I took a phone call from a consumer this week and as we started the phone call, he said to me, “Hey, you’re the short-term guy”! At which I replied, “What?” He said, “Yeah, I watch all your YouTube videos on short term vacation rentals and they’re valuable information. I’ve learned a lot from you, and I want to talk to you about buying one.”
So, I guess I’m becoming known as the short-term vacation rental guy. It’s really by default. I just help a lot of people buy and sell short-term vacation rentals here on the island and now I property manage them as well (more on that later). It is true I’ve produced over 30 videos on this topic alone on our YouTube channel. If you’d like to watch a few of them, click here.
So, towards the middle of the conversation with this guy, he said to me, “Dan, can you just summarize for me your top tips to consider if I was buying a short-term vacation rental on the Big Island?” I said sure and I rattled off my top five tips. That got me thinking that maybe I should put them down on paper to make it easy for everyone. So here they are, in no particular order:
1. The first thing everybody needs to know is where you can do a short-term vacation rental, and where you can’t. Watch this video that I did where I literally take you up the Kona-Kohala coast on Google maps and show you exactly where you can purchase a rental and where you can’t: WATCH ON YOUTUBE
2. The only way a property is going to cash flow is if either you pay cash for it or you put down more than 50% on a loan. It’s very difficult to get a short-term vacation rental in Hawai`i to cash flow because the price of real estate is so high here, coupled with taxes and HOA dues. If you’re paying cash as a rule, you could expect about a 3% ROI in the form of rental income. If you’re thinking about doing a loan with 20% down, there’s no chance it’s going to cash flow because you can’t charge enough of a nightly rate or have enough occupancy to make up the expenses.
3. For all those people out there that say, “well a 3% ROI is not a great return for my cash. I can take that cash and place it _______________________ and get a 5%, 6%, 7% or greater return. I can do double or triple that at the S&P 500.” Yes, that is all 100% true. There are so many other vehicles that you can choose to get a higher return. However, can you enjoy the incredible beaches at the S&P 500 with your family and make memories for a lifetime? I think not! Remember, you’re not buying this property strictly for ROI. I hope you are buying it to enjoy the fruits of your labor and the relaxing Hawaiian lifestyle. An investor once told me that people should spend their life earning their money on the mainland and then spending that money in the Hawaiian Islands.
4. Speaking of earning remember, there are two paths to investing. We just tackled the first one which is cash flow. And yes, cash flow is important but it’s not the only part of the equation. The second part of the equation and the bigger part is appreciation. You’ve heard me say this before, if you look at this island over the last 35 years it historically appreciates at about 6% year-over-year. The only time it didn’t do this was during the real estate crash of 2008/ 2009. Now remember the 6% is just the average. If you take the Kohala Coast where you have the resorts of Waikoloa Beach, Mauna Lani and Mauna Kea those three areas appreciated 12% last year, double the average. So, the bigger and better play to buying an investment property in Hawai`i is appreciation. If we just take the average and you bought a $1 million condo you would be up $120,000 in equity in 12 months.
5. Occupancy, occupancy, occupancy. This is the name of the game. You can talk all day about nightly rate, but if nobody is paying your nightly rate, you get nothing. The key is to dial-in the perfect nightly rate that doesn’t scare people away but attracts enough people to book your property at 65% occupancy or greater. I see too many people get wrapped up in nightly rate when they should be talking about occupancy. We use a proprietary software to optimize nightly rate on a daily and weekly basis so we can attract more renters to your unit than anyone else’s
So, what do you need to be successful in purchasing and operating a short-term vacation rental? In short, you need someone like me. Not only am I one of the owners of the brokerage firm and do sales, but I also own several ancillary businesses. I am an owner/investor in the title company, the mortgage company and the primary owner of the property management company. So, when I sell you a short-term vacation rental, I can also manage it for you. Basically, from the time you start looking until you close and far beyond the management of the unit, we are a one-stop shop. We will handle the loan, the title, the sale, and the short-term vacation rental business of your property. One solution top to bottom.
So yes, I guess I’ve become the short-term vacation rental guy after all. If you’d like to talk more about what opportunities are here for you on the Big Island of Hawai`I, give me a call on my cell phone 808-987-3306. I’ll pick up and you’ll talk with me. I look forward to hearing from you.
Aloha,
Dan.
Oh, BTW – if you’re working with a realtor and they can’t at least put together a pro forma for you on the projected net income of any short-term vacation rental you’re considering, then you’re probably not with the right Realtor.
