STR in Kauai - are prices going up like crazy?

Question

Hi,

I have vacationed in Kauai recently and I have fell in love with the island. So much, that I want to purchase a STR in a visitor designated area to use it every now and then and rent it out the rest of the time.

When we started looking for places, we just realized that prices there have increased about 30% in the last few months. We also looked at Maui and it's the same. Places that sold for 450,000 a year ago,  now are at about listing at about 600k.

Am I crazy for wanting to get into that market now? Thanks

Jeremy H. · Answer

I have noticed the exact same price trend in a lot of different places. It is very odd. I'm 30 - so most of my investing life (past 5-10 years) has been an upswing, I haven't really experienced a downswing other than the 2008 housing crisis (wasn't into investing then) and really covid (which was more of a quick blip than a recession). I just can't imagine prices increasing like this and staying that high (I mean 40% in 6 months is ridiculous). Investing in a lot of these locations 2 years ago would've been easy - today the returns are like LTR but with the STR risk and workload.

Couple that with the inflation we've been seeing. The influx of money pushed in the economy by the fed. The fact that a lot of people had a lot more disposable income and time at home with covid. A lot of extra traveling since people were home or could work remotely. Increasing interest rates very fast. Increased gas prices. And now we're seeing the stock market really take a fall, down 20% (hard for me not to buy index funds just due to this). We're seeing some layoffs start - it's more expensive to borrow money now so that's going to mean less productivity and more layoffs. The housing data we see is at least a month old because of the closing timeline.  I realize there's more attention on STRs right now but I can't imagine that is the reason for the prices in most of these places.

And housing prices are at an all time high - we are at the top of the market - a sellers market.

For me personally - I'll take some smaller local deals but I've gotta steal it to buy it right now for a high price STR. If a deal pops up, I'd say be ready, but I would not be getting into the FOMO and rushing crowd in this market. Lots of uncertainty right now.

Mike V. · Answer

They are up more significantly more than 50%. I purchased my last rental there for 650k and it’s now worth almost double a year later. Unless you’re buying a land lease unit there’s almost zero inventory in the VDA zone at under 600k.

Additionally, there is a well known wealthy individual who has purchased over 20 units in the last year all in the VDA zone and all at stupid high prices.

For perspective, a few years ago a unit I purchased for 550k is now with 1.6m.

Bryan Vukelich · Answer

@Hoshang Hafizi  - unfortunately neither the Waikiki Banyan or Sunset is VA approved.   Here is a website - https://lgy.va.gov/lgyhub/cond -  that you can research VA approved buildings on O'ahu.  If you have any other questions or if I can be of value to you in any way, you're welcome to contact me at any time.

Bryan Vukelich · Answer

@Hoshang Hafizi and @Carson McGee

Just a heads up, there is a rental coalition filing a lawsuit on the 90 day rental minimum portion of Bill 41 that recently passed on O'ahu.

And now that Waikiki Sunset and Waikiki Banyan are now designated as legal short term vacation rental buildings, there are some decent investment opportunities there.  A well maintained unit with ocean view at either of those buildings can gross $5500-$6000k most months, but higher in the peak tourism months.  I know of one unit that often gets $7k/mo at the Banyan.

And if any property association in Ko'olina allows nightly rentals, likely values will go boom.

Michael Porche · Answer

Hi @Marta! Great Question. There has definitely been a lot of activity in the real estate market. Are you solely going there for the purpose of vacation and then rent it out just for convenience? Or are you looking to make a good return on your money for an investment?

Carson McGee · Answer

Hi,

I am not too active in Kauai but I have multiple short-term rentals on Maui. I think in general the islands of Hawaii are experiencing a lot of price appreciation due to the scarcity of land and inventory. You should do your due diligence with zoning but if you find a sweet spot as we did you can have a very profitable short-term rental. If you are interested in any revenue projections, zoning restrictions, or STR property management in Hawaii feel free to reach out!

Bruce Woodruff · Answer

I would not buy in now. There goes your profit. Either wait or find somewhere else....

Luke Carl · Answer

The numbers are like that in all 50 states. Just be careful with hawaii. The only thing we hear about it around here is that it does not like short term.

Hoshang Hafizi · Answer

@Bryan Vukelich that is just gold information! Thank you very much. I will stay in touch if we decide to move forward with a place here in Hawaii.

Hoshang Hafizi · Answer

@Bryan Vukelich this is interesting. Certainly will do a deep dive and keep my eyes open on what's available. Thanks for your take. Does any one know if properties in the mentioned areas would not be approved by VA if I plan on living in them? Would VA approve a hotel style apartment?

STR in Kauai - are prices going up like crazy?

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