How Much Downpayment Do I need to purchase a short term rental property on Maui?
OK, I get this question a lot. A ton of investors think they can come in and buy up short term rentals on Maui with 10% down as a second home loan…. Nope, not happening. OK, well what if I get an investment loan at 20% down? It’s possible, but difficult. More on that in the next video. Look, the only number you have to remember is 30%. I know there’s a lot of lenders that will tell you they can do this and that and pull a rabbit from a hat, but honestly, it’s not very common to see anyone closing on a short term rental on Maui with less than 25% down.
Why? Well, every short term rental approved property on Maui is a condominium. Most of which are considered Condotels. Banks don’t like to loan on condotels. Many lenders based on the mainland have never even lent on a condotel before. They think they can because all they see is condo on Maui. Sounds good, but there is a difference between a traditional condo and a condotel. A condotel typically has a front desk, is treated more like a hotel and often times has timeshares in it.
Fannie Mae doesn’t like these loans, and as most banks are in the business of selling off their loans as soon as possible, they try to sell to Fannie… but Fannie says no. So banks get stuck with these loans on their books. Because the bank is now taking on more risk, they require more down payment. Most banks and credit unions won’t even touch condotels.
So, if you’re thinking of picking up a short term rental on Maui, play it safe and plan on putting down 30%. And definitely get a local agent, who is investor friendly and work with a local Maui bank. If that isn’t going to work for you, you’ll probably want to find another market.
