Monday, August 8, 2016

First Property Analysis - Honua Kai

Up for our very first analysis is a property at Honua Kai.  Due to restrictions and privacy reasons, I cannot disclose the actual property or unit number.  However, I will declare what the numbers are and my thoughts on them.  

So first, let's go the actual numbers!

    • Vacation Rental History but here is a quick summary
·        YTD February 2016 - $21,819 (gross revenue), $13,994 (direct deposit)
·         2015 - $80,354 (gross revenue), $57,702.32 (direct deposit)

    • 86% occupancy in 2015 (305 / 354 available days)
·         2014 - $91,220 (gross revenue), $56,438 (direct deposit)
·         2013 - $94,342 (gross revenue), $55,137 (direct deposit)

·   Offering:
    • 1-bedroom / 1-bathroom

  • Specifications
  • Community: Honua Kai, Hoku Lani Tower
  • Living area: 765 living square feet
  • Bedrooms: 1
  • Bathrooms: 1
  • Real property tax expense for the 2015/2016 fiscal year:
  • x $6,000.30 annually ($500.03 per month)
  • x Paid in 2 installments
  • x Based on a Hotel & Resort classification of $9.11 per 1000th assessed value

  • Owner’s other expenses (2014)
  • x Electricity: $2,421 annually ($201 per month)
  • x Contents insurance: $334 annually ($27.83 per month)
  • x Telephone: $900 annually ($75 per month)
  • Home Owners Association
  • HOA monthly dues are $1080.75. Dues are paid monthly.
So from this number, we can analyze that net proceeds after all expenses are $35,895.  If I disclose the current list price, it would be easy to figure out exactly which unit this is but I will say it is around $775,000.

That means that net yield on this property is $35895 / 775000 = 4.63%.  

AND THIS IS ONE OF THE BETTER UNITS IN TERMS OF YIELD!!  And this is if I get an all cash offer.

I am shocked.  Yields are better in some of the highest priced markets in the USA.  So what does this mean? This means that either people are asking way too much and there is a bubble going on in Maui Real estate, or there is a huge potential for price appreciation.  Looking at the Hawaii property market over the past 30 years, it looks as if people are playing on potential price appreciation because the whole state has been appreciating steadily.

Still, there are more things to think about:
1) Maintenance expenses over the long term on these types of units
2) Special HOA fees that might come up
3) The vacation rental market demand in the long term
4) Loan costs if putting a hefty amount down

So the thing I have to think about is whether this particular unit can appreciate past this unit.  Past history as shown that it can, but I wonder how much a mountain view (i.e. non ocean view) unit can appreciate past this point.  This is already very very expensive and I am wondering if this is the right time to invest or am I forcing it.

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