Real Estate Investors Love Honolulu Differently

By
Managing Real Estate Broker with eXp Realty RB-19250

Real estate investors make their money in Honolulu differently than someone in the Midwest.  

    

In most parts of the country, investors have one thing on their mind, CASH FLOW.  Will the property rent for more money than the carrying costs.  The amount of positive cash it has, determines the desirability.  A savvy investor in Indiana would rarely consider a property that had a negative cash flow or break even for that matter.  A successful investor in that part of the country keeps adding properties to their portfolio to increase their monthly positive cash flow.  

     

Climbing Values

On the island of Oahu (Honolulu County), investors put on a different pair of glasses.  They buy real estate with the expectation that property will see large increases in value over time.  Purchases are regularly based on the buyer’s ability to break even or if they can afford to make up the negative cash flow.  Many times the breakeven point is hit by putting a larger down payment or taking higher risk loans, like ARMS and negative amortized mortgages and calculating in the tax breaks.  An investor from the Midwest would question the sanity of this.  If you only read what I wrote so far you might also question if I know what I am talking about.  Before you hit the delete button, let me explain why so many investors flock to Hawaii and put on those glasses.

    

Here are some statistics that investors look at when picking Oahu to purchase real estate:

    

Oahu Sales Chart    

The median price in June of 2014 for Single family homes was $700,000 compared to $158,600 in 1985.  Back in 1985, people were proclaiming that prices could never get much higher, because no one would be able to afford them.  There are people still making those same claims today, yet prices still keep climbing and people still keep buying and selling them.

   

I sold a property last year for a client that is a great example of this strategy.  The seller had the vision to buy that great piece of property back in the late 1970s for $62,500.  We sold that property in 2013 for over $1.15 Million in one day.  The sale of that home alone made him a Millionaire.  When he bought that property back in the 1970s, the mortgage payment was a strain for him, but he knew that property would be his retirement one day.  After buying that property, he bought a few others that did just as well.  Not bad for a public school teacher.  Those investments provided him a fair bit more than his government retirement plan.

   Homes Sold

Well know Hawaii economist Paul Brewbaker predicted , in a Pacific Business News interview in August 2014, that the timetable for hitting the $1 Million median price mark on Oahu; would be sometime between 2018 to 2022.  Now none of us have a crystal ball and predictions are based on conditions staying somewhat constant. 

    

As they say in the investment field, past performance is no guarantee of future returns.  It is however the strongest indicator we have and what most investors are looking at.  That point of this article is not to give you my prediction.  It was to explain what investors are looking at when they decide to purchase on Oahu.

     

If you wish to get more detailed data, I can be contacted anytime.  Good luck and Happy House Hunting!

 

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Posted by

 

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Randy L. Prothero, REALTOR®

Broker-in-Charge, ABR, AHWD, CRB, CRS, e-PRO, GRI, MRP, SFR

eXp Realty

Team Leader - "The Prothero Group"

Randy Prothero is well established as an expert in working with military / VA clients and first time home buyers.  His home seller's (listing) campaign is one of the most aggressive marketing programs in the area.  His luxury home listings sell faster and for more money.

Based out of Mililani, Hawaii. Randy services the island of Oahu (Honolulu County) Performs mediations and ombudsman services for the Board of Realtors.  To improve overall professionalism in his area Randy also offers classes for real estate agents. 

www.HawaiiRandy.comOahu (Honolulu County) Property Search  Hawaii Military Relocations

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Re-Blogged 1 time:

Re-Blogged By Re-Blogged At
  1. Beau Mueller 08/26/2015 04:26 PM
Topic:
Real Estate Market Trends
Location:
Hawaii Honolulu County
Groups:
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Hawaii Real Estate Professionals
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Market Updates
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Tags:
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Rainmaker
375,241
Julie A. Black
KAUAI DREAMS REALTY Kauai Real Property Specialist - Kapaa, HI
CLHMS, CRS, GRI, Realtor, Broker

Hi Randy: The same thing holds true for property on Kauai. I tell investors that our properties don't cash flow with minimum down. That our value is in appreciation. Some just don't get it. Why should they buy here then? Well some people like coming to Kauai to reapir & maintain their investment. You either want paradise or you dont.

Aug 26, 2014 06:50 AM #1
Rainmaker
2,531,058
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

This is a very well laid out explanation of investing in Hawaii

Aug 26, 2014 07:59 AM #2
Rainmaker
1,408,404
Jeff Jensen
The Federal Savings Bank/Lending in 50 states - Greenwich, CT

There is no question that you have a truly unique market.

Aug 26, 2014 08:21 AM #3
Rainmaker
760,647
Olga Simoncelli
Veritas Prime, LLC dba Veritas Prime Real Estate - New Fairfield, CT
CONSULTANT, Real Estate Services & Risk Management

An island is so finite, that is its real estate's greatest asset. Not to mention the fact that Oahu is truly a piece of very desirable paradise that has been [over]discovered.

Aug 26, 2014 09:48 AM #4
Rainmaker
760,152
Pete Xavier
Investments to Luxury - Pacific Palisades, CA
Outstanding Agent Referrals-Nationwide

About the same type of investing that happens here in Orange County along with some fix and flip opportunities.

Aug 26, 2014 11:49 AM #5
Rainmaker
1,317,701
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services

I had no idea how buyers looked at investment properties in Hawaii.  This post is very informative.

Aug 26, 2014 12:20 PM #6
Rainmaker
660,460
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

Julie - Some of them also want to write off their trips to Hawaii.

Richie - Thank you!

Jeff - Also my favorite place to live.

 

Aug 26, 2014 03:35 PM #7
Rainmaker
660,460
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

Olga - So true we are not adding any more land to Oahu.

Pete-X - The biggest differences are the price swings.  We tend to not drop as much in the buyers markets.

Joan - Thank you!

Aug 26, 2014 03:37 PM #8
Ambassador
4,304,722
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Randy, wow - up by almost 300% since 1985! That means 4 times in less than 30 years! That's the land of investment!

Aug 26, 2014 03:43 PM #9
Rainmaker
660,460
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

Praful - If you put 20% down, that comes out to a staggering number.

Aug 26, 2014 04:10 PM #10
Ambassador
1,701,611
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

Investors do make decisions on cash flow and/or appreciation. A lot of bad decisions were made before the meltdown on betting on appreciation and using negative ams which still gave them negative cash flow then the market crashed. Looks like your market didn't work that way but there is another factor, risk. When investing on either parameter, the investor has to decide how much risk is acceptable. Cash flow oriented markets like mine are lower risk but we do no have double digit appreciations either. Always interesting to me to find out about markets like yours. 

Aug 26, 2014 10:02 PM #11
Rainmaker
4,432,589
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Anyone looking to buy or sell a home in your area should call you to be their agent.

Aug 26, 2014 10:24 PM #12
Ambassador
1,091,578
Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE

Bottom line...we only have so much buildable land...obviously, we are a small island. Like you said...we aren't planning to add more land to our island (unless by some miracle an underground volcano is hiding under us)  Great article Randy!

Aug 27, 2014 02:04 AM #13
Rainmaker
660,460
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

Joe - You make my point.  In your market investors wear a different pair of glasses.  Risk is something many real estate investors do not even consider and thus the reason so many got crushed in the last cycle.

Gita - Thank you!

Sally - Absolutely.  We have a housing shortage and probably always will.

Aug 27, 2014 02:41 AM #14
Rainmaker
678,055
Tanya Van Blake-Coleman
Van Blake-Coleman Realty, St. Thomas/www.talk-to-Tanya.com - St Thomas, VI
Improving the Quality of Your Life

I think is has something to do with Islands,  The U.S. Virgin Islands is similar. You won't make a killing over night but it will be a good investment if you have the stamina to maintain the property over time. 

Just don't get in over your head and get in it for the long haul!

 

I love your post. thanks!

Aug 27, 2014 10:18 PM #15
Rainmaker
660,460
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

Tanya - Great advice.   Never get in over your head.

Aug 28, 2014 01:13 AM #16
Ambassador
2,171,379
MichelleCherie Carr Crowe Just Call...408-252-8900
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

You are right, wise investors in high-priced areas such as Honolulu and Silicon Valley, are expecting appreciation rather than positive cash flow.

Aug 29, 2014 03:31 PM #17
Rainmaker
660,460
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

Michelle - In many of those areas, cash flow has a hard time keeping up with the increasing values.

Aug 29, 2014 04:12 PM #18
Rainer
508,920
S. Leanne Paynter ☼ Broward County, FL
United Realty Group, Inc. - Davie, FL
Davie, Plantation, Cooper City & Weston Specialist

I imagine the amount paid in property taxes and whether the owner has to pay a monthly/quarterly condo or HOA fee makes a difference in their ROI as each takes a bite out of that average annual increase in value.  If they decide to allow short-term rentals, that probably makes it an even better investment.

Aug 20, 2015 04:43 AM #19
Rainmaker
660,460
Randy Prothero
eXp Realty - Mililani, HI
Hawaii REALTOR, (808) 384-5645

Fortunately our property taxes are lower here than most places.  Maintenance fees have a bigger impact. 

Aug 20, 2015 02:45 PM #20
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Rainmaker
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Randy Prothero

Hawaii REALTOR, (808) 384-5645
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