Do you dream of watching the sunset from a beautiful beach? Can you picture yourself hopping on a surfboard during your lunch break? What about being able to earn income while at the same time securing your own piece of tropical paradise?
If this sounds like you, buying a rental property in Hawaii might be your next big decision. Owning a rental property in the Aloha state is a dream, but you’ll need a few tips to ensure your first purchase goes as smoothly as possible.
#1 Find Your Island
Hawaii consists of eight islands, each with their own unique allure. One of the first things you’ll need to decide as you embark on this exciting journey is which island you’re going to conduct your primary search on. If more than one island appeals to you, that’s great, too. It never hurts to explore all your options.
Here’s a list of all your island possibilities:
- Hawaii (The Big Island) – The Big Island is about the size of Connecticut, so it’s not actually all that big. However, the island boasts coffee plantations, premier surf spots, and Volcanoes National Park, meaning there’s something for everyone.
- Maui – From its beaches, to its volcano, to its rainforests, Maui attracts tourists and locals alike.
- Oahu – Home to Honolulu, the state capital, Oahu is home to Hawaii’s largest population.
- Kaho’olawe – The smallest of the eight islands, Khao’olawe has its own unique charm.
- Molokai – As Hawaii’s least populated island, Molokai is perfect for those looking to explore its natural wonders like its sea cliffs and barrier reef.
- Kauai – Often called the “Garden Isle”, Kauai is largely covered by dense, tropical rainforests. This lush piece of land is popular for those looking to get off the beaten path.
- Niihau – Called the “Forbidden Island”, Niihau is privately owned by approximately 170 residents. Though it’s unlikely you’ll be able to purchase your first rental home here, it can’t hurt to dream!
- Lanai – Lanai is a tiny, rural island that’s accessible via a short ferry ride from its island neighbor, Maui.
#2 Find Your Mortgage
Finding your mortgage might not be as fun as picking your island, but it’s one of the most important steps in the purchasing process.
Down payments in Hawaii are notoriously high, which can be stressful for many potential property buyers. However, there are a few options other than traditional fixed-rate mortgages that can help you budget for a rental property, regardless of if it’s a HI luxury condo, or a quaint beach bungalow.
- FHA Loans: FHA (Federal Housing Administration) loans can act as a logical ‘starter kit’ mortgage for first time buyers. These loans are desirable due to their down payment options, which can be a little as 3.5%. However, if you don’t plan to occupy at least one of the units you purchase, this kind of loan won’t be an option.
- VA Loans: VA (Veteran Affairs) loans are available to both former and current US service members. Many service members choose to take out VA loans in Hawaii because mortgages are available with zero down payment.
- Local HI Lenders: Though your first instinct might be to go through a national mortgage provider, smaller loan providers can actually be a good option to consider when purchasing rental property in Hawaii. Local lenders have a better grasp on the immediate market, and since Hawaii is home to a bustling rental scene, they understand how to help you plan and finance your purchase.
#3 Adopt an Investor’s Mindset
Purchasing a rental home is fundamentally different than purchasing property you plan to live in full-time. Though your rental property might provide you with some quality vacation time, it ultimately needs to make you money.
Whether you hope to earn a profit, or just want to break even on expenses, beware of these common mistakes many people make when they break into the rental market:
- Underestimating long-term expenses
- Making decisions based on expected appreciation rather than cash flow
- Being too emotionally attached to potential properties
- Not anticipating ebbs in the rental market
Additionally, should you plan to renovate your property, be sure you’ve budgeted appropriately.
#4 Fill Vacancies Wisely
Owning a rental property means not only having to take on the responsibility of home ownership, but it also means you’re going to have to find renters to occupy your space when you aren’t there. Luckily, there a variety of ways to find renters, like:
- Hiring a property management company
- Renting to trusted family and friends
- Utilizing popular rental sites such as AirBnb or Zillow
- Posting an old-fashioned ad in the newspaper, local bulletins, or Craigslist
Your Next Stop: Island Life
With these simple tips and tricks, you’ll be one step closer to saying Aloha to your Hawaiian rental property. Purchasing a rental property is much more complicated and involved than an ordinary real estate investment.
But with proper planning, diligent research, and commitment to the cause, you’ll be on your way to becoming a tropical landlord.
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