STR purchase Hawaii
Investor · MN · Member since 2022 · 22 posts · 11 votes
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?
I 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.
I 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.
I 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.
@Mike V. You nailed it. Pricing out in high cost properties is biggest challenge (indirectly CoC/ROI).
One 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.
you nailed it, I have this problem LOL, mine is occupied til august now I can't even go there, so mine have booked 7 months in advance for my own place LOL , but I have friends and family too where I can stay, including car in hawaii, as I'm very familiar with the island too, I can stay anywhere in town.
my reason for hawaii is bit personal because i like big island that much (not Oahu not Maui). So I use it while work from home in the past and for retirement as well. I can't wait to leave california and mainland usa for good lol
Condotel is basically "non-warrantable condo" from FM perspective. Two types of condotel: with kitchen and without kitchen.
So when one speak to HML you should ask this question first :
1. are you guys licensed in Hawaii ?
2. can you loan to non-warrantable condo ?
3. if still yes, can you with kitchen or non-kitchen condotel ?
Actually there are lot of HML that can do non-warrantable condotel.
And most portfolio lender in HI end up referring to BOH or local CU anyway, thing is, their rate is not that competitive enough compare to mainland HML.
@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.
John is probably thinking about the regulations that mostly affect Oahu. Althought there are some good STR opportunities there as well. Just worked with someone on a Condotel and now I am thinking about picking one or two up. :)
I 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.
Thanks Mike for that information. I have a local lender and a lender that says they can do it on the mainland. Now it makes sense!!! As others have said I am finding it hard to cash flow on these properties, is there something/area I should be looking for that help CONDOTELS cash flow?
You'll cash flow if you self manage. With property management though, they typically will take 25% and will wipe out your cash flow. There are some hybrid systems that will take less, but you'll still be responsible for doing some of the work. With these you can cash flow a bit.
If you are adding value with a big rehab, you'll have a lot of upfront costs, but you could cash flow on some of these too, but you may spend $100k on a 1,000 sq. ft. remodel too. So, not sure if that's worth it for you.
The way you're sure to cash flow is over time. Nightly rates have grown tremendously over the years and the longer you hold the property the more you will cash flow. I would tell anyone who is planning on buying here though, if they plan to have property management, don't plan on cash flow for awhile. Not to say that you can't but the likelihood that you will see the numbers you are hoping to is small. You'll probably be looking at a 3% return or thereabouts with PM.
You'll cash flow if you self manage. With property management though, they typically will take 25% and will wipe out your cash flow. There are some hybrid systems that will take less, but you'll still be responsible for doing some of the work. With these you can cash flow a bit.
If you are adding value with a big rehab, you'll have a lot of upfront costs, but you could cash flow on some of these too, but you may spend $100k on a 1,000 sq. ft. remodel too. So, not sure if that's worth it for you.
The way you're sure to cash flow is over time. Nightly rates have grown tremendously over the years and the longer you hold the property the more you will cash flow. I would tell anyone who is planning on buying here though, if they plan to have property management, don't plan on cash flow for awhile. Not to say that you can't but the likelihood that you will see the numbers you are hoping to is small. You'll probably be looking at a 3% return or thereabouts with PM.
I run a query who has the mortgage owner for the condo in Kihei, comes the usual suspect:
First Hawaiian Bank
Bank of Hawaii
Pacific Loans Inc
but I see few mainland bank as well like GMAC MORTGAGE,etc, but I dont see BOA or WF.
Having said that yes it's easier just to contact the bank above to get the loan.
When considering Real Estate in Hawaii, it's important to be aware of the regulations regarding property ownership. Some areas have stricter rules than others, so make sure you do your research before investing in any Real Estate ventures. Being informed is the best way to ensure a smooth and successful transaction!
@Mike V. I'm curious to know why you wouldn't invest in the leasehold units on Kauai? (besides the big factor of taking out potential appreciation and lease end risks in 2050).
Hi Mike,
Congrats on pursuing a condo investment in Maui! My team owns and manages short-term rental condos throughout Maui. That is not a blanket statement that you need 30% down payment and on-island lending. Some realtors may prefer that but we have personally closed 5+ condos in the past 12 months with off-island lending and 25% down (80 LTV is possible but hard to find).
As far as regulations, make sure the complex is hotel/resort zoned or grandfathered in via the "Minatoya List".
@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.
Hi Carlos,
Surprisingly, our STR condo investments are cash-flowing well. Even with decreased leverage at 25% down and high HOAs (a few $1,300/mo+), our occupancy rates (95%) and increasing nightly rates are yielding solid returns. The high taxes are passed straight along to guests/renters. As far as property management, there are definitely more affordable options. Our team is currently offering full service for 15%. Investors can also find co-hosts and other companies for a decent rate. Hope this helps clarify!
@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.
Hi Carlos,
Surprisingly, our STR condo investments are cash-flowing well. Even with decreased leverage at 25% down and high HOAs (a few $1,300/mo+), our occupancy rates (95%) and increasing nightly rates are yielding solid returns. The high taxes are passed straight along to guests/renters. As far as property management, there are definitely more affordable options. Our team is currently offering full service for 15%. Investors can also find co-hosts and other companies for a decent rate. Hope this helps clarify!
In which island ? :-)
Who is the PM that can do 15% ?
Maybe I will switch to yours LOL
@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.
Hi Carlos,
Surprisingly, our STR condo investments are cash-flowing well. Even with decreased leverage at 25% down and high HOAs (a few $1,300/mo+), our occupancy rates (95%) and increasing nightly rates are yielding solid returns. The high taxes are passed straight along to guests/renters. As far as property management, there are definitely more affordable options. Our team is currently offering full service for 15%. Investors can also find co-hosts and other companies for a decent rate. Hope this helps clarify!
In which island ? :-)
Who is the PM that can do 15% ?
Maybe I will switch to yours LOL
This is on Maui! Elevated Stays is the 15% management company, built around a handful of personal investments. Message me if you are interested in more details.
no true at all. can do less than 30- what is the purchase price? message me buddy, I would love to help