Visit To Atlanta

My wife and I went to Atlanta this weekend where we spent some time in the city and also drove up to the Great Smoky Mountains.  I happened to notice on VRBO that Gatlinburg, TN was a very very popular spot for vacation rentals (Gatlinburg is a small town right outside of the Smoky Mountain National Park on the Tennessee side).  They were beautiful properties and very special - log cabins with hot tubs right in the mountains.

I will do some more research and see if this is a worthwhile vacation rental investment.  It sure is a lot closer to home than Hawaii!

Overall thoughts on Maui

So if you've been reading my analysis of the first two properties, you will know that yields on properties are pretty horrible even when considering good occupancy numbers.

I've pretty much to this point focused on properties that are over $600K and below $850K.  I am now going to start opening my search up to properties in the $300-600K range and see if yields are better.

I personally did not want to go into lower class properties because my family and I would like to be able to stay at our own property when we visit.  But I can't make a stupid financial decision just because I want to vacation in a high quality unit for a week.  My better bet would be to pay for a hotel or even vacation rent at whatever property I want instead of losing money.

So therefore, I am now going to start looking to the area of Kihei, Maui which is the South part of Maui.  Units are cheaper here and brokers have been telling me there has been a growing demand of vacation renters here making it a good investment.  Kihei has prices ranging from $200K - 400K but the thing I've been noticing here is that most of these units are built in the 1970s.  So, I've pretty much told my broker to narrow it down to the following:

1) Newly renovated unit within the past 5 years.  The more renovation the better.
2) History on VRBO or other vacation rental method
3) Ocean view only - this way the property price will hold up
4) Complex that is at least 3 start to appeal to vacation renters that are a bit more classy (and therefore won't tear up my property!)
5) HOA friendly

I am waiting for numbers on a couple of units and will post when I get them.  I am ideally looking for a 8% yield on an all cash offer so that way I can do some side financing either through friends or family.

Second property analysis - Waipouli Beach Resort

So after some time at looking at Honua Kai, I decided maybe it might be best to move to a different area in Hawaii to search for better investments.  This time I went to Waipouli Beach Resort which is located in Kauai.  It is also a very high quality, high demand property.  Again, 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

·       ·         2015 - $71,493 (gross revenue), $40,003 (direct deposit)

• 83.2% occupancy in 2015 (304 / 365 available days)

·   Offering:

• 2-bedroom / 2-bathroom

• Specifications
• Community: Waipouli Beach Resort
• Living area: 1165 living square feet
• Bedrooms: 2
• Bathrooms: 2
• 
  

So from this number, we can analyze that net proceeds after all expenses are $40,003 after taking into account the property management expense (this property is managed by the on site property management company).  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 $700,000.

On the $40,003 number, we still have to deduct property tax, maintenance, electricity, insurance, etc.  That number is basically only the rental room revenue minus the property management fees.  After looking at 2015 expenses, expenses were around $25,000.

That means that net yield on this property is $15000 / 700,000 = 2.14%.  

WOW!  That is horrible.

I am definitely going to pass on this one and see if there is something better on Kauai.

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.

Honua Kai Analysis

So I've been working with a broker to analyze some properties in Maui and it looks like we've narrowed it down to some complexes.  The first complex I want to discuss is the famous Honua Kai resort in Ka'anapali Maui.

Honau Kai, in case you don't know, is a premier resort property (4 diamond rated, 4 star) that contains about 600+ condos ranging from studios to 3 bedroom.  Property prices range from about $700K to over $5 million depending on view, size, and amenities.  This property is extremely popular with vacation renters as it has a great location, a beautiful beach, and the resort itself has a ton of amenities such as 3 pools, children's pool, gym/fitness center, and more.  The place is top notch and the service is outstanding at the famous Duke's restaurant which is located on site.  This place is great for couples and for families.

Based on my discussions with Honua Kai management and a few brokers, these properties are great when it comes to occupancy rate.  Almost all of the units are running 80-85% occupancy, with some of them running even at 92-93% occupancy.  That's better than most hotels in the world!  That's the good news.

The bad news is that the financials are pretty tough to work out based on current listing prices.  From my analysis (and I'll get into one in more detail on the next post), returns are a measly 4% when investing ALL CASH.  I don't know about you, but putting $700-800K to get 4% is awfully thin.  You're looking at a lot of chance for error here.

My broker gave me an important piece of information today!  It seems that studios at Honua Kai are the best investments if you can get the purchase price right.  The studios at Honua all offer ocean views and a lot of couples, young families, and singles end up renting these studios because it is the cheapest way to get an ocean view.  He was explaining that since most people don't end up staying in their room much, this is a great way to get into the resort at the lowest price while still having a nice view.

Here is what he told me:
Studio properties at Honua Kai are some of the best cash on cash performers and some of the very best in the state.

The problem is there are no studios for sale!!  The only one on sale doesn't have a very good view from the unit itself and only has a good view once you step outside on a shared lanai (patio).  That doesn't seem very attractive to me and there is a reason why it is the lowest price Honua Kai unit on sale right now.

In any case, I encourage you to check out Honua Kai vacation rentals at www.vrbo.com or by looking at the official website which is at www.honuakai.com

Pictures of the resort are below:

What are your thoughts?  Does anyone here own at Honua Kai?  If so, share your experience so I can learn more!

Hello!

Hello World!

My name is Sachin and I am an Indian-American (not a Native American Indian, but an Indian from the country India) born and raised in Houston, TX.  I'm 30 years old and married to my lovely wife who I currently live with in Houston.

I have always loved Hawaii ever since the first time my wife and I vacationed there in 2012.  From snorkeling in the beautiful beaches to slow walks in the beautiful nature trails, I feel that Hawaii is the best place to visit in the world.  I've been to several countries in my life - USA, Canada, England, France, Germany, India, Rwanda, Kenya, and even New Zealand.  But there is no place like Hawaii, right here in the good ol' USA (well it's off the mainland, but still it's part of our country!).

I've visited 3 of the 4 islands thus far - Maui, Kauai, and Oahu.  I am planning to visit the Big Island next time I go.  Out of the three I have seen though, I feel that Maui is my favorite place.  My wife and I agree that Maui is very special.

My wife has always been interested in real estate and lately we have become interested in owning a piece of property in Maui after reading about a lot of vacation rental owners there.  So this blog will be dedicated to my pursuit of a vacation rental property in Maui.  Further posts will continue my analysis of different properties I have looked at.

Note - a vacation rental property is one where you can "rent" it out to people on vacation for short term periods.  It's kind of like owning a small hotel room, but with a kitchen, bedroom, etc.

Wouldn't it be amazing to own something like this in Maui?