A volcano....really? Kailua-Kona vacationRental

7 Replies

Am I crazy to buy a rental home on Kona right now?

65% occupancy 4/2 Airbnb rental with a full time 2/1 rental below. It is on a steep hill and right on the 2lane Kuakini Hwy....but it performs well.

Then a Volcano happens with the subsequent media hype. Cancellation requests, tourism impact, etc.

We need a 45%-50% occupancy to break even...

Do I pull out out? How long can this last and how long to recover?

@Nate Morris , I live in California and have seen Airbnb cancel all reservations within a huge radius when the fires were going strong.  They were so aggressive with their blanket cancellations that friends who own property 50 miles away with zero impact had ALL their reservations cancelled.  I would imagine they will do something similar there.  

I also rent STVRs on a different island in Hawaii and even I have gotten worried guest emails...  on a DIFFERENT ISLAND over 400miles away lol

My point is, people are kinda dumb with these things and I’d honestly pull out. OR use this as a chance to renegotiate and try to reduce the price based on projected impacts.  

Originally posted by @Nate Morris :

Am I crazy to buy a rental home on Kona right now?

65% occupancy 4/2 Airbnb rental with a full time 2/1 rental below. It is on a steep hill and right on the 2lane Kuakini Hwy....but it performs well.

Then a Volcano happens with the subsequent media hype. Cancellation requests, tourism impact, etc.

We need a 45%-50% occupancy to break even...

Do I pull out out? How long can this last and how long to recover?

 I'm not familiar with the Hawaiian STVR market but I'm concerned that your occupancy margin is too slim - if you need 50% occupancy just to break even, and only project 65%, that's not a lot of room for error.  As you're seeing, of course, things outside anybody's control can impact this - and Hawaii also has the potential to get affected by hurricanes, on the natural-disaster front.  

Maybe this is typical occupancy for Hawaii and I should take a seat, but those numbers concern me, especially in a high-dollar market like Hawaii.

Nate, did you go for it? I'm a Maui real estate investor looking to purchase a vacation rental condo in Kona and I'm curious about the occupancy rate.

You may want to be careful if that doesn't settle down in terms of the volcanic activity. I am no expert at volcano readings but i would imagine there are some signs that it could hit a tipping point where a small event may occur. The be careful isn't really for your property (although that is very important). I bring it up because you will absolutely see a spike in insurance cost after that regardless if the event is serious, That will increase the occupancy rate you need up much higher than the 50% you need now. If I were you I might keep an eye on it and check local insurance agents or companies and get some precautionary quotes every 3-4 months just to see a trend. If its level no harm done, if they are starting to go up...

Yes, we did it last May during the Volcano. It stopped about a month after we closed escrow. The insurance cost did not increase (we made no claims) though many carriers left the island.

The occupancy rate for our 5bed/2bath is ~62%. We offer a van for use as well, but most owners see about 60%.

Our returns are helped by an on-site 2nd unit which we rent full time to caretaker /landscaper. 

HOWEVER, see local Bill 108 if you are going to buy. Lots of changes for those operating outside of the resort zoning. 

Happy to help in any way

Occupancy is not a particularly valid measure. Lower prices yields higher occupancy and vice versa. 

Lower occupancy also yields less wear and tear, risk, maintenance and cleanings. 

What matters is yield. 

A good dynamic pricing utility like wheelhouse or pricelabs can optimize price and minimum stays throughout the year.

@Loren Clive

I thought about that too! So much cheaper over there and cash flow seems more attainable, especially with STRs. Let me know how it goes please Loren!

Also hope you can make it Thursday! I think the beard man from BP will be there. Although I know you got your hands full with the kids :)