Purchasing a Vacation Rental on Kauai:
Here are my quick tips!
1. Know where to get Financed! (not applicable for cash purchases)
When it comes to condominiums using an on island lender is best!
Many of our condo vacation rentals are condo-tels (condo-hotels). A condo-tel is any vacation rental project here with a front desk. Lenders on the mainland don’t know what condo-tels are and they usually end up not lending on the project even if they say they can.
Condo-tel lenders I recommend checking with:
First Hawaiian Bank would be my first recommendation or using a lender that brokers out to First Hawaiian Bank.
I also recommend checking with Security National on Kauai and Central Pacific Bank.
Lenders often require a minimum of 25% down payment for investment properties.
2. Making sure Purchasing a Kauai Vacation Rental is what you want.
This might seem a little silly. However after talking with people I’ve had them come to the conclusion that purchasing a Kauai Vacation rental was actually not in their best interest.
Many people see the appeal of investing on Kauai because of the high rental rates and year around business. Then they share that they want this property purely as an investment and they don’t ever plan on visiting the property.
That’s when I start recommending to invest in their local market. Depending on how much money they have to spend, etc.
If someone is purchasing in cash then there are larger profit margins. If someone cannot afford a vacation rental on Kauai and gets a medium to large loan it won’t cash flow and they won’t ever see the unit. It won’t make sense.
3. Using an Agent and sharing your Goals with your Agent
This also might seem silly. But when it comes to condos there is so much to know! Every condo project here operates differently. I am also referring to condos a lot because most of our vacation rentals on Kauai are condominium projects.
Some projects here are leasehold or are really old and have issues in certain units, etc. Every project here is so different.
Share, share, share your goals!
Sharing your goals with your agent will really help them narrow in on what areas or projects will be best for you. In the past I have had clients confuse me because they didn’t know what they wanted. One day their goals are to move in full time the next it’s just an investment.
Be clear of your goals to your agent so they can assist at their best.
4. Look at the rental statements & do some research.
This will provide a general idea of the income and expenses. Some sellers will provide a very detailed list of income and expenses. Others will give one big number for the income and for the expenses.
Do some research on how much other units rent for by searching websites like VRBO.com. Also check with multiple vacation rental management companies on their fees.
*Often times statements do not include the monthly HOA fee.
Here is another blog on expenses that come with vacation rentals.
Also once in escrow: Read the condo documents!! Read the reserve look at their reserve fund and make sure their HOA is doing well.
5. Booking the stay at the subject property or similar
I have a client who likes to stay at different condominium projects each time they visit. I thought this was so smart! The reason being yes they want to invest on Kauai.
While staying at a certain condominium project she noticed to get out onto the main highway to head west was pretty difficult. I agreed I don’t like to make that turn either. That was enough for her to not ever stay there again and to not want to invest in the area.
With interest rates being ‘high’ and the market also being ‘high’ I believe investing in a solid property is important. If someone is going to overpay in real estate over pay on a good property. The value will hold in the long run.
When staying there be sure to check the exterior condition of the building. Does it look like the building will wash away within a few years? That’s a red flag. Would you want to stay again at this location? These are all questions to ask yourself when visiting.
