Island Property—Is it a Good Investment?

While I was vacationing in Maui, I had the opportunity of visiting two properties for sale. My daughter is campaigning for making an investment on the island—a property that we can enjoy, but also generate revenue while we’re not using it.

It’s the same investment scenario a lot of our clients seek when considering an investment in France. “The shoe is now on the other foot.”

The rental laws in Maui are just as restrictive as they are in France, maybe even more so. In France, a short-term rental is considered less than 30 days. In Maui, the short-term rental laws define it as any home or condo accommodation with rental periods of less than 180 days! Airbnb recommends that…(source):

“If you’re interested in a Maui Vacation Home and/or hosting your home as a Maui Airbnb while you’re away, then you should focus your home search to Resort Zoned areas of Maui County. Any vacation rental on Maui outside of Resort Zones will be required to apply for one of two permit types:

Short-Term Rental Home Permit: Operating under an STRH permit would allow you to operate an Airbnb in Maui without requiring the owner to live on the same homesite of the rental.

As of January 7, 2022 Maui County has issued a 2-year moratorium on any new short-term rental home permits. This moratorium does not include applications for Bed and Breakfast permits, nor does it prohibit the operation of previously approved Vacation Rental Homes on Maui.

Bed & Breakfast Permit: This permit type allows you to operate your Airbnb or VRBO in Maui so long as the home and owner are deemed eligible under the Maui Vacation Rental rules. The most notable difference between the Maui B&B permit and the STRH permit is that B&B operators are required to be Maui residents and must live on the same home site as the vacation rental unit.”

Maui County has legislation to regulate vacation rentals of single-family homes and agriculturally zoned properties. The application/licensing process is lengthy and the county does not approve all applications. If there are multiple short-term rental homes in a neighborhood, new applications are subject to a formal review and public hearing by the Maui Planning Commission. (Sound familiar?)

The short-term rental rules include a five-year ownership requirement to be eligible to apply for a short-term rental permit. Hmm…that means we cannot apply until we have owned the home for five years. The short-term rental permits do not transfer with the sale of the property, either. New owners must wait five years and then apply for a new permit! Accessory dwellings, also known as “ohanas” or cottages, may not be rented on a short-term basis.

I won’t go into more detail as there are lots of sites that do explain it fully, but one thing is for sure—there are ways around the laws, as most people are likely to find, to make their investments worthwhile. One must be clever to make it work, just like in France(!)…and if willing to take the risks.

The agent we worked with, Sally Aldrin, with Coldwell Banker Island Properties, is a friend of my daughter’s. She showed us the properties and provided me with information on the market from the Realtors Association of Maui, Inc. (download the PDF).

According to this report, the median sales price of single family homes increased 0.4 percent to $1,162,500, but decreased 7.9 percent to $657,500 for condominiums year to date (as of January 2023). But over time, has gradually increased. According to Redfin, in January 2023, Maui County home prices were up 4.3 percent compared to last year, selling for a median price of $913,000K. On average, homes in Maui County sell after 65 days on the market compared to 68 days last year. There were 112 homes sold in January this year, down from 237 last year. Just like in France, the reports can vary, but basically, home sales are down, likely due to the increase in borrowing rates.

I spoke with Brian Dunhill, of Dunhill Financial, about our possible project. His March newsletter talks all about lending rates and what the predictions are for the future. We would be looking at rates of about 6.45% to 7.08%:

“On Tuesday, March 07, 2023, the current average interest rate for the benchmark 30-year fixed mortgage is 7.08%, up 7 basis points over the last seven days. If you’re looking to refinance your current loan, today’s national average 30-year refinance interest rate is 7.06%, decreasing 7 basis points since the same time last week. Meanwhile, the national 15-year fixed refinance interest rate is 6.33%, falling 3 basis points since the same time last week.”

Rates in the U.S. are a lot higher than rates in France. According to ceicdata.com, “The France Bank Lending Rate was reported at 3.13% in December 2022. This records an increase from the previous number of 3.027% for November 2022.” But, getting a mortgage in France is much more of a challenge, especially for self-employed Americans over the age of 60 (like me)!

Brian suggested waiting a bit till the rates come down, as possibly so will the price of property on the island. It was a funny conversation, as he was giving me the same advice I might give our clients wanting to invest in France!

The bottom line (for me) is if there is enough appreciation in the future to make the investment worthwhile, especially when considering the carrying costs (mortgage, taxes, utilities, etc.) and if rental revenue can be generated without too much risk. If the rental revenues cover the carrying costs, then we’d be “home free”—at least breaking even while ultimately building equity.

Visiting the properties was lots of fun!

One was a three-bedroom, two-bath house: “Poised in a prime location in Haiku, on the North Shore of Maui. This beautifully remodeled three-bedroom two bath home sits on almost an acre of peaceful paradise. Behind the private gate, mature landscape surrounds the perfectly laid out residence and two brand-new farm storage buildings. Sit back and take in the wonderful views from the spacious front porch while sipping on coconuts from your property. Enjoy the flowering trees and colorful low maintenance landscaping. The primary has a separate entrance, and the home provides a sizable carport. This property includes plans for a custom barn designed by renowned architect Linda Lange. The two-story barn will have stunning ocean views from the second-story balcony once built. Convenient location close to Haiku town, beautiful waterfalls, world-class surf and windsurfing at Ho’okipa beach. Enjoy the luxury of tranquility in the country while being only 20 minutes from Kahului airport and 10 minutes from Paia. This property supports the ideal Maui lifestyle with easy access to everything.”

Visit this site for more information and photos.

The second property we visited was a four-bedroom/3.5 bathroom house: “Welcome to your quintessential plantation-style home conveniently located in the heart of Makawao Town. Built in 1947 and completely remodeled in 2017, enjoy the old Hawaii-style charm with the updated conveniences of new appliances, new luxury vinyl plank flooring, blinds, and a freshly painted interior. This home offers a rare investment property opportunity to live in the main house and to rent out the attached studio. Three “lanai’s” (porches) with Trex decking provide private outdoor living space, and the zero maintenance Syn Lawn front yard is fenced-in and surrounded by a hibiscus privacy hedge. A covered carport and two separate driveways provide ample parking. An additional locked storage room and a separate laundry room are attached to the carport. 34 Ai Street is ideally located just moments from boutique shops, cafes, restaurants, art galleries, schools, and the Eddie Tam recreation fields in Makawao.

Visit this site for more information and photos.

Note: for more information about rental regulations in Maui, visit the Maui County website.

Regardless of whether you make an investment in U.S. real estate or French real estate, I still firmly believe it’s one of the best investments you can make. It’s real. You can touch and feel it. You can use and enjoy it. And you have more control over the value than the standard stockholders do. Our clients have certainly enjoyed their French home ownership, and I suspect that we’ll enjoy ours in Maui, too…should that be what we decide to do!

A bientôt,