So your dad is probably planning to buy a condo in Maui, and you are trying to weigh its pros and cons. Or you are buying a condo yourself as an investment – that is also a pretty good idea. You can make it your retirement home or rent it out as a vacation rental. Every situation can work perfectly depending on a lot of factors. Vacation rental is a popular trend in Maui real estate. People invest in condo units, rent it out, and get a big pay back for their capital.
Now, before you buy a condo here are some things that you would want to know. In Hawaii, every condominium development i8s required to have an AOAO (Association of Apartment Owners). The association is made up of condo owners who are responsible for the condo maintenance. When you buy a condo in Maui, you get to vote which association you’ll want to take care of your unit and how complex the management should be. You also need to find out, before voting, if the association allows vacation rentals. Not all associations allow rental vacations.
Once you have decided on the association, you will need to pay AOAO fees. How much does your AOAO fees be? It is very dependent on the things that need be covered, most importantly the “common elements” in the condo building. Some examples are the building walls and exterior, roofs, ground pool, patio, garden, and many more.
In checking for you AOAO fees, you don’t just the numbers but you also would want to know what you can get out of your money. To give you an idea, the following are some questions you can ask when meeting with your realtor.
- How much are the operating expenses?
- How do you determine the budget?
- How do you set the reserves?
Once you get the escrow, the condo owner can provide the documents you need upon request.
Once you have the documents, there are many things that you need to see. One of the first things that you should take a look are the profit and loss statement. Study the balance sheet where you can find the financial statement of the person you are dealing with. At some point you may not understand its complexities, so it would be beneficial on your part to have an accountant to explain it to you.
The financial statement is one of the important aspects in estimating your budget and in checking if your investment is worth it. If you don’t check it, you won’t be able to anticipate any risk that might come out in the future.
Since you are buying a condo and renting it out, you need to decide how your unit is going to be handled. Here are some options you can try.
- Hire an offsite manager to handle your rental services
- Handle it on your own (this is more advantageous if you live in the island)
- Enter a contract with your AOAO to hire an onsite company to handle your property
In signing the contract, you need to be mindful on how much it would cost you to hire a rental management company. Make sure you know some potential charges that might surprise you later on. Some factors many also affect the cost such as marketing, check-ins, cleaning, and minor maintenance.
Hawaii basically have two ways to own a condo unit. When you have fee simple, it means you own your dwelling and the land under it. Leasehold will have you own the unit but not the land, so will be required to pay a monthly owner leasehold rental.
Leasehold usually lasts five to ten years, and the rental largely depends on the value of the property. You can have the right of first refusal to buy the unit after the term of the lease. However, the risk usually comes when you can afford to buy it and the unit ends up in a new hand.
As you can see, leasehold comes with some potential losses too, though they only come at alter time. One advantage is that the risk is often offset by a cheaper purchase price.
Some properties in Kula and Kahului, which were once under leasehold agreements are now fee simple. Owning a condo in Maui is an expensive investment – median cost is around $2, 500 a month – but very worth it. People come and go in Maui to have vacation for a quarter or half a year and if you have good management, these people can end up in your condo unit.
There’s a lot more to owning a condo in Maui and you will need a lot of spirit to enter into the business cycle. When you are in good hands, you will definitely be thriving.