Owning a Condo in Kailua

You can buy a condo in Kailua right now for about $350-400k. That's a 2 bedroom condo of about 850sqft. I sold one in "Hokulani in Kailua" last month for $365k, which was a good deal for a 2bedroom condo within walking distance of Kailua town, and about half a mile to the beach.

Craigslist has some for rent in this complex for around $1800/month. So let's do the math...

(Pay attention!)

You buy it for $365k, and with 20% down your payment should be about $1750/month plus the maintenance fee which is $368/month right now. Taxes are about $100. Total payment is about $2218. Your 20% down was $73k.

Now your monthly negative appears to be about $468, plus some expenses for repairs and vacancies. So let's call it $600/month of negative cash flow. But wait!

You depreciate 80% of the cost basis over 27.5 years, which is what the IRS allows, and you get $1061 of depreciation a year. AND the negative cash flow is a deduction for most people, usually up to $12,500 per year per person. Double that if you're married.

So in this scenario you get a $8261 deduction at the end of the year, and if you're in the 35% tax bracket, you save $2478 in taxes. (This is all totally hypothetical. If you base your taxes or a purchase on this example, well you need a shrink more than a Realtor.)

So your $7200 negative cash flow is actually more like $4722/yr, or $393/month. BUT WAIT! The rent is going to go up at some point, probably about 5% per year forever!

What is the point?

For $393/month or less, you can invest in a condo in Hawaii and own it, in theory, forever. PLUS, you can deduct the cost of your trip out to Hawaii to buy it, maintain it, work on it, etc.

Now some day, I'm nearly sure that your condo is going to be worth double what you paid for it. Perhaps it will take 50 years to double, but all you've paid is $393/month. And also, you've paid down your mortgage every month, so at the end of 30 years, you own it free and clear.

If this was all too complicated for you, here is the bottom line. Investing in a condo in Oahu is actually a lot cheaper than you think, and will probably make you a millionaire someday. And even though it's negative cash flow now, it probably won't be for long.

Median price is not the way to measure the market. But I have the solution!

Nobody keeps this statistic, but in my opinion, the best way to measure the market is by keeping track of dollars per foot.

Dollars per square foot of house and per square foot of land. If we could go back and get the average dollars per foot of house and land in an area over the years, I'm sure we would have a better way to understand the direction of the market.

Right now the median price is $649,500, which is about the same as it was last year, but in some areas that money is buying you so much more house in the same areas, that it's impossible to understand how much the market has dropped without seeing the houses for that price. In other areas, that same price is buying you LESS than it was last year.

So is the market up or down? It's both! It's down in Ewa, Maili, Kapolei, and Mililani, while it's up in Hawaii Kai, Diamond Head, Aina Haina, and core Honolulu. And even that statement needs to be clarified further. It's only up if you have a really nice home that is ready to move in. The tear downs are down in price, but the really nice houses are up in price.

Bottom line - it's impossible for the median price of all of Oahu to tell us anything at all about the overall market! There is no overall market! There are pockets of markets in pockets of areas, with some rising, some falling.

May Hawaii home sales stats are out!

If you're reading this blog, you probably already know that the Honolulu Board of Realtors puts out the housing sales stats at the end of every month. The trick is understanding what the numbers actually mean.


The median price of homes on Oahu overall was $649,500 compared to $650k in the same month last year. Does that mean anything at all? Here's what it doesn't mean - it doesn't mean that the average price of homes fell $500. In fact, I would say overall that prices have fallen quite a bit more than that on the West side of Oahu and the North Shore, while price in Metro Honolulu and the East side of Oahu are up about 10%.


The median price just means that half the homes sold were above that price and half were below. So maybe people are spending about $650k as a median, but that $650k will buy you more this year on the West side than it would have last year. That same $650k will buy you less house on the East side that it would have last year.

The number of sales is actually more helpful to understand that market. 252 homes and 382 condos closed in May, most of which probably went under contract in February. Compare that to 357 homes and 543 condos last year, and you can see how much the market activity has fallen.


But to understand what price are doing, the most helpful things are the neighborhood sales numbers. In core Honolulu, the median price of homes sold was $849,500, compared to $764,600 last year, with the number of sales up 41% since last year.

The biggest drop in sales and prices is on the North Shore, where only 2 homes sold and both were very cheap. Last year in the same month, 13 homes sold for about $800k average. The North Shore is mostly driven by California buyers, who made up about 73% of the buyers in 2006. In 2007, the market in CA fell down a greased slide about 25% in price and 50% in number of sales, which explains why the North Shore market is absolutely dead right now. If you want to get a bargain in Oahu, buy a house on the North Shore.

Island wide, the average home that sold did so in 52 days, and the average condo sold in 41 days. These numbers are vastly lower than most other states, and indicate a pretty good market in Oahu overall. We've noticed lately that homes tend to sell in about 2-10 days, or about 4-6 months. If you price a home to sell, it will sell right away.


The inventory grew a little bit, to 2043 homes for sale and 2717 condos for sale. That's a lot of condos for sale, and most of them are in Leeward Oahu, meaning Ewa, Makakilo, Kapolei, Pearl City, etc. For some reason there are a ton of condos available in town too, even though the number of sales there are equally high.

My theory - people are moving from East and West Oahu into town, even though they can only afford a condo. That's why prices of Honolulu condos are strong and rising in many cases, while condos on the West and East are dropping. The only bad market seems to be the leasehold market, which makes sense because most of the leasehold properties are now reaching that point where they have less than 30 years of lease left.

Overall there are 8 months of inventory remaining, but if you look at houses only over $1million, then there are 17.5 months of homes on the market. So basically the million + market is much slower than the rest of the market. That's probably because over 1 million it's very difficult to get a loan these days, and also many of those are vacation homes.

So in summary - the market is slower but still very strong in the best areas. Prices are falling on the outskirts, while core Honolulu is strong.

If you want a good investment, buy something either in a great area of Honolulu, like Makiki, Manoa, or Nuuanu, or buy something in the most desirable upscale areas, like Hawaii Kai, Kailua, and Diamond Head.