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Wondering if anyone is familiar with real estate in Kauai?
Reading this thread and researching realtor.com and zillow it seems that real estate on Kauai (specifically single family homes) are priced fairly high -- on par with Maui and Oahu but both short and long term rentals are oddly low considering their high price tag.
As someone who is looking to purchase and invest in 1 or 2 single family homes and live off the rental income (living on island), does anyone know the best investment return for the real estate dollar? vacation rental or long-term yearly rentals?
I think zillow and realtor reported a whopping 8 SFH for long term rent on the entire island! Wow, thats low inventory. Is demand that high now for long-term SFHs?
Looking at SFHs specifically as condo associations seem to charge way too much.
Maybe we need to start a new website called speculator-data.com. Real estate, like any investment vehicle, hinges on just a few percent. That's the nature of free markets, taking out the inefficient money. Do you really think you're going to get those few percentage points of advantage by using free data such as zillow and asking questions on forums?
You left out a lot of details: cash or financed, down payments, rehab or not, do your own maintenance? You did say you'll be living here, are you already here or will you be buying another unit to live in? The cheapest places to buy need the most renovation, and they are in the worst neighborhoods, with low rents that attract the worst tenants. Vacation rentals must be permitted unless they are in certain coastal areas where there are mostly condos. For vacation rentals are you hiring managers and cleaners, or will you do the booking and cleaning yourself?
But it really doesn't matter. You need be here to figure out the local market. Even then, I get the impression it becomes a job managing your rentals, it's not just "passive" income. No one is going to tell you how you can make money that isn't getting a percentage of it themselves. And I really don't know that much myself, if I did, I'd be making money doing it somehow. Or become a realtor and tell you "Yes, now is the perfect time to buy on Kauai," and make 3% at it.
Wondering if anyone is familiar with real estate in Kauai?
Reading this thread and researching realtor.com and zillow it seems that real estate on Kauai (specifically single family homes) are priced fairly high -- on par with Maui and Oahu but both short and long term rentals are oddly low considering their high price tag.
As someone who is looking to purchase and invest in 1 or 2 single family homes and live off the rental income (living on island), does anyone know the best investment return for the real estate dollar? vacation rental or long-term yearly rentals?
I think zillow and realtor reported a whopping 8 SFH for long term rent on the entire island! Wow, thats low inventory. Is demand that high now for long-term SFHs?
Looking at SFHs specifically as condo associations seem to charge way too much.
Thanks!
I'd suggest you read up on real estate investing for long term rentals to learn the general rules that apply. Just buying and owning them isn't going to make you any money. In fact it can be quite costly owning just one rental.
There are a lot of other forums on this topic, I won't post a link, but go to bigger pockets. They generally advise a investor shoot for whats called the 1% rule. Basically if you buy a property to rent out, the rents should equal 1% of the purchase price to cover PITI, repairs, vacancies etc.
example; Say you buy a SFH on Kauai for $450k, it should bring in $4500 a month in rent. Now we all know that this rule is very hard to come close to in HCOL areas, but if you're not coming anywhere close to the 1% rule, it might not be a good investment!
Speculator-data.com sounds like a fine idea And you bet, real estate investment all hinges on a few percentage points.
So, some details:
I'm looking to purchase 2-3 homes outright (cash) depending on the price of course. Live in 1, and rent the other 1-2 out for rental income. Maintenance, cleaning, and re-hab would be contracted out per project need - a fixer upper would be preferred in a dependable rental area. I would GC and property manage myself (my job now).
I'm not looking for a free detailed qualitative or demographic analysis but some "boots-on-the-ground" insight on a straight forward question:
If you had the money to buy 1 home as an investment on Kauai and got it fixed up and looking nice, would you earn more money by renting it as a (permitted) vacation-rental or long-term rental?
It would seem to me that a long-term rental would gross less income but would be more stable and reliable due to the typical 1 year lease, where as a vacation-rental would gross more but be subject to changing world economies affecting vacancy and rental rates and also would require more management. If, say, managing a vacation-rental only yields $100-$200 extra income per month compared to a long-term rental then it really wouldn't be worth doing IMO. From other HI forums, vacation-rental seems to be the clear winner, but is the same true on Kauai?
Viper and I had some awesome discussions on the Maui forums but Maui is a different animal. Not only are permits required for vacation-rentals, but permits are extremely hard to obtain outside of the typical rental zones of Kaanapali/Lahaina/Kihei, and I believe they might be capped now. According to Viper, permits aren't even issued on Oahu! Which I suppose brings up the 2nd question:
Are vacation-rental permits restricted in anyway on Kauai? Or is it a forgone conclusion that it will be approved as long as you patiently wait for it?
Kauailover made an excellent point on the 1% rule! That is exactly what struck me as being so strange -- Kauai doesn't seem to follow it! Doing a little research on Kauai AirBnB is a head scratcher... I'm seeing $500k homes vacation rent out for $120/night. Logically, one would expect the $1m homes to range around the $240/night mark but they don't! They might go a little higher -- $150 or $180/night. So in this case the vacation-rental return is better for 2 $500k homes. Then you ask yourself, if that's true, how much better is vacation-renting compared to long-term renting? I dunno. BTW, bigger pockets is a great site! -- I've helped some and have been helped in return. some VERY smart cookies on there!
Unless I'm missing something (maybe), that's why condos look like such a poor investment: 33% of the monthly vacation rent goes to paying off the monthly HOA dues! With a, I'm guessing 80% occupancy rate, that doesn't leave much left to cover PITI (or TI in this case) and maintenance repairs. Also condo's typically appreciate slower than SFHs.
One realtor/broker on the Big Island stated that due to a poor currency exchange rate, Japanese tourism to Hawaii dropped radically in 2016 significantly affecting the rental market. I want to say the ratio was typically 60% US, 30% Japanese, 10% other. US mainland tourism is now something like 80%? Don't quote me, just passing on what I heard...
Anyway, getting back.... lets say you have a nice $500+k renovated home on Kauai. Which rental path would you take?
There are smart and rich people in real estate already on all the Hawaiian islands. Why would they leave money on the table for you to come in and grab it? I'm not a sophisticated r-e investor/rehabbed/flipper (I'm none of these), but every time I see numbers and do back-of-the-envelope math, it seems the only way to get money out is to put in sweat equity. All of the turnkey properties have all of the future earning priced in, and you'd only make a few more percent, like any market-rate investment. Now if you have fixer-uppers and do a lot of the work yourself, or vacation rentals and do the booking and cleaning work, it seems like you can at least creat yourself an income stream for your hard work.
And then of course there is the downside risk. Were you counting on those low overhead VRBO bookings where people call you directly? Well they didn't feel like they were getting enough of the pie, so they changed the rules/fees to get more. Some condos in Poipu had construction glitches, and now all the siding rotted and needs to be redone, with a 10-20K assessment per unit--but maybe those were timeshares where that seems to be how that industry extracts money from its "customers." If you survive all that and get lucky with the market, you might be able to get some equity bump out of the local market. Then again, I bought 12 years ago, near what turned out to be the high, and while values never went down very far, they are barely back up to where they were. But frankly, as a resident in the community, I think it's better that prices aren't so high and volatile.
Kauai vacation rental laws are similar to what you describe on Maui, as I hinted at in my first post. There are "visitor destination areas" (VDAs) where short-term rentals (less than 30 days) are automatically allowed (I'm not sure, but I thought you still needed to apply for a permit so they get your tax if and make sure you're collecting the hotel tax and excise tax for them). In the VDAs, there are about 80% condos, except Princeville where the average single-family house is over 1M. There are people who develop ag land into luxury housing, and then managed to get a vacation rental permit, but I think those days are over, and thank goodness. Frankly, all this regulation is meant to ensure that the island is still livable for the local residents and they don't get priced out of their homes--and I agree 100% with that. Of course, the r-e investors, developers, and realtors all tried to bend the rules during the past 20 years when the laws were vague about the new vacation economy (VRBO, Airbnb, and the like), but I think they finally reined them in.
Thank you for reading, please deposit $100 into my paypal account for this buyer's agent advice. (Just to be clear: I am kidding and am in no way licensed to be a r-e agent).
I've never heard of this "1% rule". If you know of a place where it actually can occur, let me know. I own properties in 3 different states (including Hawaii) and not in any of those states could an investor purchase a home and get a rental rate equal to 1% of the purchase price of the home. If you're talking about multi-plex buildings ... I think you can get closer to 1% overall with all the rental units combining up to about 1% of the purchase price. But you really need to get up to larger plexes before you start to see this. But I don't think it is realistic when dealing with a single family home or a single condo unit.
To be honest with you, if I had cash to buy 3 homes in Kauai, I would not buy 3 homes on Kauai. I would buy 1 home on Kauai. I'd take the cash that would be used to buy the other 2 homes (let's say approximately $1,000,000) and use it as a down payment to leverage myself into a mid-sized multi-plex (10 to 15 units) on the mainland. I'd use a property management firm to manage the units and carry a mortgage with a 15 yr payoff. Then I'd live in Kauai. You should find you get a better overall return on the multi-plex.
Regarding Vacation rental vs long-term rental ... I like long-term rental better (if you don't need/want to use the unit yourself. Your property tax millage rate is substantially higher as a vacation rental than as a long-term rental. And as a vacation rental, you need to pay the electric bill (and vacation renters tend to run the a/c 24/7). A long term rental you can charge the utilities to the tenant. And a vacation rental on Kauai requires you to constantly be working to find your next tenant and keep it filled. I don't think you can achieve 80% occupancy year round on a Kauai vacation rental. Units in my building in Waikiki average about 80% occupancy. And Waikiki has a far larger tourism base than does Kauai.
But my exposure is on Oahu, so take my thoughts on your situation in Kauai with a grain of salt.
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Kauai Speculator
