Wednesday, February 11, 2015

Speaking of Vacations....

I am posting this blog from an upstairs balcony lanai overlooking the golden sands of the Kapa'a beach in Kauai, Hawaii. The sun is shining and life is good. It is great to be self-employed, and to be able to work from anywhere in the world!

Because I am in real estate, I like to look at for-sale properties when I travel and analyze possible income scenarios. I also operate a vacation travel business, so many of my travel expenses are tax-deductible. I wish I had discovered this combination when I was much younger!

So what kinds of real estate deals are available to buy in Kauai today?

The least expensive condos I have found for sale right now are on Poipu Road, studios listed for $52-59K. HOA fees are roughly $1260 and leasehold fees are estimated to be about another $600 per month. In Hawaii, some properties are fee simple; others are leaseholds, where the improvements are individually owned, but the land is leased from another person or entity.

I am guessing that these might rent for somewhere around $2700 per month, so help me with the math on this. Electricity, garbage, water and sewer would be covered in the HOA fees, I am assuming along with condo insurance. Let's also assume this would include property taxes. Property management might be 20% max or $540/mo, right?

So $2700-1860-540 = cash flow of $300 per month (what is a reasonable vacancy rate to deduct). So let's deduct another $100 per month for vacancy/repairs. and you get cash flow of $2400/yr. The cash-on-cash return on a $59K investment would be around 4%, if you paid all cash for the property (much greater for seller financing).

If all of the assumptions are correct, this sounds like a reasonable vacation rental to me.

Compare this to the two bedroom, one and 1/2 bath fee-simple condo listed at the Kapaa Sands resort for $359,000 with $1165 in monthly HOA fees. Taxes are $25/mo, and it rents for roughly $165/night in winter season. You can do the math on this, but this may also be a good investment with the right financing in place on the purchase.

I am checking in with the local real estate brokers for more tips on hot listings, but having fun looking around. It's what I do!

Happy Investing!


Ron Margolis said...

Most units have a negative cash flow of $200-500. It does not include taxes or insurance. You've got another $200 a month in taxes, plus, if you use the larger management companies, castle resorts or Outrigger, they charge 45-50% not the lower number you mentioned. Just some food for thought...

Ron Margolis, Realtor Broker

Wendy Ceccherelli said...

Jeez! This is why it pays to check in with your local real estate experts when you don't know the market. Thanks, Ron. Any other comments from local Hawaii real estate investors?