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

For many people interested in purchasing real estate in Hawaii, the terms of ‘Fee Simple’ and ‘Leasehold’ may be new but are aspects of the utmost importance to understand. Most homebuyers are acquainted with a fee-simple estate, also known as freehold, as it may be the only type of land ownership in their state. A fee simple buyer is given ownership of the land, improvements and fixtures in said property for eternity. As the most complete form of ownership, a fee simple owner has the right to sell, lease, pass on to heirs, trade, etc. the property without restriction. There are only a couple of circumstances under which another party can legally take that property from the owner, such as a lien due to property taxes (the timeframe will vary from state) and by a mortgagee when the property was used to secure the mortgage and the terms are not being satisfied.

On the other hand, a leasehold property owner does not own the land but has the right to enjoy and use the land for a fixed amount of time. As determined on the individual lease, at the termination of the lease period the buildings and fixtures on the land may revert back to the leassor. In addition, should the leasehold property be transferred to a new owner, that individual is bound by the terms of the original lease, which may include restrictions on the use and modifications. Also, depending on the lease conditions, the leasee may be liable for paying property taxes on the full value of the land. However, leasehold properties are typically priced much lower than comparable fee simple units but have stricter financing requirements as many banks have specific conditions on which to lend on Leasehold properties. So which form of ownership is right for you?