1st Time Maui Rental Purchase During COVID

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1st Time Maui Rental Purchase During COVID

Kevin Longeuay
Investor · San Diego, CA · Member since 2016 · 49 posts · 15 votes

Hi everyone!

Haven't posted in quite some time but my father in law is looking to use some inheritance money to purchase a property in Maui or Tahoe. He's looking at it for tax relief as well as being able to use it for personal use (he LOVES Maui) and it would be a short term rental property to cover costs but I want to make sure the numbers work out so that this doesn't end up sinking his retirement ship. I know zero about renting in Maui but we have a property in Chicago so we have some experience in rental properties although that is a long term rental. Some things we've recently discovered about Maui are 30% down lending requirements for rental properties, most SFH/condos can't be used as rental properties due to local laws, and hotel-type rentals usually require ~30% for PM fees (pretty high but it includes onsite front desks/house keeping, onsite maintenance, etc.). A lot of costs involved and I plan on factoring those in but where I'm struggling is how to realistically determine annual income for a property. Is there a good formula for annual income? Perhaps a simple nightly rental cost multiplied by a conservative number of nights rented/month? Some other questions to throw out there:

1. What are some common mistakes investors in Maui make and how can we avoid them?

2. Does anyone have experience purchasing rentals from large hotel chains on Maui? Specifially we're looking at Aina Nalu and Aston Kaanapauli Shores since we've stayed there before and enjoy the properties.

3. What are uncommon rental costs associated with Maui properties? I know HOAs can be very high but other than that and repairs/capex, anything else we need to account for? 

4. COVID-aside, how much variation have you had in terms of annual occupancy rates? I know this may be a large function of proximity to the beach but any data I can gather the better.

5. Along the same line, do you have a large variation in nightly rental prices based on the season?

6. Any weird tax laws to be a aware of?

I know this is a lot and I thank you if you've read this far! Any information/insights are greatly appreciated!

Cheers

Kevin

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Christian Cramer
Property Manager · Kihei, HI · Member since 2016 · 85 posts · 97 votes
5y

1. What are some common mistakes investors in Maui make and how can we avoid them?

Main mistake is passing up a good deal because of small cosmetic things, ie a dated bathroom or kitchen. The way you make money here with VR condos, at least pre covid, was getting a 70/80s condo and renovating it to 2020 standards, then refinancing, and raising the nightly rental rate. If you just buy a condo without any value add, you are competing with a horde of retail buyers who just want their maui dream condo, and don't really care about financials. This is a little different now with travel still being restricted - but honestly there hasn't really been a price drop for VR condos yet. 

2. Does anyone have experience purchasing rentals from large hotel chains on Maui? Specifially we're looking at Aina Nalu and Aston Kaanapauli Shores since we've stayed there before and enjoy the properties.

I sold the last sale in Kaanapali shores, we listed it post covid and it had multiple offers, sold the first week to a cash buyer about $30k over list. The management fees surprised me, a bit high, so it really depends on the purchase price. 

3. What are uncommon rental costs associated with Maui properties? I know HOAs can be very high but other than that and repairs/capex, anything else we need to account for?

Management fees will be your biggest expense. If you choose not to self manage /w cleaner, you will be paying anywhere from 15-35% of gross. Note that it tends to be higher in complexes managed by organizations like aston, outrigger, but they are generally pretty good managers. 

4. COVID-aside, how much variation have you had in terms of annual occupancy rates? I know this may be a large function of proximity to the beach but any data I can gather the better.

Pre-covid, occupancy rates in Kihei and the west side of the island generally hovered around 75% off season, and up to 95% high season. This depends a lot on the property, higher priced rentals generally had lower occupancy, while budget rentals (sub $200/night) generally were always above 80%. 

5. Along the same line, do you have a large variation in nightly rental prices based on the season?

Not really. You get variations around holidays. People will pay a lot more to get the unit they want for their family christmas vacation or new years vacation

6. Any weird tax laws to be a aware of?

Nothing really weird, you will have to pay around 13% for GET and TAT (the first is our 4% sales tax and the second is a 9% tax on all vacation rental income), there is also a special property tax bracket for vacation rental condos here. 

Hope this helps mahalo 

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y

    You better get an experienced realtor to help you find a property where it can be rented in Maui. Right now people are traveling where you have to fly, so unless you found a super deal, I would wait to things get back closer to normal. That might take a while. 

    1Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    5y

    +1 to what @John Underwood said. We have had several posts on Maui and they have some good info. Do a search and you should find them.

    Right now Hawaii has crazy restrictions on vacationers and short term rentals. I am not sure right now is the best time. 

    0Reply
  • Mike Neubauer
    Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes
    5y

    @Kevin Longeuay Hey Kevin,

    I live on Maui and have several vacation rentals. I do have Aston properties as well so I can probably help you out with some of this info. It might be best to touch base via phone as there’s a lot to unpack here. And the fact I’m typing on my iPhone will most definitely lead to carpal tunnel. Haha. If you’re interested message me directly and let’s set up a time to chat. Aloha!

    2Reply
  • Kevin Longeuay
    OP
    Investor · San Diego, CA · Member since 2016 · 49 posts · 15 votes
    5y

    @Mike Neubauer thanks will definitely follow up!

    0Reply
  • Kevin Longeuay
    OP
    Investor · San Diego, CA · Member since 2016 · 49 posts · 15 votes
    5y

    @Michael Baum understood, we’ll be doing this under a 1031 exchange which I think gives us a year (another thing I gotta research) so hopefully we can wait a little until things return to normal

    0Reply
  • Kevin Longeuay
    OP
    Investor · San Diego, CA · Member since 2016 · 49 posts · 15 votes
    5y

    And looks like I may have been talking out of *** on the 1 year thing, thanks to a quick check on BP it looks like you have to identify a property within 45 days of the escrow closing on the original property. Definitely not going to rush into anything but will put more emphasis on me doing more research in the near term

    1Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    5y
    Originally posted by @Kevin Longeuay:

    And looks like I may have been talking out of *** on the 1 year thing, thanks to a quick check on BP it looks like you have to identify a property within 45 days of the escrow closing on the original property. Definitely not going to rush into anything but will put more emphasis on me doing more research in the near term

     You'll likely want to go see any property that you want to buy so now is not an optimal time to travel.

    I usually try and have a good idea of what I want to buy before I start the clock ticking on the exchange.

    1Reply
  • Kevin Longeuay
    OP
    Investor · San Diego, CA · Member since 2016 · 49 posts · 15 votes
    5y

    @Mike Neubauer thanks for the call today, you are a wealth of information!

    @John Underwood makes sense, we're in a bit of a different situation as the inheritance is coming from a trust so the sale of the estate is out of our hands and is already in process. My wife and are trying to help her dad out and we're a little late in the game. Going to talk to an accountant to see if we can come up with some good tax strategies to buy some time. 

    1Reply
  • Mike Neubauer
    Rental Property Investor · Waikapu, HI · Member since 2018 · 305 posts · 197 votes
    5y

    @Kevin Longeuay of course! Reach out to @Dave Foster for all your 1031 questions. That guy is the man. Good luck! Aloha!

    1Reply
  • Christian Cramer
    Property Manager · Kihei, HI · Member since 2016 · 85 posts · 97 votes
    5y

    1. What are some common mistakes investors in Maui make and how can we avoid them?

    Main mistake is passing up a good deal because of small cosmetic things, ie a dated bathroom or kitchen. The way you make money here with VR condos, at least pre covid, was getting a 70/80s condo and renovating it to 2020 standards, then refinancing, and raising the nightly rental rate. If you just buy a condo without any value add, you are competing with a horde of retail buyers who just want their maui dream condo, and don't really care about financials. This is a little different now with travel still being restricted - but honestly there hasn't really been a price drop for VR condos yet. 

    2. Does anyone have experience purchasing rentals from large hotel chains on Maui? Specifially we're looking at Aina Nalu and Aston Kaanapauli Shores since we've stayed there before and enjoy the properties.

    I sold the last sale in Kaanapali shores, we listed it post covid and it had multiple offers, sold the first week to a cash buyer about $30k over list. The management fees surprised me, a bit high, so it really depends on the purchase price. 

    3. What are uncommon rental costs associated with Maui properties? I know HOAs can be very high but other than that and repairs/capex, anything else we need to account for?

    Management fees will be your biggest expense. If you choose not to self manage /w cleaner, you will be paying anywhere from 15-35% of gross. Note that it tends to be higher in complexes managed by organizations like aston, outrigger, but they are generally pretty good managers. 

    4. COVID-aside, how much variation have you had in terms of annual occupancy rates? I know this may be a large function of proximity to the beach but any data I can gather the better.

    Pre-covid, occupancy rates in Kihei and the west side of the island generally hovered around 75% off season, and up to 95% high season. This depends a lot on the property, higher priced rentals generally had lower occupancy, while budget rentals (sub $200/night) generally were always above 80%. 

    5. Along the same line, do you have a large variation in nightly rental prices based on the season?

    Not really. You get variations around holidays. People will pay a lot more to get the unit they want for their family christmas vacation or new years vacation

    6. Any weird tax laws to be a aware of?

    Nothing really weird, you will have to pay around 13% for GET and TAT (the first is our 4% sales tax and the second is a 9% tax on all vacation rental income), there is also a special property tax bracket for vacation rental condos here. 

    Hope this helps mahalo 

    3Reply
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