I have always believed that real estate is the most powerful investment in the world, and in Hawaii, because you can make money in several ways just by owning it. While it's not a get rich quick scheme, it's possible to make money slowly through real estate, and over the long haul, to make millions of dollars. It's not easy, but it's not rocket science either, and for anyone with a little risk tolerance and a little money, Hawaii Real Estate is a great investment.
Property in Hawaii is unique in many ways. We have ocean views from all over the island, even as far inland as Mililani. In fact many homes in Mililani have a better view of the ocean than a lot of homes in Kailua or Hawaii Kai. On the other hand, we have a lot of old run down homes, and that may be exactly what you want! What?
That's right, you have to picky, but not in the way you think. You have to pick the home that will make the most financial sense, and sometimes that is a complete fixer upper. Sometimes it's a home in perfect condition with everything ready to move in. You have to be picky in that you have to choose the house that makes the most sense for your particular financial and personal goals.
If you're just trying to make money on the rent, you're going to have to find a house in an area with high rents, a property that you can rent quickly that doesn't need a lot of attention. If you're trying to make money over the long term, you may find that a fixer upper in a good location is better. If you buy a million dollar property in Kailua, you better be willing to lose money each month, and hope to make money when you sell it one day. That's because you're not going to get enough rents to cover the $1million mortgage that it will take to buy the place.
When investing in real estate in Hawaii, you have to do the math and take your heart out of it. Now this is totally different when you're buying a home to live in, but we're talking investment property here. .
Spend as much as you can
What? Yes that's right, spend as much as you possibly can. Why? because the same 20% percentage gain on cheap property of $300k will gain you $60k, while 20% on a million dollar home in Kahala will get you $200k. And in Hawaii real estate, percentage gains seem to be consistent overall. If the market goes up 20% in Hawaii Kai, it's probably going to go up 20% in Kaneohe and Nuuanu.
If you can handle the mortgage, spend as much as you possibly can, even taking a monthly loss, so that you can make as much as you can on the property when you go to sell it. Will your little condo in Aiea be worth $1million some day? Who knows, but you want your money to work as hard as you can.
Money maker - Positive Cash Flow
In the rare event that you can buy a property and get enough rent to actually make money every month, well just be thankful. While rents in Hawaii are some of the highest in the nation, so are home prices. A home that might go for $250k on the mainland could be as much as a million dollars in Oahu.
You want to focus your Oahu home search on properties that will provide you maximum rent for your purchase price. This probably means something in the middle of the road, a small single family home where rents are high, like East Oahu. Rents in Hawaii Kai and Kailua are well over $3000 for a nice single family home, while condos and townhouses get much less.
When calculating your cash flow, remember to include the cost of maintenance, repairs, any management company you need, and of course, vacancies. Every time somebody moves out of your property, you're likely to have nearly a month or more of vacancy, which will cost you a few thousands bucks. So you want to buy a house in an area that rents quickly, not some remote place in the country. This means a suburb or something near town, or a busy area like Waikiki (which means condo probably).
Money Saver - Lower Your Taxes
Besides just making money every month, an investment property in Hawaii can also lower your taxes. Just about every expense related to owning the property will be deductible, including your trip to come out and find the place! You may have a plane ticket and travel expenses that are write offs if you're coming to do business.
When you buy your Hawaii investment, the financing costs, such as the closing costs and point are all deductible. Don't forget to keep track of all the expenses and keep good records and receipts. If you have to advertise the property or pay a company for the management, that's all deductible.
Even the mortgage interest could be deductible with certain limitations. You should always consult a CPA before buying rental property, and go over all the tax implications first. Remember, buying am investment property in Hawaii has to be all math, just like it would be if the home was on the mainland.
Keep track of your Hawaii real estate taxes, the home owner's insurance if you pay it, any maintenance or repairs, and every dollar you ever spend on the house. It's probably deductible!
Depreciation is a key tax tool that many people don't understand. The government lets you depreciate the building on the property, because the building itself will one day have to be rebuilt. Especially in Hawaii, the buildings just wear out, so don't expect that house to be sitting there for 100 years. That's very unlikely.
Money multiplier - The power of Financial Leverage
When you buy real estate, how much do you invest? Mostly it's your down payment, which could be almost zero dollars. The beauty of real estate is that the money you put down grows exponentially because the house is worth so much more than what you have invested.
Let's say you put down $50k on a $500k house. Then the house increases in value 10%, or $50k. How much have you made? 100%! You have made 100% on your $50k. Amazing!
Money Grower - Equity
Hopefully the house will increase in value over time, and this to me is just a bonus. Don't buy the property expecting any growth of value, because until you sell it, you haven't gained anything. If it does go up, great. And if not, you still made money in all the other ways I mentioned.
So guess what - It's time to buy some Hawaii Real Estate!