What would you do? Investing on Maui with another partner......

Question

I will try to condense this down to a simple scenario for anyone that may want to offer an opinion.

A good friend and his wife and my wife and myself plan on buying on Maui in the next few years. We all plan on moving to Maui, us in roughly 10 years and them in roughly 5. Is there any benefit to going into together on a property initially before any of us moves there and if so how would that ideally look?

Ive thought of purchasing a vacation condo to start developing some equity on the island and share the expense until someone moves there full time. What happens when couple A moves full time in 5 years? We could both use it as a vacation condo in the interim, but once someone moves there it changes things substantially obviously.

Just looking for ideas on how this might be best structured or if its worth doing at all in this fashion.

Aloha!

Jake

Mark Waite · Answer

Jake, county zoning does not allow for the transfer of TVR (short-term rental permts) for residential homes. If you were to buy a residential home and want to set it up as vacation rental, you would have to apply for new permits. The existing TVR terminates upon change of ownership.For condos, however, that is not the case. It is all based on how the property on which the complex sits is zoned by the county and what the condo association docs allow. It is an easier and quicker path for a new owner(s).Multi-family properties do on occasion come to the market. However, those are rare.Mark

Mark Waite · Answer

Aloha Jake from Kihei Maui! Great question and, in general, there is nothing wrong with having a partner. The positive is that you share the costs, up-front purchase as well as ongoing costs. The negative is that you reduce your income because you will split any income that your property generates.More importantly, however, is that you clearly define the relationship, including how expenses are paid for, how income is divided, etc. If you go down the partnership route, it might make sense to form an LLC and have an operating agreement that spells this out. Gentleman/handshake agreements are nice, especially with friends, but can be a recipe for disaster should there be a major expense and one doesn't want to pay their share.Also, you'll want to make sure you outline how much the unit can be used for personal/friends/family use if you are buying this as a business.Just a few thoughts. Feel free to reach out if you want to chat more.Mark

Jake Hartman · Answer

Typo,,,, thanks

Mitch Tempo · Answer

The financed portion should be closer to 420k, with a 30% (180k down payment). I'm assuming typo, but just to point it out if you were using the 520k numbers in your estimations.

Jeremy Baker · Answer

@Jake Hartman you can find some nice 2bd/2bth condos for way less than $600 in the South Kihei area that could possibly generate some positive cash flow. We focus mainly on 1bd/1bth vacation rentals in Kihei, but if you find a 2bd/2bth that you like, feel free to send the property to me and I'll be happy to help you run some numbers to see how it can perform. We've been invested in the Kihei area since 2012 so we have a good feel for what expenses and income to expect there (hint: expenses are high but so is the possible rental income!).As for your partnership question, it's sounds tricky and as others have mentioned, drafting a solid agreement would be key and you may want to speak with a good real estate attorney.

Yanis P. · Answer

Maui is a great island, my picture is from Big Beach at Wailea area :)) Good luck with property finding.I am also looking For Seller finance property on Maui:))

Jake Hartman · Answer

@Patrick Franta thanks for the reply!I agree with you, agreeing up front who will plan on living in the property we purchase together now would be key. From what I can tell it looks like it would be tricky to truly cash flow on a vacation rental in Maui, am I mistaken? Let's say we find a nice 2/2 that is in a location that will turn well for 600k. After we drop 30% down and finance 520k we have maintenance fees and a % to the mgmt company we are lucky to break even I am assuming. This is fine, you just have to reply on appreciation. The only factor there is the fact that we could be buying at the top of the market right now, thoughts on all this?

Patrick Franta · Answer

Jake,Ideally you could plan on using the potential returns from your vacation condo over the next 5 years coupled with the equity you will hopefully build to purchase a second property where your bus partner and family could live. You would come up with an agreement on how to split returns from there forward.Partnering with someone that is potentially planning on living in the investment property could get a little tricky, unless they buy you out at that point. Just some thoughts...

Jake Hartman · Answer

We visit Maui every year, have been going for 13 years.... we love it. We've stayed in private homes in Paia and at resorts in Wailea. We enjoy water activities and the lifestyle in general.@Mark Waite I agree on the barrier to entry probably being much easier if we go the condo route. My thought is to form an entity with our partners, buy the condo through the entity with the agreed upon structure.

Stanley Parsley · Answer

Make sure you have a clear structure in mindhave you been to maui, lived on the island, worked on the islandI lasted 4 months, it would have been great if I was retired with passive income, I would have stayed in hana after I worked on the school therethe traffic to and from kihei to Lahaina was to much for me, the place is beautiful but that traffic is to much for me, the people I worked with in hana were the greatest peopleyou need to find something you can invest in that's not going to end up like a houseboat timeshare- know what I meanenjoy