What can be better than becoming a successful cash flow investor in the beautiful islands of Hawaii? It’s a dream, right? Having passive income roll in while you play golf in Lanikai or drink mai tais on the beach in Waikiki? It doesn’t have to be. Making the correct business choices in your rental properties and learning how to properly manage tenants can yield the results you seek.
Once you’ve chosen the perfect condo or house for your investment property, the hard part kicks in. Sure, it took you time to locate just the right place and you may have even had to fix it up a little, but now you’ve got to rent it out. Finding tenants, and good tenants at that, requires time interviewing the (hopefully) large pool of potential renters. Are you looking for students from UH, HPU or KCC for a group house in Manoa or Kaimuki? Or are you looking for an entire family for a house in Kalihi Valley? Or are you turning that Makaha beachside house into a vacation rental?
In order to be a successful cash flow investor in Hawaii, you need to make sure your monthly cash flow stays positive. This may sound like a simple enough concept, however executing it can be difficult. There may be times that the property is vacant, so it’s easy to end up temporarily upside down in the books while you’re paying a mortgage with no rental income. With our dependency on tourism, everyone here knows that the Hawaii housing market can change quickly as a response to other world events and market shifts. This is where the marketing of your Hawaii investment property and the decision of what you charge for rent become very important. You’re competing not just among renters but among other landlords for those same renters.
Deciding on the monthly rent amount is crucial. You’ve got to consider your mortgage payment on the property as well as what the average rent for similar nearby properties is in the current market. Don’t use Pearl City rents to figure out the rent on your Makiki condo. Making other decisions on what the rent will include will affect your potential renter pool. Will you include utilities? Lawn or property maintenance? These will all need to be factored in.
Another aspect of your success depends on the property management. Will you hire a property manager or will you be the landlord? Utilizing the services of a property manager is an added cost that needs to be factored in to guarantee your success. If you’re going to go this route, look around, ask for recommendations from fellow investors and be sure you know all that’s included in their fees. A good property manager should actually save you money (or its equivalent in time). Otherwise, if you’re going to be the landlord yourself, ensure you have the proper amount of time to dedicate. It might be more than you think.
Tenants can literally make or break you. Having a strong lease agreement is very important. You want to lay out the do’s and don’ts so that if they don’t abide by them, you have the right to evict them and that you’ve protected your money. There are plenty of Hawaii specific lease agreement templates on the web but you might also want to consult an attorney to draft one for you.
The agreement, which is a legally binding document, will outline the rent, the length of the agreement and any other terms the owner wants to include, such as what will happen in the event of non-payment, maintenance issues and how the property should be left at the end of the lease. There’s nothing worse than having a bad tenant leave your remodeled Mililani townhouse in poor condition as a new one is getting ready to move in.
Let’s talk about eviction. Eviction is a nasty process for all involved, so try to avoid the situation as best you can. The best way to do this? Spend extra time learning about your potential renters. Ask questions. What do they do for work? How stable is their employment? How long do they plan to stay in Hawaii? How liquid are they?
Even less intrusive questions such as what they do when they’re not working can tell you about their overall lifestyle. You should probably ask if they smoke and/or include such provisions in the lease. And of course, their overall demeanor will tell you a lot about what to expect from your landlord-tenant relationship. Nice people are just easier to have a relationship with, and this is a relationship. You can even order a credit check from a local Hawaii company or an online service such as e-renter.com.
Lastly, be sure to check out the Landlord – Tenant Information website of the Hawaii state government’s Department of Commerce & Consumer Affairs. There is some valuable information there, including the “Landlord Tenant Handbook” which you can download for free.
The idea of owning property in Hawaii and earning passive income from rentals sounds like a great idea, and it is, as long as you have the proper resources and plan in place. Having and maintaining a positive cash flow by properly calculating all of your costs, getting the right tenants and having a property management system are the keys to becoming successful. After that, there’s nothing left but those mai tais in Waikiki.