Hawaii Randy's Real Estate Opinions: Real Estate Investors Love Honolulu Differently

Real Estate Investors Love Honolulu Differently

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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Randy L. Prothero, REALTOR®

Principal Broker, ABR, AHWD, CRS, e-PRO, GRI, MRP, SFR

Island Style Realty Inc.

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.

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

Comment balloon 20 commentsRandy Prothero • August 26 2014 05:40AM

Comments

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.

Posted by Julie A. Black, CLHMS, CRS, GRI, Realtor, Broker (KAUAI DREAMS REALTY Kauai Real Property Specialist) almost 3 years ago

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

Posted by Richie Alan Naggar, agent & author (people first...then business Ran Right Realty ) almost 3 years ago

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

Posted by Jeff Jensen (The Federal Savings Bank/Lending in 50 states) almost 3 years ago

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.

Posted by Olga Simoncelli, Broker-Owner, RE Consultant, Licensed in CT & NY (Veritas Prime, LLC) almost 3 years ago

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

Posted by Pete Xavier with X Group Real Estate Advocates, Outstanding Agent Referrals-Nationwide (Investments to Luxury) almost 3 years ago

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

Posted by Joan Whitebook, Consumer Focused Real Estate Services (BHG The Masiello Group) almost 3 years ago

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

Richie - Thank you!

Jeff - Also my favorite place to live.

 

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 3 years ago

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!

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 3 years ago

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

Posted by Praful Thakkar, Andover, MA: Andover Luxury Homes For Sale (eXp Realty) almost 3 years ago

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

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 3 years ago

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. 

Posted by Joe Pryor, REALTOR® - Oklahoma Investment Properties (The Virtual Real Estate Team) almost 3 years ago

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

Posted by Gita Bantwal, REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel (RE/MAX Centre Realtors) almost 3 years ago

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!

Posted by Celeste "SALLY" Cheeseman, (RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE (Century 21 Liberty Homes) almost 3 years ago

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.

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 3 years ago

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!

Posted by Tanya Van Blake-Coleman, Improving the Quality of Your Life (Van Blake-Coleman Realty, St. Thomas/www.talk-to-Tanya.com) almost 3 years ago

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

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 3 years ago

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

Posted by Michelle Carr-Crowe-Top 1% Diamond Certified Real Estate Team Sells Cupertino San Jose Homes-Just Call 408-252-8900, Family Helping Families Buy & Sell Homes 40+ Years (Get Results Team...Just Call (408) 252-8900!) almost 3 years ago

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

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 3 years ago

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.

Posted by S. Leanne Paynter ☼ Broward County, FL, Davie, Plantation, Cooper City & Weston Specialist (United Realty Group, Inc.) about 2 years ago

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

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) almost 2 years ago

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