ROI on Puna Rental Property

[jimmysmith]

Aloha,

I have an acre of vacant land in Puna (HI Paradise Park) that is just sitting there, generating no money. I can't sell it because it is worth far less than I paid.

To my question...I have been thinking about building a standard 3/2 package home on it, for use as a rental property. I do wonder about the return on investment, however. For comparative purposes, I can buy a property in Las Vegas for $125,000 that will generate maybe $1000 in rent. I'm not sure if I could get that kind of return in Puna.

I am also wondering about how easy it is to get a good renter in Puna. It seems like incomes are low and drug use is high. Most good people with good incomes could buy at current depressed prices. They don't need to rent from me.

I guess I am asking for opinions from anyone, but particularly those who have rental propoerty or are in the real estate business.

I should add that I would need to pay someone to manage the place, which might take a good 10 percent off the top.

[Rob Tucker]

It is my opinion that a 3/2 is about the last thing that needs to be built in Puna. During the boom tons of 3/2s were built and many till sitting around empty. Puna has need of smaller homes for young couples, singles and elderly.

Others might have a different opinion.

Welcome to Punaweb.

[jimmysmith]

Thanks, Mr. Tucker. That's a good point. The 3/2 notion is very mainland thinking. Perhaps a house with two masters suites would make more sense.

Does anyone have an idea how to estimate (roughly) the cost of construction? I am guessing that labor costs are low right now, but material costs are probably higher than in the recent past.

[terracore]

I didn't see if you meant vacation rental or regular rental, but either way you could go to craigslist and vrbo.com to see what the market is bearing. From what I've seen there are so many vacant rentals available the only way you are going to compete is to ask so little that you'll attract the worst tenants. I did recently read an article that the rental costs on the big island are continuing to fall- something that is unheard of in most other markets. Could you imagine getting your landlord to lower your monthly rent because its no longer comparable with the market?

[JerryCarr]

You would be ill advised to build a 3/2 package home for rental use. The market is saturated, and during my tenure as chairman of the HPP Neighborhood Watch, I heard a constant stream of complaints about horrible renters, vandalized vacant properties, squatters, and evictions that took six months only to leave the owner with a ruined property. Don't do it.

[terracore]

quote:

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Originally posted by jimmysmith

Thanks, Mr. Tucker. That's a good point. The 3/2 notion is very mainland thinking. Perhaps a house with two masters suites would make more sense.

Does anyone have an idea how to estimate (roughly) the cost of construction? I am guessing that labor costs are low right now, but material costs are probably higher than in the recent past.

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Instead of the 3/2 concept, think of a building concept based on outdoor living. Large covered lanais instead of big living/dining rooms, covered carport instead of indoor garage, etc. When I build my puna palace, its basically going to be a small as I can legally get away with, and everything else being outdoors... and mostly covered of course.

And because its a rental, avoid materials that need a lot of maintenace, carpeting, etc.

[jimmysmith]

This is starting to sound like a bad idea. I already checked rentals and a new 3/2 would probably bring in $1200 at the most. I'm guessing I would have to put in about $200,000 to build a 3/2. I could buy TWO houses in Henderson, NV for that price, each bringing in maybe $1000/month.

I would be eager to hear futher opinions from anyone who has not weighted in.

Terracore: I am thinking about a regular rental. I'd want stable income.

[KeaauRich]

"Stable" and "Puna" are not words that are often used in the same sentence...

From my experience with vacation rentals and anecdotal info about long term rentals, I'd be wary of doing either from off island (and would recommend thinking long and hard before doing it on island, for that matter).

[bystander]

You could do a "rent to own" scam like I've seen done here many times before. Get some poor sap to pay you monthly to live on the land in hopes to one day own it. They will try it for a while but will soon realize what a raw deal their getting and move out. Then you find the next poor sap.

I'm just joking of course but this is actually common here.

[Kelena]

Rents are astonishingly low and vacation rentals are not getting what they once were either I am sorry to say. I can't say I think of Puna as an investment opportunity, although every situation is different and some have shown that it can be. The way I like to put it is that the real estate tsunami swept across Oahu, Maui, Kauai and then to the Big Island, finally hitting Puna and even Ka'u. Now here we are.

But in a similar situation I might be tempted to either ride it out, or jump from the horse.

If you do jump from the horse, try and catch the stage coach. If you catch the stage coach, you must slug every person on it (hit Black Bart first), toss them from the stage and grab the reins from the horse before the coach goes over the cliff. After you've done that, bring the horses down to a trot. That takes some time as they will be a little worked up and you will be too. Don't forget about you! Make sure you are not frothing at the mouth! Then, pull over, wipe the horses off, grab the prettiest one, take him or her into the river for a bath for both of you (just go in with your clothes on, swing down into the river, baptize yourself and then swing back up), turn the other horses loose (they will follow yours), and then ride calmly into town after your clothes have dried off as if nothing had happened.

Then walk into the saloon.