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.
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:
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.
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!
Randy L. Prothero, REALTOR®
Broker-in-Charge, ABR, AHWD, CRB, CRS, e-PRO, GRI, MRP, SFR
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.