Hawaii's population, growing and shrinking at the same time

Yesterday I took a helicopter over to Maui with a pilot friend of mine. The sky was as blue as it gets and there was hardly a breath of wind. It was the most beautiful thing to see Oahu, Molokai, and Maui from 2000ft in the air.

When you see the islands from the air, one of the first things to strike you will be the difference in populations. The Advertiser reported today that Oahu's population shrunk by about 1100 people last year, while the neighbor islands grew a lot, with the Big Island leading the way.

Hawaii County had 173,057 residents in 2007, up 2.1 percent from 2006, followed by Maui County with 141,783 residents, a one-year increase of 0.99 percent, and Kaua'i County with 62,828 residents, up 1.4 percent.

Since 2000, the Big Island of Hawii has grown 16.4 percent, while the number of Maui County residents increased 10.7 percent, and Kaua'i County 7.5 percent. The Big Island had 24,380 new residents since 2000!

As we drove around Maui, we could feel the effects of growth on the roads. And the problem with living on the neighbor islands is that they lack the infrastructure to grow much more.

Roads, hospitals, water, sewage, power, schools, they all have to grow to support the population. And when you drive around Kihei or Lahaina, you can tell they are maxed out. There just isn't enough of everything to go around, even though it looks like there is a lot of land.

So guess what - Oahu's shrinking population last year may actually be good! Even though there are 1100 less people, we already have plenty! And as baby boomers retire over the next 10-20 years, we'll see more people who want to live here in Hawaii anyway.

My prediction - about half the lower income people on this island won't be able to afford to stay here over the next 20 years. Many of them will move to Vegas with their relatives. I don't know why, but a lot of people from Hawaii love to move to Vegas!

In the end, we'll probably end up with a lot more wealthy people on Oahu. It's just the nature of the market - limited supply on Oahu, massive demand for a nice place to retire.

How to choose an area to live in

Where will you live in Hawaii? I've addressed this question before but from a different perspective than I will today. Because in my previous post I said I would buy a new house in Ewa, I thought I should ammend that with my thoughts on how I would actually spend $600k.

Usually I talk about the various areas and what they have to offer. What are the amenities? How far is the beach and work? How are the schools? How is traffic?

But if you're new to Hawaii, or to any place at all, let me suggest that these are not the right questions to ask. There are 2 important rules in real estate, both coined by others many years ago.

Rule#1
1) The 3 most important things in real estate are, location, location, location.
Rule #2
2) You don't want to own a mansion in the ghetto. You want the smallest house in the nicest neighborhood you can afford.

Keeping these two rules in mind will keep you out of a lot of financial trouble in real estate. What most people do is figure out what price range they can afford, and the find the biggest nicest house they can for that price, in whatever area they can. This is a strategy doomed for failure most of the time.

Let's say you have $600k to spend on a house in Oahu. That price will allow you to get a lot of different types of things in Oahu. Here are a few examples of what that price gets you:

a) a massive new house in Waianae, up near Makaha.
b) an 1800ft new house in Ewa.
c) a smaller but still newish house in Mililani.
c) older and smaller house in Pearl City or Aiea.
d) 3 bedroom 1000ft condo in town.
e) a newer 1500 ft townhouse in Hawaii Kai.
f) an old run down house in Kailua, Diamond Head, or Hawaii Kai.
g) the most run down junk house you can imagine in downtown.
h) a slightly less run down junk house you can imagine on the North Shore.

You get my point. Which one should you buy? My answer comes in a few tips. Yet another list in a post full of lists.

1) ask someone who lives here and has lived here long enough to know which option is best. Most people will probably tell you to go to East Oahu unless you have such a massive family that you can't, or you have to commute to Aiea for work.
2) Don't try to get absolutely as much house as you can. Live in the best area that you can live in while still getting a house that minimally fits you. I don't care you if you have $2million, this principle still applies.
3) Don't ever live in an area that you don't feel is "a good area." If anyone ever tells you that it's not a great area, avoid it like the plague! You will have trouble selling the property, and it will appreciate less! A small condo in the best area will appreciate better than a huge house in a bad area, even if they cost the same amount when you bought them!

Buying a house is not like buying a car. You don't just want the best deal. You want the best long term investment.

Key concept - if you look around and feel like the properties around your house are run down while yours is shiny and looks great, you're in the wrong neighborhood. Buying a home with long term potential is going to make you money, while buying a great house in a so-so neighborhood is going to cost you money.

So if I really wanted a brand new house, and this had more value to me than living in the best area, then yes I would buy the house in Ewa. Especially if my family would benefit more than something else I chose.

In this example, with $600k to spend, if your family can handle it, you probably want the old house in Kailua or a new townhouse in Hawaii Kai. Or if you are handy, then buy the most run down piece of junk you can find in Diamond Head. They will be the best investments.

Long term you'll make more money in East Oahu, but short term you'll enjoy your house more in West Oahu.