Investing in a Maui Vacation Rental?
Wednesday, April 27th, 2011
For many buyers, the possibility of making a sound investment and owning a vacation property in Maui is the perfect mix of business with pleasure. However, the typical investment model that works in most markets (20% of sales price as down payment results in a break-even or cash flow positive scenario) is simply not feasible in Maui, primarily due to relatively high sales prices, high carrying costs, and comparatively low rental rates.
As such, potential buyers are highly encouraged to perform due diligence, of key note are the following factors:
* Maintenance Fees – Properties that allow short term rentals typically enjoy nice amenities, such as pools, recreation areas, fitness centers, etc. But with nice amenities comes a price to maintain, repair, and replace. These fees vary from property to property, so remain conscientious and factor in appropriately. In most cases, these fees include water, trash, sewer, landscaping, common grounds maintenance, reserves, and insurance for the property (but not for the individual unit, which remains a responsibility of each owner).
* Property Taxes – Maui County enjoys some of the lowest property rates in the U.S., but many a buyer has purchased a condo without taking into account the related tax liability. Currently, the tax rate for properties zoned as an apartment is $5 per $1,000 of assessed valued (half of 1 percent) and for hotel/resort zoned units $8.30 per $1,000. Remember that assessed values are for the last fiscal year (in 2011, you are paying for the assessed valued during FY 2010, which ran from July 2009 to June 2010) and as such is not necessarily representative of the current property value.
* Property Management Fees – This factor can vary widely depending on the level of services, ranging from 15% of gross income for basic representation up to the 45% range for full services, including marketing, scheduling, check-in, cleaning, etc. There is a plethora of property management firms on Maui, from small mom-and-pop operations to large corporations. Some properties, such as Kaanapali Shores, enjoy the benefit of having on-site property management for those owners who choose to participate in their vacation rental program.
* Utilities – Some HOA’s cover electricity, cable, telephone, and internet but those are few and far between. With that in mind, allocate enough in your budget to cover the utility expenses, as electricity in particular is fairly expensive in Maui.
* Special Assessments – Home Owner Associations can impose special assessments for repairs and expenses that are beyond the ability/scope of the reserves. It is not uncommon for special assessments to be tacked on to the maintenance fee, as opposed to requiring lump sum payments from owners.
* Insurance – Some insurance companies do not cover properties within a certain distance of the ocean (this is dependent on company policy, contact us to find out which ones offer coverage), so getting proper estimates can be the difference between being in the black and being in the red.
When ready to invest in a Hawaii dream property, be diligent and retain the services of a qualified Maui Realtor. Should you have any questions, feel free to contact me at Alex@MauiRealEstateSearch.com or 808.385.5034 at any time.
