STR- Short term rental investors in Maui Hawaii what’s your plan?

Question

With the delayed reopening of our state of Hawaii what’s your plan for all your short term vacation rentals in Maui? Are thinking of pivoting to long term rentals or thinking of selling?

Mike Neubauer · Answer

@Janice V.  Stay the course. Cut rates now if need be and attract local travelers or those savvy enough to travel and accept the two week quarantine in exchange for empty beaches. We may lose money in the short term but I guarantee that you’ll look back and be thankful you didn’t sell when tourism returns. And it will. Do what you need to now but sales are sluggish on STRs right now from what I’ve seen, and those that have sold went for much less than they should have. The better option may be to double down!  Hopefully all STR investors put away some of their proceeds for rainy days, and a war chest for all the opportunities that are here and are coming down the line!

CJ Hawk · Answer

I'm a current owner in Kihei with an STR and we were set to have a record year this year, until end of March fizzled. We usually run a 92%+ occupancy (or better). That said, we're going to sit tight for now, consider a long term (6 mos) renter just to generate some income. We don't need it, but I'd rather have someone in there looking after it. The good news for us is we bought in 2018, made $100k on paper on the equity side and paid it off this year. So for us, it sitting is just HOA and a small fee to our PM for checking on it. With some of the sellers hurting on homes, we decided to go all in. We're selling our Cali home, made an offer on a Maui home and plan on moving in the next 2 months. If I'm going to quarantine anywhere, it's going to be Maui and it's going to be on my Lanai. I've already been to USVI and back during the pandemic, so flying and quarantine don't have me anxious. Common sense, precautions prevail.

Devin Redmond · Answer

I generally agree that selling into a market where potential buyers can't even walk the unit, is probably not a great idea. On Maui your pool of buyers for a vacation condo is 99% mainlanders, and those folks just aren't going to fly with the mandatory 14-day quarantine in place.

Switching to long-term rentals for the time being seems like the best strategy. Anyone moving to Maui long-term will put up with the 14-day quarantine, and there are probably also some local residents looking to downsize from a house to a condo to save money. Hard to see how you go wrong doing a 6-month lease now and then revisiting your strategy in early-2021.

As an aside, I'm wondering how Maui STR owners were doing BEFORE the pandemic? My impression is that condos in the approved vacation rental zones are not great investments. Once you factor in booking fee increases from Airbnb and VRBO, high HOA dues, and relatively expensive cleaning costs, is there much left over?

I imagine it works if you bought from 2009-2015, but more recent Maui condo sale prices don't seem to support a viable STR business. That said, I'd love to be convinced otherwise!

Devin Redmond · Answer

@Loren Clive Nice work getting your condos rented and/or sold in this environment!

Sure, 99% was not a number I arrived at via a scientific process. My intention was merely to make the point that the pool of potential buyers who will pay premium prices for vacation rental condos on Maui is significantly reduced during a global pandemic.

I do know that my favorite Maui broker team reports that while single-family home activity remains strong, Maui condo sale listings were up 18% and pending sales were down 24% in June 2020 vs June 2019. Median condo sale prices are down 9%, while the median for single-family homes is actually up 2%. Clearly, buyer activity is favoring single-family homes over condos at the moment.

It's not necessarily a bad idea to sell into a falling market. It all depends on your assumptions about the future, recovery timing, etc. Either way, I agree that buying at the right price (off-market or otherwise) is key to making STRs work in pricey condo markets.

Erik Stenbakken · Answer

I have family with a home (non rental) in Maui. I currently own three STRs on the mainland. Lived in Hawaii before. I have looked at the STR option on Maui many, many times. But with basically SFH being shut down for STR, that leaves only condo areas (unless one lives there and can B&B or had one what, 5 years ago?).

Even looking at the "flat/depressed" condo prices and running numbers… seriously. Is anyone making money on there if purchased recently? I can NOT make the numbers come out in the black. Purchase + HOA + operating costs = feeding the mortgage. And that's in DECENT times assuming reasonable rentals, not current crash. Kihei seems the most reasonable for purchase/rent ratio, but even there, seems like a lot of work and money for what appears to be a negatively flowing investment. I'd love to be shown how wrong I am!

John Underwood · Answer

This would be the worst time to sell. Hopefully all investors with effected STR'S have some reserves to get through this.

I like the "double down". This will likely be an opportunity to find motivated sellers and foreclosures in many markets.

Nathan Gesner · Answer

I certainly would not suggest selling. cities and states are starting to crack down on short-term rentals, making them a higher demand commodity. I would do what you need to to get through this lunacy. The market will come back.

Rohin Dhar · Answer

Not Maui, but we have a cottage in Kauai. Found a month to month renter at the beginning of the pandemic which covers a good chunk of the costs and they're flexible to move on when its open for STR business again. Better to lose a little bit of money every month than a lot of money every month! Like a normal long term renter, we screened them very carefully.

Janice V. · Answer

@CJ Hawk Congratulations on your Maui move! E Komo Mai!

Rohin Dhar · Answer

@Mike V. Yep is a local resident!

STR- Short term rental investors in Maui Hawaii what’s your plan?

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