profit in the meantime. Does any of this scream "RUN AWAY" to anyone?

2Reply
20 views

11 Replies

Jump to latestLatest
  • Jason G.Pro Member
    Rental Property Investor · Long Island, NY · Member since 2015 · 434 posts · 495 votes
    6y
    Originally posted by @Jennifer Phillips:

    Hi all - first post here, and I'm hoping for some honest feedback on an investment/personal use property at a condotel resort in Maui. Cut me some slack, as I'm just now learning some of the investment terms used on this site. We intend to use the property probably about 6 weeks of the year, during slow season. Annual occupancy without our use is about 77%. First, the loan will be 35% down, which apparently is typical for Maui condotels. Since we intend to use the condo long-term, we are looking at this as an investment in equity - money we would have had in the stock market otherwise. The resort does EVERYTHING for me - booking, cleaning, paying utilities, etc. - for $1300/mth. I am paying closing costs in cash, as my loan to value is maxed out at 65%, so that's another $10k out of pocket. I ran the BP analysis/report, and it's telling me my NOI is $21k, and cash-on-cash ROI is 1.86%. Gross rent multiplier is 5.8, and income-expense ratio (2% rule) is 1.40%. I'm seeing annualized total return at 7% year 1, 10% year 2, 11% year 3, and then it drops back down to 10%, 9%, 8%, etc. Cash flow is positive, but not hugely, and honestly we'll probably spend that vacationing there. Keeping in mind - we intend to use the place ourselves, and hope to make a little profit in the meantime. Does any of this scream "RUN AWAY" to anyone?

    When you say the hotel does everything for $1,300 a month, are those all the fees aside from PITI in total or are there additional fees? What is the profit sharing split between the hotel and you? Have you asked for copies of the last year or two years of statements for the unit to see if it was profitable? When you say this is an investment in equity, are these units appreciating in value? Given Covid, how is the condotel doing itself? Are there a lot of units for sale? Are those that are sale selling below their original purchase price? That may be a sign of an issue.

    0Reply
  • Jennifer Phillips
    Member since 2018 · 1 post · 0 votes
    6y

    Hi Jason - yes, those are aside from the PITI. Though I just learned that the fee isn't $1300/month necessarily, rather it's 55% of revenue. That's pretty high. I have copies of 2018-2020 income statements, and it is profitable, though like I said, it's not hugely profitable. More like, will pay for our vacations, but not a lot of extra. The units are appreciating at about 3-4% per year, and we intend to hold onto it for a good 10 years, give or take. During COVID, nothing is renting in Hawaii as far as short term rentals go. They are not allowed (though opening back up 10/15). There is only one more unit for sale in the resort (an upgraded version of the one we are buying, for $19k more), and the resort is popular, beachfront, and has full amenities. Nothing in Maui is selling for below purchase price. ;) Certainly not these units. They go up and up in value. Thank you for your reply!

    0Reply
  • Jennifer Phillips
    OP
    Member since 2020 · 4 posts · 2 votes
    6y

    Hi Jason - yes, those are aside from the PITI. Though I just learned that the fee isn't $1300/month necessarily, rather it's 55% of revenue. That's pretty high. I have copies of 2018-2020 income statements, and it is profitable, though like I said, it's not hugely profitable. More like, will pay for our vacations, but not a lot of extra. The units are appreciating at about 3-4% per year, and we intend to hold onto it for a good 10 years, give or take. During COVID, nothing is renting in Hawaii as far as short term rentals go. They are not allowed (though opening back up 10/15). There is only one more unit for sale in the resort (an upgraded version of the one we are buying, for $19k more), and the resort is popular, beachfront, and has full amenities. Nothing in Maui is selling for below purchase price. ;) Certainly not these units. They go up and up in value. Thank you for your reply!

    0Reply
  • Scott S.
    Tacoma, WA · Member since 2014 · 77 posts · 92 votes
    6y

    I'm curious, what figures are you basing future occupancy and revenue on going forward?  Pre- COVID Maui income statement numbers will take years to recover.  Post 9/11, it took about 3 yrs for Hawaii to get back to pre arrival numbers.  After 2008 financial crisis it took another 3-4 yrs to recover.  This recovery is going to take far longer.

    0Reply
  • David RuckerPro Member
    Honolulu, HI · Member since 2015 · 29 posts · 14 votes
    6y

    @Jennifer Phillips      Are you required to be in the "hotel pool" for your unit, or can you have an outside manager?    I'm on Oahu.  Some condotel properties force you into their pool of rooms; others allow private management.    Typical fee structure here is ~50% of revenue if in the hotel pool ~20% for private management.     Will obviously help your numbers if you can lower the fee.

    0Reply
  • Jennifer Phillips
    OP
    Member since 2020 · 4 posts · 2 votes
    6y

    Hi @Scott S. - my numbers are based on actuals from past statements because, obviously, they can't give me anything for the future.  ;)  That said, you are correct - post-COVID could change the game completely for this investment, yet to be seen, but certainly a very strong possibility.  That risk, along with final disclosure of all fees (including property management fees, which have been disclosed as about 45-55% of revenue (to your point, @David Rucker), have put us out of the game on this property.  Oh, and David Rucker, the property does allow us to use a different management company.  Either way, in good times, this would be only an OK investment (1-3% cap), considering it is a lifestyle investment, not so bad.  In bad times, we could be screwed.  :(  Thank you all for giving me more to think about and replying to this post!  I truly appreciate it!  

    0Reply
  • Jennifer Phillips
    OP
    Member since 2020 · 4 posts · 2 votes
    6y

    Also, just to wrap it all up, @Jason G., the $1300/mth was not including management fees.  It was only maintenance.  They later disclosed all financials, and more charges surfaced.  We have bought many a primary residence, but not rental properties, per se.  Is it typical to get all financial/fee disclosure AFTER earnest money is put down (our realtor says it is in Hawaii)?  Because that could change SO much, including the offer price that you ALREADY locked down!  Also, it seems pretty daunting to be promised you will get your earnest money back if financial data makes you change your mind.  It's in the contract, but still, cutting that check hurts, and feels too risky.  All fees and expenses should come first, before the offer and earnest money.  Don't you think so?  Again, we're told that Hawaii operates differently than other states due to the classification of properties (condotel, etc.), so this may not apply to, say, Indiana.  I should start a new thread on this topic....  :)  Thanks again!

    0Reply
  • Jason G.Pro Member
    Rental Property Investor · Long Island, NY · Member since 2015 · 434 posts · 495 votes
    5y
    Originally posted by @Jennifer Phillips:

    Also, just to wrap it all up, @Jason G., the $1300/mth was not including management fees.  It was only maintenance.  They later disclosed all financials, and more charges surfaced.  We have bought many a primary residence, but not rental properties, per se.  Is it typical to get all financial/fee disclosure AFTER earnest money is put down (our realtor says it is in Hawaii)?  Because that could change SO much, including the offer price that you ALREADY locked down!  Also, it seems pretty daunting to be promised you will get your earnest money back if financial data makes you change your mind.  It's in the contract, but still, cutting that check hurts, and feels too risky.  All fees and expenses should come first, before the offer and earnest money.  Don't you think so?  Again, we're told that Hawaii operates differently than other states due to the classification of properties (condotel, etc.), so this may not apply to, say, Indiana.  I should start a new thread on this topic....  :)  Thanks again!

    I do not know how Hawaii operates, but personally, I wouldn't pull the trigger on any property unless I had all the numbers.  At one point my wife and I were looking at condotels in Miami and between the profit sharing and the fees, which were separate, we just couldn't bring ourselves to do it at the time.  For the numbers to really work, I would have to do a full cash buy and that money could probably be put to better use elsewhere.  

    0Reply
  • Loren Clive
    Residential Real Estate Broker · Paia, HI · Member since 2016 · 479 posts · 311 votes
    5y

    Congrats on your escrow! Brave of you to jump in in this climate. 

    I'd shop other lenders. You can do 20% down for condotels, with best rates at 25%. 

    Also I would consider NOT using the on-site management. 55% fee is crazy! 25% is normal

    0Reply
  • Christian Cramer
    Property Manager · Kihei, HI · Member since 2016 · 85 posts · 97 votes
    5y

    This doesn't scream run away - it's just sounds like a typical retail VR buyer deal. I would expect to just break even, you might cash flow a little tiny bit, but probably not much with the management fees you described. You'll get a place to stay here when you come, and probably appreciation as time goes on. For a deal like this you are really hoping for appreciation, so I hope the unit has a decent view. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free