STR purchase Hawaii
Investor · MN · Member since 2022 · 22 posts · 11 votes
STR purchase Hawaii
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Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes
3yI think it's funny that the vast majority of people responding to this thread on Maui STRs aren't from Maui. All the different islands have different rules and regulations. Unless I'm wrong, @Mark Waite and I are the only investors here that live on Maui and have rentals on Maui.
I'm not interested in getting into a spitting match with anyone, but Mark's info is the most valid of all the posts in here. There are hefty regulations here. 30% down is the going rate for a CONDOTEL, which just about every STR in Maui is considered, so yes, plan on 30% down. Don't try to get around it. Maui's not a place for everyone to invest, if you can't afford the down payment, there are other markets to consider. Not every STR is hotel zoned, some are apartment zoned. A good realtor can tell you the difference and help guide you. Unfortunately, not all realtors on Maui are good realtors or really know that much about STRs. Heck, some can't even spell STR. Other than Mark and my wife, I don't know too many that actually hold STRs and are active Maui investors.
Understand that rehab costs are going to be significantly higher here than other markets as well. And probably take longer. And may not be as good quality as you're used to. Also, a lot of investors that buy out here are not as concerned about cash flow. This is a big point. I know everyone is seeking that, but not everyone NEEDS that. A lot of people who buy out here do so because the appreciation is so good compared to other markets. Over time that treats you very well, especially if you have other investments in other areas.
Can you cash flow? Yes. Can you get double digit returns? Yes. Is it easy? No. Work with a good realtor and they can help get you there though. And as far as the local lender goes, it is a good idea to have a local lender for a couple reasons. 1) Only a handful of banks in Hawaii lend on Condotels. That's because condotel loans can't be sold to Fannie Mae or Freddie Mac. Banks have to hold them in house. Because of this they typically want big down payments. Hence the 30%. 2) Good local agents know the banks and lenders who can close on said condotels. If an offer comes in, and we're still in a very competitive market here, for full ask but the lender on the offer is an outside bank, the seller's agent won't put as much stock in that as a full ask offer with a local lender, someone they know can close the loan. Not saying it can't be done from a mainland bank, but the local lender looks better on paper. And as Mark and I can both attest to, MANY TIMES a mainland lender thinks they can close on a condotel in Maui and at the last minute they let their clients know they were wrong. Condotels are not common in non-touristy areas and therefore many lenders aren't that familiar with them. They see Condo and think they can close on them, because they've done so a hundred times, but if their bank doesn't want to hold the notes, they won't be able to close. This happens a lot.
Sorry to go off like that, but always look at your sources. Local knowledge matters.
40 Replies
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
There are some hefty regulations in areas of Hawaii that you should check into first.
- 3yCole SchlackPro MemberRealtor · Hawaii, HI · Member since 2015 · 145 posts · 95 votes
Quote from @Mike Morehead:
I am looking to purchase a STR in Maui but I have run into a few road blocks. I have been told a loan has to originate from the island and that you need to put 30% down payment on a purchase. Anybody have lending ideas to get around this or how to finance in Maui?
Not true, but I think its best to work with a Hawaii based mortgage broker. I have a few I work with that get the job done if you need a referral. 30% is the preferred on a condo but I see some in the 20%. You may want to look on other Islands as well as there are some good opportunity. We have a new construction project on Kauai thats only 20% down with financing from Wells Fargo.
- Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes3y
@Mike Morehead sounds like you are being quoted full doc conventional options. I closed a 7 unit STR in Haleiwa in December and the downpayment (30%) was based on DSCR not state requirements. I have found success closing Non QM and DSCR based loan programs for my clients in HI.
Can you share the numbers you are being quoted or what you are looking at for this purchase to work for you?
- Real Estate Broker · Wailea, HI · Member since 2016 · 134 posts · 77 votes3y
@John Underwood please don't make blanket statements like you did unless you fully understand the STR markets in Hawaii. Your comment is actually way off base.
@Mike Morehead, there are other options beyond using Hawaii based lenders. There are situations where the property you are looking at may necessitate the use of a local lender, such as for a leasehold property. But there are other options out there. And anyone who says they work with investors should have those options in their back pocket. Let’s connect off line and I can make some introductions.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Mike Morehead:
I am looking to purchase a STR in Maui but I have run into a few road blocks. I have been told a loan has to originate from the island and that you need to put 30% down payment on a purchase. Anybody have lending ideas to get around this or how to finance in Maui?
Nope, it's just that Hawaiian realtor is lazy that they told you that. I have been using mainland HML to close for non-warrantable condo.The process is very fast.
For purchase, I really recommended 40% otherwise you may not even cash-flow. Really if you cant put 30%, better not to invest in HI.
To purchase STR in Maui and BI, make sure the STR certificate is attainable thru a company that could help you on that. - 3yCole SchlackPro MemberRealtor · Hawaii, HI · Member since 2015 · 145 posts · 95 votes
Quote from @Cole Schlack:
Quote from @Mike Morehead:
I am looking to purchase a STR in Maui but I have run into a few road blocks. I have been told a loan has to originate from the island and that you need to put 30% down payment on a purchase. Anybody have lending ideas to get around this or how to finance in Maui?
Not true, but I think its best to work with a Hawaii based mortgage broker. I have a few I work with that get the job done if you need a referral. 30% is the preferred on a condo but I see some in the 20%. You may want to look on other Islands as well as there are some good opportunity. We have a new construction project on Kauai thats only 20% down with financing from Wells Fargo.
Just had a loan approved for a condo. 25% down 5.65%
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Mark Waite:
@John Underwood please don't make blanket statements like you did unless you fully understand the STR markets in Hawaii. Your comment is actually way off base.
@Mike Morehead, there are other options beyond using Hawaii based lenders. There are situations where the property you are looking at may necessitate the use of a local lender, such as for a leasehold property. But there are other options out there. And anyone who says they work with investors should have those options in their back pocket. Let’s connect off line and I can make some introductions.
So your saying there are no STR requirements in any of Hawaii? My bad I didn't think that was the case.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @John Underwood:
Quote from @Mark Waite:
@John Underwood please don't make blanket statements like you did unless you fully understand the STR markets in Hawaii. Your comment is actually way off base.
@Mike Morehead, there are other options beyond using Hawaii based lenders. There are situations where the property you are looking at may necessitate the use of a local lender, such as for a leasehold property. But there are other options out there. And anyone who says they work with investors should have those options in their back pocket. Let’s connect off line and I can make some introductions.
So your saying there are no STR requirements in any of Hawaii? My bad I didn't think that was the case.
practically, STR in HI is only possible for condo in resort zone, which is good stuff actually.
- Real Estate Broker · Wailea, HI · Member since 2016 · 134 posts · 77 votes3y
@John Underwood I’m not saying there are no regulations . What you stated was that there are hefty regulations in Hawaii. Unless you know the regulations for each island, you should making such blanket statements.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Cole Schlack:
Quote from @Cole Schlack:
Quote from @Mike Morehead:
I am looking to purchase a STR in Maui but I have run into a few road blocks. I have been told a loan has to originate from the island and that you need to put 30% down payment on a purchase. Anybody have lending ideas to get around this or how to finance in Maui?
Not true, but I think its best to work with a Hawaii based mortgage broker. I have a few I work with that get the job done if you need a referral. 30% is the preferred on a condo but I see some in the 20%. You may want to look on other Islands as well as there are some good opportunity. We have a new construction project on Kauai thats only 20% down with financing from Wells Fargo.
Just had a loan approved for a condo. 25% down 5.65%
Dang, rate going down fast, is it BOH ?
- Real Estate Broker · Wailea, HI · Member since 2016 · 134 posts · 77 votes3yThere is no permit requirement for an STR condo rental on Maui.
Quote from @Carlos Ptriawan:
Quote from @Mike Morehead:
I am looking to purchase a STR in Maui but I have run into a few road blocks. I have been told a loan has to originate from the island and that you need to put 30% down payment on a purchase. Anybody have lending ideas to get around this or how to finance in Maui?
Nope, it's just that Hawaiian realtor is lazy that they told you that. I have been using mainland HML to close for non-warrantable condo.The process is very fast.
For purchase, I really recommended 40% otherwise you may not even cash-flow. Really if you cant put 30%, better not to invest in HI.
To purchase STR in Maui and BI, make sure the STR certificate is attainable thru a company that could help you on that. - Rental Property Investor · Campbell, CA · Member since 2017 · 419 posts · 499 votes3y
Quote from @John Underwood:
Quote from @Mark Waite:
@John Underwood please don't make blanket statements like you did unless you fully understand the STR markets in Hawaii. Your comment is actually way off base.
@Mike Morehead, there are other options beyond using Hawaii based lenders. There are situations where the property you are looking at may necessitate the use of a local lender, such as for a leasehold property. But there are other options out there. And anyone who says they work with investors should have those options in their back pocket. Let’s connect off line and I can make some introductions.
So your saying there are no STR requirements in any of Hawaii? My bad I didn't think that was the case.
I think he takes issue with the ‘hefty regulations’ comment.
You are correct, there are strict regulations. However, there are designated areas where all the red tape disappears and it’s basically a free for all. As long as you are within one of the hose designated visitor areas you are fine and will never be bothered. If you are not, you will inevitably have issues.
At least this is how it works in Kauai.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Mark Waite:
There is no permit requirement for an STR condo rental on Maui.Quote from @Carlos Ptriawan:
Quote from @Mike Morehead:
I am looking to purchase a STR in Maui but I have run into a few road blocks. I have been told a loan has to originate from the island and that you need to put 30% down payment on a purchase. Anybody have lending ideas to get around this or how to finance in Maui?
Nope, it's just that Hawaiian realtor is lazy that they told you that. I have been using mainland HML to close for non-warrantable condo.The process is very fast.
For purchase, I really recommended 40% otherwise you may not even cash-flow. Really if you cant put 30%, better not to invest in HI.
To purchase STR in Maui and BI, make sure the STR certificate is attainable thru a company that could help you on that.you need to register for GE/TAT license.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Mike V.:
Quote from @John Underwood:
Quote from @Mark Waite:
@John Underwood please don't make blanket statements like you did unless you fully understand the STR markets in Hawaii. Your comment is actually way off base.
@Mike Morehead, there are other options beyond using Hawaii based lenders. There are situations where the property you are looking at may necessitate the use of a local lender, such as for a leasehold property. But there are other options out there. And anyone who says they work with investors should have those options in their back pocket. Let’s connect off line and I can make some introductions.
So your saying there are no STR requirements in any of Hawaii? My bad I didn't think that was the case.
I think he takes issue with the ‘hefty regulations’ comment.
You are correct, there are strict regulations. However, there are designated areas where all the red tape disappears and it’s basically a free for all. As long as you are within one of the hose designated visitor areas you are fine and will never be bothered. If you are not, you will inevitably have issues.
At least this is how it works in Kauai.
I see.
It is always recommended to check regulation that affect a potential STR investment as part of your due diligence.
It's best to start there before making offers. I have seen people buy a property and assume it was ok and it wasn't.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Mark Waite:
@John Underwood I’m not saying there are no regulations . What you stated was that there are hefty regulations in Hawaii. Unless you know the regulations for each island, you should making such blanket statements.
I did not say that. You misread. I said " in areas of Hawaii" NOT all of Hawaii.
- 3yMadhu PonnadaPro MemberRental Property Investor · El Dorado Hills, CA · Member since 2020 · 32 posts · 9 votes
@Mark Waite - Was always interested in getting a STR in HI, but cost structure for buying condos with very high HOA/Maintenance and not much cashflow for average 20-25% downpayment on mortgage. Are things getting better on cash flow positive STRs in HI?
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Carlos Ptriawan:
Quote from @John Underwood:
Quote from @Mark Waite:
@John Underwood please don't make blanket statements like you did unless you fully understand the STR markets in Hawaii. Your comment is actually way off base.
@Mike Morehead, there are other options beyond using Hawaii based lenders. There are situations where the property you are looking at may necessitate the use of a local lender, such as for a leasehold property. But there are other options out there. And anyone who says they work with investors should have those options in their back pocket. Let’s connect off line and I can make some introductions.
So your saying there are no STR requirements in any of Hawaii? My bad I didn't think that was the case.
practically, STR in HI is only possible for condo in resort zone, which is good stuff actually.
Thanks for clarification!
- Real Estate Broker · Wailea, HI · Member since 2016 · 134 posts · 77 votes3y
Quote from @Madhu Ponnada:
@Mark Waite - Was always interested in getting a STR in HI, but cost structure for buying condos with very high HOA/Maintenance and not much cashflow for average 20-25% downpayment on mortgage. Are things getting better on cash flow positive STRs in HI?
@Madhu Ponnada It depends on your return expectations. If you are looking for a double digit return, you may be challenged. But what people often overlook is the appreciation. There is a limited supply of STR condos, the county isn't allowing for more. And as long as Maui remains a popular tourist destination, there will be demand.
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @John Underwood:
Quote from @Mark Waite:
@John Underwood I’m not saying there are no regulations . What you stated was that there are hefty regulations in Hawaii. Unless you know the regulations for each island, you should making such blanket statements.
I did not say that. You misread. I said " in areas of Hawaii" NOT all of Hawaii.
What John said is pretty much understandable and he's right as well. It's best for whoever buyer to consult with a company that's specializing in permitting (if necessary) so buyer is well informed.
Do not assume one could buy SF, don't live there, and rent it all out for airbnb, it doesnt work that way. - Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Madhu Ponnada:
@Mark Waite - Was always interested in getting a STR in HI, but cost structure for buying condos with very high HOA/Maintenance and not much cashflow for average 20-25% downpayment on mortgage. Are things getting better on cash flow positive STRs in HI?
25% down is impossible to cash-flow.
HOA is actually not that expensive, it's still reasonable, and actually it's less expensive than owning SF in paradise.
The problem is there's high GE/TAT 14% and PM management 20-25% that you need to account for as well. - Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Mark Waite:
Quote from @Madhu Ponnada:
@Mark Waite - Was always interested in getting a STR in HI, but cost structure for buying condos with very high HOA/Maintenance and not much cashflow for average 20-25% downpayment on mortgage. Are things getting better on cash flow positive STRs in HI?
@Madhu Ponnada It depends on your return expectations. If you are looking for a double digit return, you may be challenged. But what people often overlook is the appreciation. There is a limited supply of STR condos, the county isn't allowing for more. And as long as Maui remains a popular tourist destination, there will be demand.
Maui and Kauai is the highest appreciation town in the whole USA. This is like the place of millionaires that rather than put their money in CD, they'd rather save it in Kihei LOL
- Rental Property Investor · Campbell, CA · Member since 2017 · 419 posts · 499 votes3yIn todays market finding a place to cash flow in Kauai with 25% down is challenging but not 'impossible'. I can see several that cash flow 'today' on MLS, but the returns I require to purchase are no where to be found in Kauai. With the exception of a few land lease units available but I wont touch those. As an example: As a landlease you can get a unit in Kiahuna Plantation on Poipu Beach for under 300k. Rent it pretty easy at 300. /night with a few upgrades, carrying costs about 40k plus mortgage and you can see what youd net for yourself.
25% down is impossible to cash-flow.
HOA is actually not that expensive, it's still reasonable, and actually it's less expensive than owning SF in paradise.
The problem is there's high GE/TAT 14% and PM management 20-25% that you need to account for as well.
GE/TAT is a passthrough so thats a non issue.
You should self manage or find a 'co host'. You don't need a full service PM.
Kauai has, and continues to be a gold mine for my rentals. Discouraging others from investing in the state is disingenuous. The biggest issue with investing in HI isnt the returns, its the large down payment needed on high cost properties with very high carrying costs that price out the 'average' investor. - 3yMadhu PonnadaPro MemberRental Property Investor · El Dorado Hills, CA · Member since 2020 · 32 posts · 9 votes
@Mike V. You nailed it. Pricing out in high cost properties is biggest challenge (indirectly CoC/ROI).
- Member since 2019 · 7k+ posts · 4k+ votes3y
Quote from @Madhu Ponnada:
@Mike V. You nailed it. Pricing out in high cost properties is biggest challenge (indirectly CoC/ROI).
I think the biggest advantage of having STR in Hawaii is we can use it while price keep appreciating.
If folks want cash flow then you'd better focus buying MF in midwest.
As someone that do both, I wouldn't expect Hawaii to cash-flow that much while having good appreciation - 3yRyan MoyerBusiness MemberProperty Manager · Orlando Kissimmee Davenport Salt Lake City, Park City · Member since 2019 · 991 posts · 1k+ votes
Quote from @Carlos Ptriawan:
Quote from @Madhu Ponnada:
@Mike V. You nailed it. Pricing out in high cost properties is biggest challenge (indirectly CoC/ROI).
I think the biggest advantage of having STR in Hawaii is we can use it while price keep appreciating.
If folks want cash flow then you'd better focus buying MF in midwest.
As someone that do both, I wouldn't expect Hawaii to cash-flow that much while having good appreciationOne thing I've noticed when adding more properties is that the "personal use" perk is much nicer in markets that are more seasonal and have more vacancy.
IE a property that does 100k gross with 70% occupancy has a much better personal use perk than a property that does 100k with 95% occupancy, where any personal use is going to affect your gross rather than fill in gaps that were empty anyway.
Once you get to somewhere like Hawaii where occupancy rates are in the 95% range, using it personally is basically just as expensive as paying for a place to stay, nearby, as it has basically the same effect on your personal account.
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