We were thinking of putting an offer for a short term vacation condo in Maui Hawaii (~400k) but decided to not go forward with it because of high 3.75% interest rate for 30 yr Fixed, 20% down. We knew that STR's fall under non-warrantable loans but didn't expect the rate to be that high.

i have excellent credit score and can easily afford the unit. Does anyone have any suggestions? Are the non-warrantable rates this high only in Hawaii?

At these interest rate, STR's seem to be bad investment :(

My long term rentals are at 4 percent, and they make 10x less profit per year than my short term rental. They're still a good investment and beat the stock market. I don't know if you're cut out for this if you haven't even run the basic numbers. 

Did you even shop around for rates? 

Well, onesy-twosy deals that are non owner-occupied and STRs (which seems to be getting overloaded even in HI) warrant a 3.75% rate.

As noted, maybe you should look elsewhere or get another quote.  However, if it doesn't look promising at that rate, probably not that great a deal anyways.

See if you can't get it as a 'second home' and definitely shop rates.

That said, rates are at historic all time lows.  Even at 3.75% it's still crazy low.  Don't get greedy chasing 3% and lose out on opportunities.  

And if your investment is going to give you a 20%+ return, I can't see that you'll even feel that difference in your cash flow.  Don't be penny wise and pound foolish.

That said, I'd be more worried about them legislating away your ability to STR. I have a buddy with 2 rentals in Hawaii and isn't happy.

3.75% is cheap for an investment property loan.

Thanks everyone for the feedback. 
Our main goal for this property is for us to use it ourselves 3-4 months of the year. We were initially looking at long term rental condo's but decided to not go that route because of lack of flexibility. Given that we will be occupying the unit for at-least a yea, we applied for second home. So the 3.75% rate is for second home & not investment property. 

The unit we are looking at is around 410k and did 44k in rental income in 2019. I did run the numbers and with the Hawaii taxes and other expenses we are looking at 0 cash flow (i.e. property will just pay for itself)

We are also worried about Maui govt revoking STR licenses.

@Samer S. If the condo is zoned for short term rentals the state won’t revoke that distinction. What they have been doing is cracking down on unpermitted STRs and talking about not renewing permits on single family homes that have been used as STRs. But if the complex you’re looking at is zoned for it you should be fine.

@Samer S.

You may want to shop around for a better rate..

STR lender here on Maui are pretty tight right now but I am closing a STR with a client at 3%, 20% down.