I often have new prospective buyers of Maui real estate ask me about the kind of cap rate they expect on vacation rentable condos here. My first response is, “if you’re looking solely for a great short-term investment on paper, Maui or Hawaii in general may not be your best bet.” The reality is that most vacation rentable condos here will not make a positive cash flow (if you’re financing), unless the stars align and you get one at a very low price, with low maintenance fees, and very high occupancy. I then tell these clients that if cash flow is the goal, they’d be better off buying a vacation rentable condo in a mainland market where the price points are lower (potentially somewhere like Florida or Texas). At this point, the true value of buying vacation rentable condos on Maui really comes to light – “…but I’d really like to use the condo to visit Maui throughout the year.”
Expectations of Maui Vacation Rentals
This is a key understanding I like to educate my clients about, as it sets realistic expectations when entering the market here. In my opinion, the “gold” in buying vacation rentable condos on Maui is being able to subsidize some to most of your expenses by renting it out throughout the year AND having a set place to visit whenever you please (as booking condos/hotels on Maui have become more and more difficult and expensive over the years). I’ve helped quite a few families purchase vacation rentable properties in my career and have never had a client tell me that they regret their purchase. In fact, I frequently have clients reach out to me and tell me how happy they’ve been being able to visit their property on Maui year after year. Some then even go on to buy additional vacation rentable condos or residential properties here.
Then, from a long-term perspective, the appreciation/equity built is where vacation rentable condos on Maui can make a REALLY good investment. To put it in perspective, some of my longest and loyal clients bought their first vacation rentable condo from me in 2016 for $275K. It was a 1bd/1bth condo in South Kihei that needed some work. They did a full remodel and started renting it out shortly thereafter. In the next couple years, they found themselves visiting more and more, buying a couple more condos from me, and relocating their family from the mainland into a home in Kihei that I helped them buy in 2018.
Fast forward to 2021, they decided to put the first condo that they bought on the market, and we ended up selling it at full price for $675K. That’s roughly a $400K return in 5 years! By that time, they had paid off their mortgage partially with proceeds from all the rentals they had since they purchased the unit. It’s quite difficult to get that kind of return on investment anywhere else!
Interested in Purchasing a Condo on Maui?
Of course, this is a very specific example, but I’ve seen similar situations with other clients that I’ve helped over the years. So, if you’ve been tossing around the idea of purchasing a vacation rentable condo here on Maui, I’d love to chat with you further about if it may be the best fit for your goals. Reach out to me today!