Can you feel it? Investors are returning to Hawaii and buying properties in force. In the last couple of weeks the phone calls have been coming in almost daily by investors looking for a place to park their money. Condotels such as Ala Moana are regaining their luster.
What's Turning the Tide with Hawaii Condotels?
Our economy - at least here in Hawaii, is on the mend. Hawaii's economic engine - tourism, is picking up. Today's issue of the Honolulu Star Advertiser proclaims Tourism Carrying Isles.
Room occupancy is increasing, which leads to higher room rates. Higher room rates lead to more revenue for owners of condotel units. This is a welcome sign as Hawaii's tourism market has been down since 2008.
What's a Condotel, Anyways?
If you're not familiar with the term, condotel refers to a hotel which has been converted to condominiums. There are several prominent condotels on Oahu. Ala Moana Hotel is probably the most well known, because of its long history and its great reputation. Ala Moana Hotel gets great reviews on websites such as TripAdvisor.
Condotel Return on Investment
Return on investment from operating income is not all that great at Ala Moana Hotel. Monthly income after hotel expense deductions is about enough to cover the maintenance fees, property taxes and put some money in an investor's pocket. How much? That varies with the season, views and room rates. I've seen statements where owners receive $100 - $500 per month after expenses.
Let's just say (for the sake of argument) that a given unit selling now for $100,000 pays out $250 per month average after expenses. That's $3,000 per year net, about 3% return on investment. That beats interest rates a lot of banks are paying. Taking a look online today, First Hawaiian Bank and Central Pacific Bank offer 1.75% on a 60 month CD. Bank of Hawaii seemingly doesn't want to publish their rates, call or visit a branch for more info.
Maybe 3% ROI isn't so bad? On top of that, condotel prices are rebounding. Most of the low priced listings (less than $90,000) are getting snapped up. Considering that many of the Ala Moana Hotel listings are at about half the price they were five years ago, they may continue to appreciate. Money in the bank will earn 1.75% on a five year CD. Where do you think Ala Moana Hotel prices will be five years from now?
Financing for Condotels
Financing is pretty much non-existent. Lenders generally are only interested in financing residential properties with full sized appliances (refrigerator and stove). Condotels such as Ala Moana have mini fridges and microwaves, sometimes with hot plates. Condotels are basically for cash buyers.
Condotel Short Sales
The lowest priced condotel listings are usually short sales. When we make an offer on a short sale listing, keep in mind that the seller's mortgagor (bank) must give approval in writing before the deal can close. This often takes months and because of the attractive pricing, sellers will often receive multiple offers. The seller's bank will normally take the highest cash offer. Sometimes the bank will reject all offers and tell the seller's agent to go back to each buyer's agent with a minimum price.
For buyers wanting to close a deal quickly, short sales are not the best way to go. However, they may offer the lowest prices.
For buyers ready and willing to move quickly, making a fast offer on a non-short sale listing might result in the best deal. This may mean making an offer on a unit sight-unseen. Keep in mind that, once the offer is accepted we can take a look at the unit during the home inspection period and cancel the transaction if the property is unacceptable.
Buying a Condotel with Cash
Cash buyers - sellers usually want to know the cash is actually available. This may require a copy of a recent bank statement. Your account number can be covered up to protect your privacy.
One buyer I worked with felt providing statements was a hassle, so they just put all their money into escrow within the first week after acceptance. They were still protected by the contingencies in the purchase contract so that if they felt a need to cancel, they could do so and receive a full refund. Fortunately, they liked the property and closed the deal.
If you are ready to invest in a condotel or other Hawaii real estate, feel free to call Mike Bates at (808) 548-1220. Or visit our Ala Moana Hotel page and fill out the contact form.
Aloha, Mike Bates
Coldwell Banker Pacific Propeties