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Buying Advice

How to Properly Prepare for Owning Hawaii Vacation Rental Properties

If you are interested in investing in Hawaii vacation rental properties for sale, here are some specific steps I encourage you to consider to be efficient and effective. I represent buyers and sellers on the island of Maui for these types of properties. I commonly work with colleagues around the state of Hawaii for buyers looking on Hawaii Island, Kauai, and Oahu — there are specialists just like myself and I am happy to help connect you based on your specific needs.

Do Your Investment Research about Owning Hawaii Vacation Rental Properties Before You Book Your Trip

Most buyers of Hawaii real estate visit Hawaii on average of 3 times before they decide to make the commitment to purchase a Hawaii vacation rental property. With this, many buyers simply fall in love the first time they come;  I have heard this story time and time again. If you are one to make more whimsical decisions — open houses can be great. If you are a bit more calculative — jump online and start compiling your notes.

I personally have written a number of different articles that many of my buyer clients have found helpful in their process. Here are a few:

Stunning Kamaole Beach 3 in South Kihei was one of my very favorite beaches to go boogie boarding all day at growing up here on Maui. Search all Kihei real estate here.

Have Your Finances in Order for Your Hawaii Vacation Rental Properties

It is very important that you speak with your financial advisor as well as your CPA/tax attorney about the many advantages congruent with owning investment property. There are overlaying federal laws that apply across the country, but Hawaii does have its own specific laws so if you would like an introduction to a local specialist, please don’t hesitate to ask.

By whatever means you intend to purchase your property, it is prudent to be prepared in advance so that you know all of the requirements, and when the right opportunity arises, you are ready to act immediately as great deals go quickly. 

  • All Cash – If you are working with an all cash purchase – make sure that you can document your cash funds by means of a letter from your personal banker/investment advisor or an online printout from your account(s). Do know that redacting personal information is common practice. 
  • 1031 Exchanges – Exchanges are a great way to move equity from one property to another while deferring capital gains indefinitely as long as the provisions remain in the current tax codes. Here are some blog posts that a couple of my colleagues have written about their intricacies. Read more about it: 1031 Tax Deferred Exchange Basic Introdution and 1031 Exchange FAQs. Exchanges bring a higher level of complexity to the overall process plus you have the added time constraints, so it is imperative that you have everything in order.
  • Conventional Financing – the vast majority of Hawaii vacation rental properties are classified as Condo-Tel units which are more complex and very delicate loans. I touch on this here: Invest in a Hawaii Vacation Rental Property with as Little as 20% Down 

Set Realistic Expectations about Financial Performance

I have many buyers who reach out to me and express interest in owning vacation rental properties that will cash flow positive with 20% down. This is not realistic in today’s market. Hawaii is more of an equity based market, and most of the better properties will start to break even with about 25-30% down or more. Investors can earn a decent rate of return (4-6% cash usually on the better properties) but the real value is that you own a piece of property in Hawaii that you can come and visit with your loved ones and has a high propensity for capital appreciation over time. If financial performance is of utmost importance for you, then you should discuss this with your agent at the very outset of the conversation before getting too deep into anything else. 

This is one of my very favorite places in all of Kapalua, it is directly in between the Coconut Grove condos for sale and the Montage residences for sale. Love Kapalua? Search all Kapalua real estate for sale here. Just on the other side of that cliff on the right side, there is one of the most amazing homes I have ever seen just listed for $49M. 

Create an Entity to Hold Title to Your Hawaii Vacation Rental Properties

The vast majority of my clients and including myself, create separate legal entities to hold title to these properties. Said entities like trusts, LLCs, general partnerships, and corporations can offer serious advantages as it pertains to tax implications, liability protection, and estate planning. Again, please consult with your financial advisor to ascertain what is best for your personal needs. I suggest creating this entity in advance so that there is no delay in closing on your Hawaii property. However, do note that under the vast majority of circumstances, it is not necessary to have your entity established prior to your purchase but it will need to be done at least shortly thereafter. Again, there are exceptions. Please talk to the experts.

The Mahana at Kaanapali, in my opinion, has the most amazing views of any building in all of Maui. Explore all Mahana condos for sale here as well as Kaanapali real estate for sale. Also, know that we are currently offering two vacation rentals in our portfolio link below.

Book a Stay at a Hawaii Vacation Rental Complex

The vast majority of off island buyers of Hawaii properties visit at least 3 times before making the commitment to purchase. Consider staying at property that you have on your radar as a potential ownership opportunity. I have helped numerous of my buyer clients find proper accommodations for their specific needs. Whether the property is in our portfolio of vacation rental properties or not, I am committed to helping you find the right fit.

This allows you to experience the property like an owner and there is no better way to get to know a property than by staying there. I recently had a buyer client coming to town that stayed at a very popular beachfront vacation rental complex in Kaanapali, but was also considering investing at Papakea as well. As subsequent to his stays and viewing properties at both resorts- we now know exactly what he wants.

Lastly as a bonus, also consider talking to your financial advisor about travel write-offs for your expenses to come identify your property in Hawaii and your subsequent check-ups once you close on the property.

Where Do You Vacation and Where Do You Want to Own?

It is important to get an idea of what area of the island you are most interested in. On Maui, we have three main areas for short term vacation rental properties — West Maui, South Maui, and Central Maui. We also offer a variety of vacation rental properties for rent around the island.

Commit to a location, neighborhood, building, and then a specific unit.

As you are going through the education process, I really always try to encourage my clients to focus on the above order. Especially for buyers who are less familiar with the islands, it is important that you understand all of the intricacies, micro-markets, and the vast differences that you will experience in a relatively small geographic region. With this, it is important to connect with an agent who is knowledgeable and will provide you with candid advice based on your specific needs/desires.

My wife Megan and me at the Upcountry, Maui pumpkin patch a couple fall seasons ago. What a fantastic October experience! 

Properly Understand the Seasonality of Hawaii Vacation Rental Properties

Hawaii vacation rental properties do experience strong elements of seasonality but do know that even the slowest months of the year should still have at least 50% average occupancy if being run properly. The vast majority of the properties that we manage in our portfolio are running in the 85% average occupancy range throughout the course of the year. Generally speaking, the larger the unit, the lower the occupancy percentage. However, there are exceptions that apply when inventory for a specific offering is very low relative to the demand. For example, we have very few three bedroom units for rent in upper West Maui — Honokowai up North to Kapalua, the same applies in Kihei — so these do run higher percentages of occupancy.

If you plan to visit during our busier seasons — holidays, winter, and summer do know that getting into the properties that you are interested in purchasing can be difficult as they are heavily booked during these times. Most management companies and property owners are not going to be willing to interrupt their guests stay unless there are compelling extenuating circumstances.

Getting in on “Back to Backs” is a true winner. Even during high occupancy periods, you will often have a check in and check out period every 7 days or so on average. Getting into these properties once they have been cleaned the day of check out and before the check in, generally 3 or 4 pm is key. This requires you as a buyer to be committed and flexible if you want to make it happen. 

In certain instances, for buyers who are very serious about the purchasing price and are ready to pull the trigger on an offer, guest vacations can occasionally be interrupted for brief periods of time to show the property. This depends on the policies of the management company as well as the specific guest’s permission.  

Following these steps will get you on the path to success to smelling the roses here on Maui at a property as fine as the Honua Kai Resort in Kaanapali, one of my very favorite vacation rental ownership opportunities. 

Communicate Pro-actively with Your Agent

In the event that you are not ready to pull the trigger on the purchase of your Hawaii vacation rental properties yet, or you simply haven’t found the right property, it is important that you do your best as well to keep in touch with your agent so that he/she can help put you in the best position for success. With this, if you are interested in updates, ask your agent for them and respond to your agent when they send them to you. Nothing drives agents much more when they are doing their best to keep in touch with people and they are simply ignored. If you are no longer interested or don’t want to continue working with your agent for whatever reason, just inform them of this; a solid agent can handle this. 

Watch Closely for the Best Deals on Maui

We are in a very competitive buyer’s marketplace and the best deals on Hawaii vacation rental properties are going very quickly. It is imperative that you stay at the cutting edge and in order to do so, I highly recommend that you check out my Deals of the Week – August 10, 2018 blog post and my daily Best Maui Deals of the Day.

Purchasing Hawaii Vacation Rental Properties while off Island

Technology has truly changed the way that every way business is conducted, real estate is no different. We have immense tools at our disposal. Many of my clients execute contracts once they are off island and something suitable comes on the market or if they identify the property towards the tail end of the stay. The vast majority of transactions here are done with contracts which contain a 2 week inspection period. This allows a physical inspection of the property to be done as well as for the buyer to conduct a lot of the initial due diligence. If a contract is canceled, the vast majority of the time that it happens is during this time period. I always highly recommend that if it all possible, my buyer clients confirm the purchase of the property in person during this period. However, many of them don’t because through the process, they understand what they are investing in and ultimately, there is a very strong bond of trust. 

Work with a Maui Broker and Vacation Rental Specialist

Search for all of Maui Vacation Rental Properties here – use the drop-down menu to select the short term rental tab and you will be good to go.

#1 I have successfully represented many buyers and sellers of Maui vacation rental properties. If you want help purchasing or selling Hawaii vacation rental properties, I am very experienced in this niche market.

#2 We own a short-term vacation rental investment property on Maui and have gone through the process of purchasing a Maui vacation rental ourselves.

#3 Purchasing a Maui vacation rental property can be a very profitable investment. We run a very successful vacation rental portfolio of properties through Hawaii Life Vacation Rentals.

Jeremy Stice R(B) at Your Service

Information about purchasing a Hawaii vacation rental properties doesn’t provide any value if you can’t get ahold of your Realtor. I make a commitment to pick up my cell phone as best as I can, return voicemails, text messages, and email in a timely fashion. I also work 7 days a week so feel free to call me anytime you need me. However, if I am busy at the time, I will get back to you shortly. I am here at your service, I look forward to sharing my passion and expertise with you.

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