Equity Matters: CONDO-MANIA & Short-Term Rentals
Free PRMG Seminar April 21st, 2023
In response to your overwhelming requests, PRMG is proud to announce our upcoming educational seminar, “Condo- Mania – Short-Term Rentals†open to the Community on Friday, April 21st at 11am-1pm in downtown Honolulu. Sponsored by Fidelity National Title & Escrow of Hawaii Inc., we will explore hot topics surrounding Short-Term Rental condominium purchases in Hawaii, and will provide for a question-and-answer forum!
The cost of living in Hawaii continues to rise as Inflation continues to spike, and every person winces in disbelief when they see the final total on the receipt at the supermarket.
In the 1st Quarter of 2023, we have seen 2 Federal Open Market Committee (FOMC) meetings, the Federal Reserve policy making meetings. In both meetings, the Fed increased interest rates by 0.25% and have pledged to make more increases throughout the year. The rising cost of living due to Inflation and the increase in interest rates by the Federal Reserve continue to negatively affect the Affordability Index. Higher cost of living and interest rates mean higher payments for Homebuyers trying to embark on their home purchase journeys. Sellers are forced to reduce their home prices to help Buyers to qualify for the higher costs.
On Oahu, the median home price for single-family residences for February 2023 fell 12.3% to $987,000 and the condominium median home price dropped 3.4% to $480,000. Even with interest rates rising, this continues to deliver the perfect climate for purchasing a real estate investment or an owner-occupied home in Hawaii. It truly is a Buyer’s Market as the Sellers are having to wheel and deal to keep Buyers interested in their property with the increased inventory.
In reaction to this, we have seen the surge in out of state investors as well. And since Covid, most of them are interested in one particular type of property: a property, generally a condo, that they can use as a short-term rental, as well as vacation home.
So the Paramount question is…
What is a short-term rental and what type of financing is available to facilitate their purchase?
What is a Short-Term Rental (STR)?
According to www.Honolulu. gov, short-term rentals (STRs) are lodgings that provide guest accommodation for less than 30 consecutive days. They can also be referred to as vacation rentals. In order to preserve housing for long-term residents, STRs are only permitted in resort-zoned areas and a couple of specific apartment-zoned areas. STRs are imposed by the Land Use Ordinance, as amended by Ordinance 22-7, which includes maps of the apartment-zoned areas where STRs are permitted.
There are two types of STR:
• Bed and breakfast homes (B&Bs) – The homeowner or permanent resident is present during the transient stay. Up to two rooms per home may be rented at any given time, with a maximum of two adult transient occupants per room.
• Transient vacation units (TVUs) – Commonly known as whole home or unhosted rentals. A maximum of two adult transient occupants are allowed per room.
There are “Grandfathered†STRs that have been in operation since prior to October 22, 1986, and were issued a nonconforming use certificate (NUC). Owners must renew their NUC every year to continue operating. New NUCs are not currently being issued.
How does Operating a Short- Term Rental Affect Financing? Most STRs are located in Waikiki and are usually located inside a hotel- like condominium building, functioning as part condo and part hotel – thus the coined title “Condotelâ€. All Condotels are not alike.
Each specific building may have its own house rules and regulations in addition to those set by the City & County of Honolulu.
Because of the legislation and complexity surrounding STRs and their usage, they are not eligible for traditional financing. Fannie Mae / Freddie Mac conventional programs, along with FHA, VA and USDA, will not lend on these properties. Thus, only highly specialized portfolio lending products can be used to acquire these units and most Lenders will not lend at all on these projects. You can expect down payment requirements to be 25% – 50%, depending on the particulars of the unit and the interest rates can be higher than current market rates. It is imperative that you work with an expert such as Paramount Residential Mortgage Group, Inc. (PRMG) in Condotel and STR financing to ensure your success.
Further, there can be other elements to the STR property that can affect the eligibility for financing. Some considerations are:
1. Size – Units below 500 sq ft can be deemed less desirable for mortgage lenders in some cases
2. Kitchen – Whether the property has a full kitchen with full sized appliances (like a traditional home kitchen) or if it is simply a lodging unit with a small refrigerator like you might find in a hotel room
3. Leasehold Vs Fee Simple – Most leasehold condotels are not eligible for financing and must be purchased in cash due to their short lease terms
Come join me Friday, April 21st and let’s explore short term rental investment and financing together!
Email me or our Registrar directly at GSlabiak@prmg.net to reserve your seat today – it’s free!
The key to navigating the changing mortgage climate is to be sure to align yourself with a knowledgeable mortgage expert that can lead you to financial success. At PRMG, our motto for 2023 is ‘No Homeowner Left Behind’ because we pride ourselves in offering traditional as well as creative financing options for those who may find themselves “outside the boxâ€.
We have a dedicated team of Mortgage Experts to help you and we offer free consultations! Visit https://oahu494.prmgapp. com/HonoluluTeam.html today to book your appt with one of our Specialists!
Questions for Judy Meredith? “The Mortgage Professorâ€
Email me: I welcome the opportunity to help You find solutions!
jmeredith@prmg.net
Judy Meredith
“The Mortgage Professorâ€
PRMG Hawaii Area Manager
Direct: (808) 222-7903
NMLS ID: 716323
