Tips To Maximize Your Return on You New Hawaii Condo 5 Things You MUST Know Before Buying A Condo In Maui. If your realtor hasn't mentioned these important issues, you need to dig a little deeper. (Scroll Down for Video)
1) Ocean View - Must have (or at least partial ocean view)
2) Only Buy Fee Simple (the only exception is a leasehold in a majority fee simple complex)
3) Evaluate the Financials - Expect a 2-5% Return - Cash on Cash Invested (see notes below on how to compare different units apples to apples)
4) Purchase at Fair Market Value or Lower - look at all comparable SOLDS in the last year and evaluate the price per square foot and adjust for view and the fit and finish of the unit. You have to know these numbers cold, otherwise you won't recognize a deal when it comes your way (or an over priced listing you need to low ball!)
5) Ocean Access - best case scenario is beachfront with deep water for swimming (no coral)
Bonus Tip - stay in the complex yourself, talk to other guests and owners. Read all the reviews you can find so you fully understand the pros and the cons before you close!
The BEST way to compare different condos is to create an "apples to apples" spreadsheet and determine the expected rate of return on your invested dollar. The most important step is to find out what is the ACTUAL historical AVERAGE nightly rental rate. (Take the gross income and divide by the # of nights rented)
The best way to compare multiple units financial performance is to make some assumptions - since every unit will have variables that will obscure the true potential return. Variables such as an owner who stays in the unit a lot, or a unit that is only currently being rented long term, or a management company that is under renting the condo (less than 80%) or is charging more than 30% management fee. So let's assume the unit will be rented 80% of time (with 20% vacancy or owner useage) and the management fee is 30%. The fixed costs will of course vary by unit - the HOA fees, the property taxes, the utilities etc.
Once you have obtained the actual average nightly rental, multiply this rate by 80% occupancy (292 nights) to get your expected annual gross income. Then simply subtract the expenses for the unit- HOA, Property Tax, Utilities, Miscellaneous repairs and management fee (assume 30%). By the way, you should not have to deduct cleaning and GET/TAT taxes since these are typically paid by the client in addition to the nightly rate.
Once you have the NET Income (Gross Income minus all Expenses) divide by your purchase price and this will be your ROI (Return on Investment) assuming you are paying ALL cash. If you have a loan, you can simply multiply your monthly payment by 12 to see if your income will cover your loan servicing.
Questions to Ask the Seller Include 1) What has been the NET income for the property the last 5 years? This would be AFTER paying the management fees (usually runs 20-50% of Gross Income) and GET (General Excise Tax), and TAT (Transient Accomodation Tax) all monthly HOA fees, Leasehold fees (if applicable - ie the property is NOT fee simple ownership) utilities, cleaning, supplies and miscellaneous repairs. 2) What is the occupancy rate for each month. This is the percentage the property is occupied versus sitting empty. How many nights did the owner/friends and family stay in the unit for "free"? Obtain a list of all the website the property is currently advertised and read all of the reviews. How many of those sites will be transferred to you when you if and when you purchase the property (or will you have to start from scratch?) This is very critical. Especially when dealing with VRBO. Recent rule changes force you to create a new account when the old owner shuts down the account. So be sure they keep it going and you simply take over payment of the annual fee. 3) Does the property ALLOW short term vacation rental or long term OR BOTH? The vast majority of long term condominiums will NOT allow ANY short terms, BUT most of the short term properties will allow long term. If it's a short term property, what is the percentage of long term tenants? Why should you ask this? This can affect the amount of down payment required by lenders. Most lenders require 30% down for short term condos, but some can still qualify for 25%. If the property is short-term, does it have a "front desk" and what services do they perform? Am I *required* to use the on-site management and if so, what is their fee. How do the on-site managed condos perform financially versus the non-onsite units? If you manage it yourself or any off-site company, how will the on-site company treat your guests? Good to know before you decide who to go with. You can get answers to these types of questions from previous guests who stayed in an off-site managed unit. 4) How many floors does the property have, and are they serviced by elevators? If so, where are they located and when is the last time they were updated and/or replaced? May seem like no big deal, but not when you are waiting 20 minutes for the elevator to get that towel you forgot, or you are hauling $600 worth of Costco groceries up three flights of stairs since the only working elevator is too far away. Quick and easy access to your unit from the parking lot and the beach....it's worth a lot! 5) What are the HOA fees? What do they services do they pay for? Water, sewage, electric, ground-keeping, pool, spa, maintenance? When is the last time there was a fee increase? How does it compare to similar condos in the immediate area? Is it based on price per finished square foot? Does that include lanai space? Are their any outstanding dues for the unit I am purchasing? What are the history of payments? What happens if I pay late or default? How long do I have to remedy, and what action can the management company take in that event? Are there any special assessments in place currently or in the near future? Can you please share the history of special assessments and what projects have been completed? 6) Is the property fee-simple or leasehold? If it's leasehold, when is the next rate increase? How often is the lease re-negotiated? When does it expire? Who or what entity is the leaseholder? Is any of the property currently in fee simple that converted from leasehold? May I see a copy of the lease? What happens if the lease is not successfully re-negotiated? How many other properties does the leaseholder own? Is the original leaseholder still alive or has it been transferred to the next generation? If so, how many parties are in authority over the lease? 7) Ask for a 3 year history of ALL utility bills and repair bills? Does this include running the AC? How many months is AC needed? Is the AC central or window? If the unit does not have AC is it legal to add. If so, what size and location? Does the unit have high speed internet? If so, what speed? Who is the service provider? What is the cost and who pays that bill? Are there other providers? Who provides television/entertainment services? May I add satellite (Dish or Direct TV)