We receive many requests for information from prospective buyers who would like to invest in Maui real estate but are unsure as to how to proceed. Today we will explore how to successfully implement a ‘Buy and Hold’ strategy. To briefly summarize, ‘buy and hold’ is a long-term plan of action in which an investor purchases a property and rents it to tenants with the goal of maintain positive cash flow while building equity.

Harbor Lights offer tremendous investment returns on Maui real estate

Rather than talk about abstract economic principles, I thought it’d more conducive to illustrate my points by giving actual examples. Let’s take a look at a 2 bedroom / 1.5 bathroom Harbor Lights condominium (Maui MLS# 343800), currently listed for $34,900.  With a down payment of 25% ($8,725), which is typical for investment purchases, financing the remaining 75% ($26,175) with a 30 year fixed rate APR of 4.8% (which is conservative, given that we are experiencing historically low rates) results in a monthly payment of $137.  These units typically rent from $900 to $1,200 per month, so for the sake of argument we’ll take the average of $1,050. Monthly expenses include mortgage payment ($137), maintenance fees, which are extremely high on this particular complex ($688), taxes and insurance (approx. $30), totaling $847. Deduct the rent collected from the monthly expenses, leaving $203 a month. For the first year, you would have a surplus of $2,436 ($203 x 12) and $400 paid towards the principal. So your investment of $8,725 results in a first year ‘profit’ of $2,836. How many investment opportunities give you a rate of return of 32%? Notice that I didn’t take appreciation into account.

Is a Keonekai Villages short sale the right investment for you?

Now let’s take a look a Short Sale 2 bedroom / 1.5 bathroom condo at Keonekai Villages (Maui MLS# 343842) listed for $165,000. With a 25% downpayment ($41,250), financing the remaining 75% ($123,750) at a 30 year fixed APR of 4.8% for a monthly mortgage payment of $650. Additional monthly expenses include monthly maintenance of $340 and approx. $100 for property taxes and insurance, bringing the total of expenses per month to $1,090. These units typically rent for $1,150, leaving a surplus of $60 per month. The first year, the amount paid towards the principal on the mortgage totals $1,892, to which we add $720 ($60 x 12) for a total of $2,612.  Now the original investment of $41,250 ‘only’ returned $2,612 the first year.  Although this property does not enjoy the whooping 32% return that the Harbor Lights unit did, it returns a very respectable 6.3% and is in a much more desirable area (near one of the most popular beaches in Hawaii, Kam III) which makes it more prone to appreciate at a faster pace.

When implementing this type of strategy, remember to build ‘reserves’ for repairs, which would be kept at a minimum in condominiums as compared to single family residences, and take into account vacancy rates and status of special assessments. If you would like to learn more about real estate investing in Maui, contact me at Alex@MauiRealEstateSearch.com

Tags: affordable Maui condos, investment on Maui properties, maui properties, Maui real estate

This entry was posted on Friday, August 6th, 2010 at 1:28 am and is filed under Maui Property Listings, Maui Real Estate Advice, National Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.