I’m An Out Of State Investor. Should I buy a Maui Vacation Rental Condo?
The perfect beaches, idyllic weather, friendly locals and amazingly fresh seafood. What could be better? There’s a good chance, if you’ve ever visited the island of Maui and you happen to be interested in real estate, the thought has crossed your mind. Should I invest in a Maui vacation rental condo? Of course, the answer is: it depends. There’s a lot to consider before taking the plunge.
What are some things I should consider before investing in a Maui Vacation Rental from out of state?
Glad you asked. First, as you may have gathered, Maui is EXPENSIVE! And the fees associated with owning a vacation rental condo on the shores of Maui are quite hefty. Let’s look at these a little closer.
1 Property Taxes
While it is true that the property taxes in Hawaii are the cheapest in the country, the property taxes on vacation rental condos is not. As of this writing, the taxes on short term rentals in Maui is $10.75 per $1,000 based off the assessed value of the unit. So for example if you have a unit that is assessed at $750,000, you would pay $8062.50 annually (two semi-annual payments of $4031.25).
2. HOA Fees
You might be used to HOA fees where you live. Heck, you might even live in Phoenix where some properties have multiple HOA fees. Normally these are relatively insignificant. In Maui, however, they can be quite extreme. It’s rare to find HOA fees less than about $350/month. Most places are closer to double that, and at the higher end vacation rental condos you could be looking at several thousand dollars per month. Definitely something to make sure you factor in!
3. Electric Bills
Even though many of the buildings have solar panels on their roofs, that doesn’t seem to factor in to what your bills may be. Rarely are electric bills covered by HOAs, though some complexes do include it. Make sure if you are looking to buy a vacation rental condo on Maui that you get a copy of the current utility bills.
4. Insurance
Insurance usually isn’t too bad. A couple hundred dollars a year for a basic policy should do the trick. Most of the HOAs cover building insurance, so you are looking more at cost of replacing items inside the unit, incidentals and liability for your guests. Its also a good idea to have an umbrella policy to be safe.
5. Repairs and Maintenance
With vacation rental condos one thing we’ve learned is no matter how bullet proof you design your unit, anything that can break will break. We’ve literally seen cutting boards broken in half. I mean, how does that even happen? Air conditioners, celing fans, refrigerators, microwaves, you name it. Not all of your guests will treat your unit the way you would like them to. We generally set aside about 5% of our income for repairs and maintenance.
Property Management
This is a big expense. And if you are planning on self-managing to save on the cost of a property manager, just know you are in for a full time job. You had better have extremely good connections with handymen, plumbers, electricians and most importantly, CLEANERS. Finding solid, reliable cleaners is the hardest part of self managing vacation rentals.
We self manage our own properties, but we also live on island. Even still, it is a full time job coordinating with cleaners, handymen, contractors, ordering new supplies, linens, replacing broken beach chairs, coolers, etc. And most of all answering questions from current and upcoming guests.
I certainly don’t recommend anyone to try to self manage from off island. The headaches will be intense. Plan on paying a decent property management company 25-55% of your gross.
TAT and GE Taxes
Usually, these are passed on directly to the renters, but if you decide to rent all inclusive of taxes and fees then you’ll need to factor in the 14.25% that you’ll have to pay off of everything to the state.
Mortgage
Unless you are fortunate enough to be able to pay cash for your Maui vacation rental condo, you’ll most likely have a mortgage you’ll need to account for. Typically the minimum down payment for a vacation rental condo on Maui is 25-30%. Do not forget about this expense!
Special Assessments
From time to time condo complexes reach out for “special assessments.” This is basically their way of telling you they have an unforseen expense and the bill is going to be passed on to you. If you buy in a big complex this is usually not too bad of an expense, but in smaller complexes where there aren’t many units, your share could be substantial.
Another one to look out for is beach erosion. Some of the condo complexes on the West side of Maui have had some pretty serious issues with beach erosion and they’re passing on structural integrity issues, shoreline redevelopment issues and more onto the condo owners. So be warned…
Wow, with all those expenses, will it cash flow?
Again the answer is: it depends. If you are able to put down a good chunk of cash for the down payment and you are able to pick up the vacation rental condo for a good price, then yes, you can cash flow on the property. The beautiful thing is that in addition to cash flowing on the rental, you’ll probably grow your equity quite rapidly as well.
I don’t have that kind of capital to put into the property, what can I do?
This is where most people give up. They can afford a 20% down payment but with the rest of the numbers (especially the property management), the numbers don’t seem to work out. If this is you and you see your dreams of owning a Maui vacation rental condo fleeting, consider bringing in a partner.
This could be a relative or friend who can help with the down payment or monthly expenses. Or, you can try to find a local partner who could take away a lot of the burden from you.
Wherever would I find a local Maui partner, you ask?
Someone who has done it and has systems in place to grow and expand, you ask?
Well, we certainly can’t work with everyone as not everyone is a good fit. However, we have worked with out of state investors before and are open to doing it again. If this is something you think you might be interested in, shoot us an email and let’s talk!
