Buying Vacation Property in Waikiki
 Ann McCarty Waikiki Condo Sales Expert |
A potential buyer of vacation rental property recently asked me, "Can I make money with 20 percent down on a vacation rental in Waikiki?"
Well, yes, you can. But with only 20 percent down, I do not recommend leaving the property in the hotel rental pool. Most hotel management companies take a minimum 50 percent of your earnings.
As an example: I’m going to be showing an ocean-view unit in the Pacific Monarch, right on Kuhio Ave. in the middle of Waikiki, and it's one of the best buys in the building. Listed price: $219,000. Maintence fee: $420. Taxes: $252/mo. (Taxes are higher because of the rental pool; it would be about half that if out of the rental pool.) As it’s been on the market for 270 days, we could probably get this one for say, $200,000. With 20 percent down at 6 percent (there's a higher rate for investment property) 30-year fixed, the mortgage will cost $11,500 per year. Other fees are $6,000 for the maintenance fee, and $3,000 for taxes. Total expenses: $20,000 a year.
The recent income report from the rental pool for 2007 showed a total gross of $33,000. If you take it out of the rental pool, taxes would go down about 50 percent to $1,500/year. If you use a property manager to rent the unit, you would need to give them 15 percent, which would be about $5,000. That makes your total expenses more like $23,500. Doing the math on $33,000 gross, that gives you a nice $10,000 profit.
Not all buildings are priced this way. Some have lower maintenance fees. But generally, if you either rent the property yourself or use a good vacation rental property manager, you can make money with 20 percent down.
Of course, we also need to check out the building’s owner occupancy rate for getting a loan. These days, if the building has a low owner occupancy, there might be a problem getting the loan for less than 25 percent down.
Ann McCarty is with Hawaii Realty Associates LLC and blogs about Waikiki Condo Sales. Visit her blog, or contact her via e-mail.
