All Forum Posts by: David L.

 Yes, I saw that in the guidelines.  However, the subdivision is within a visitor designated area, which I'm learning might be more a Kauai thing only.  Supposedly it allows for vacation rentals.  Something I definitely need to look more into.

Actually, I just finished reading the MMM blog posts and answered some of my own questions.  What a great and informational piece.  Thanks for sharing that. 

I also am half way through @Brie Schmidt's podcast where they talk about appreciation and the 1-2% rule. Seems like if I wanted to make this property worth it, I would likely have to do ST rental for both the main dwelling and ADU at as close to 100% capacity as possible to follow the 1% rule. Hopefully I'm calculating everything out correctly.

Learning a lot and finding I'm asking a bunch of questions that have answers sprinkled all over the place.  Lots to learn, so little time.  Thanks for the guidance thus far. 

Big mahalos, @Johnny Aloha!

Interesting point on the TVR permit issue.  I haven't really looked into it that much.  The property I'm looking into is actually in a visitor designated area so I wonder if I would still have an issue getting a permit.

Your comment about the ADU size is interesting. I take it since you were doing a long term rental, you still manage to get a kitchen in there? For some reason my assumption was that a kitchen would necessitate more space but perhaps not. Thanks for sharing that experience.

I agree with you on the 7% mentality.  Stocks can definitely give that sort of return much more easily and quickly.  Some how I had that in the back of my mind but I think my desire for the property some how pushed it out of the way. 

I suppose my last thought is, what about appreciation?  I notice most folks here don't really include that into any of their evaluations.  And I can understand why - it's difficult to predict or analyze.  It really does seem like a gamble but I would think that this place will appreciate.  

I guess the hard part of this all is, I really like the location and really want to make it work.  But the truth of it all is, it's not really a good deal.  It's not a negative deal, but not a great deal.  But perhaps that might be "good enough" for a place that we really like.  Tough decision.  Thanks for your insight!

Thanks, @Brie Schmidt.  I took your direction and did some calculations on the property as a LT rental and a ST rental.  I just did a quick browse on craigslist for properties nearby and found some potential rental numbers.  I also took the list of expenses from the rental property expenses blog post and tried making a more accurate expense number.

With those numbers, here's what I think the ROI comes out as:

• Living in main dwelling + ADU as vacation rental @ 50% vacancy = -6%
• Renting main dwelling + ADU as vacation rental @ 50% vacancy = 9%
• Renting main dwelling + ADU as separate LT rentals = 7%

From what I've read, more expensive units are considered decent if they have a solid 7-9% ROI? So, if I ignored the "living in" number and concentrate on the rented out numbers, this should be considered a decent deal?

So I've already started on a road that I don't know how to navigate.  Searched and read as much as I could but unfortunately am under a time constraint.  Was referred to BP as a great community for RE discussing ideas.  So here goes.... warning: definite newbie so please excuse my ignorance. 

Property:

Property is a piece of land that allows for a primary dwelling + ADU. My estimate for the total cost after construction is probably 1.02M. The location is in Hawaii, near the beach and within major tourist spots.

Goal:

The thought is to live in the primary dwelling for X number of years (we really enjoy the location). During that time, we'll rent out the ADU as a vacation rental. I don't mind doing the work to run the vacation rental but I don't want it to be a full time job. I want to still be able to enjoy my evenings.

Numbers:

IF I calculated ROI* numbers correctly... with me living in the main unit while renting out the ADU only at about 40-50% capacity (since I don't want to overwhelm myself), I'll be generating a ROI of -7%. I imagine if I move out at some point, I might be generating 4-7%. Of course, these numbers could be higher if I spend more time filling the rental capacity closer to 100%. Perhaps with the help of a PM.

Worth it?

I'm sure the "is it worth it?" question is hard to answer given that there is certain level of emotional investment also. I suppose I could reword it and ask, is there a certain ROI range that is acceptable for a lived-in vacation rental? I don't really see a positive ROI being possible unless I push to 100% rental capacity. The amount of initial capital required will also likely keep me out of any future investments for at least a year or two.

I'm not real estate savvy.  I've only know buy and hold and that it's better than renting, lol.  I'm sure there's no right answer to it but hoping to hear some seasoned insight and experiences.  

Thanks!

* I am calculating ROI as

• Initial Capital = Down payment + mortgage fees
• Expenses = mortgage (interest) + insurance + taxes + HOA + rental expenses (10% of income)
• Cash Flow = (Rental Income - Expenses) / Initial Capital