Seeking info on Kauai STRs

[Matthew Sevilla]

Hello, I live in Southern California. I work a W2 job, and I'm looking to purchase an STR to offset my income taxes. We are really interested in Hawaii. Kauai seems like a solid market. My price range is around $700k. I'm thinking of purchasing a 1br/1ba condo. My wife currently manages her parents' STR in Oceanside California. So we would self-manage together. Does anyone have any advice as to where we should start or how to properly underwrite a property? I want to make sure it cash flows and want to be diligent with the decision.

[Joseph Lambert]

Aloha Matthew!  

investing in Hawaii is an amazing idea!  My wife and I did the same back in 2015, and it was the best decision we ever made.  It led to us moving here 5 years ago (also from California), and also the property has performed outstanding (we actually kept it as investment and bought a different home to live in).  That decision in 2015 even led to me getting my license out here so I could help more people who wanted to invest here.

One thing to keep in mind is that you actually have to have a designated on island point of contact / reachable person- which is required to designate on the permit application.  So no way around it.  Most people hire a Property Manager, and they charge around 25%.  I have a couple professional contacts who offer to be “co-host” and who can be the on island contact for a lower rate.
 

Are you looking to use the property too? Or just purely investment? I mention that because there is a tremendous demand for long term rentals here too. All the legislation limiting STRs is because there is such a shortage of LTRs, so the demand for them is high. So if it is purely an investment play, consider LTR too. You also pay much less in PM (about 10%), and don't have to pay the Transient Accommodation Tax (TAT) either, which is required for STR.

As far as cash flow, I tell my investors that it is very difficult to cash flow if you only put 25% down.  There is just too much demand and other Buyers who want to own here too so the sales prices are driven higher compared to rents.  So to cash flow, you really need to be in that 40%+ down.  That’s where the numbers start to make sense and be profitable.  That said- I didn’t put that much down on my condo, and I just accepted that I would lose a little money each month in order to own a condo here.  In the long run, it has proven to be an amazing decision like I said earlier, and I would do it again.

The one thing you have going for you is that the condo market is a tremendous Buyers market now.  The last few sales I’ve helped investors with sold for substantially less than what the exact same condo had sold for 2-3 years ago.  So there are definitely some deals to be had.  

Feel free to reach out if you want to chat more.  My wife, daughter, and I love it here.  That decision back in 2015 to get a condo here changed our life and I cannot recommend it more to anyone thinking of doing the same!

Aloha for now,

Joe