Good deal? Buying a condo for vacation rentals

8 Replies

I'm thinking of buying a Condo in a fairly popular tourist destination a couple blocks off the beach in Hawaii. Ide be Investing about 40k for down payment, closing and rehab. It could cash flow roughly $1350mo, thats a cash on cash return of 40% for about 2/3 of the year. The other 1/3 ROI would be around 20%. . If I long term rented it, the numbers would not work out and I would be lucky to break even. There are a couple risks that make me weary and would love to hear if anyone had some stances on the subject that could help me validate/eliminate my concerns. Mahalo!

1.) I'll be buying at historical high prices for the condos history and I feel the markets in a bubble and I won't be counting on appreciation, more likely to depreciate in the near future if the bubble bursts.

2.) What if one day the home owners association decided to not allow short term renting or possibly the state of HI passes laws banning short term renting (it's very controversial over here) and over night I go from a great cash flow rental to a rental thats in the red and possibly underwater if the bubble did pop.

Investing in a condo, especially for vacation rentals is extremely risky. Home owners in the building will hate having you there and as a result you will have complaints and issues with the HOA. This is assuming the HOA even allows rentals alone short term.

Extremely risky investment unless you have already confirmed the HOA is in full support of investors operating short term rentals.

Keep in mind your HOA is like your landlord. Do what they say or risk getting evicted.

You would probably be better off renting out living space in your own house for STRs.  Instead of buying a condo, what if you spent that money enlarging your own house?  Add 2 more bedrooms and a bathroom, and another family room.

@Thomas S.

Thanks, Short term rentals are currently allowed by the HOA. There are a couple existing. I'm not sure whether the board supports the idea of STR. I've decided to try and make contact with some the HOA board members and try to get a feel on the matter.

@Paul Sandhu

Thanks, Great idea, I house hacked a house with a small attached rental in 2012. Took me about 3 years to remodle it myself. My wife son and myself now live in the small rental and we vacation rent the bigger house. I don't think parking would allow for another unit.

For investment property, I would avoid HOA's at all costs, as you are never in complete control. I would never put someone that in not involved, nor has nothing to gain or lose in-between me & my cash flow.

@jasonGoretzki I've always felt the same way about HOAs, until recently. I changed to believe all HOAs are not created equal. In this case I think it may even be a good deal. They are considerably low at $308. I never have to worry about maintaining the landscape, pool or exterior of building. The HOA is made up of owners, they have personal interest for keeping them low in the future.

With a monthly income of $3000 before expenses, and a cash flow of $1350 after expenses (including $308 for the HOA) shouldn't I believe it to be a good deal?

Yep, every condo board is different, some are a little nuts and some are real nuts! Buying condos is a mixed bag even without them being vacation rentals, seems like another risk layer?     

Originally posted by @Garrett Steinke :

With a monthly income of $3000 before expenses, and a cash flow of $1350 after expenses (including $308 for the HOA) shouldn't I believe it to be a good deal?

 Without reading the bylaws, I wouldn't trust anything word of mouth.  As board members change, so can their focus.  Just as their focus can change, they can update their bylaws.  Maybe your plan factors this in.

Before making an offer, I would have my lawyer check the bylaws.

I hope this works out for you.  All the reasons you listed about maintenance & lawn care are are great, & precisely why we moved into a Condo unit.  However, that was for personal living, & it did not work out as a rental.  I won't make that mistake again.

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