Want to Invest in Hawai‘i Real Estate? Here’s How to Start
Is 2018 the year you expand your portfolio?
Many of us know someone who has done well for themselves in real estate. Maybe they bought at the bottom of the market and sold at the top, or they collected apartments or homes over the course of their lifetime and retired early to live off the rent. With the stock market strong right now, many of us might wonder if diversifying into our strong real estate market makes sense.
Take a look at O‘ahu median prices since 1985, which are represented by the dashed line in the following.
Image: Courtesy of Berkshire Hathaway HomeServices
It may be typical to see a line that cycles up and all the way back down on the Mainland, but here, we’re different. We go up, then dip a bit before going up again, never going all the way back down. If you want to put your money to work for you for the long-term, Hawai‘i real estate can be a good investment.
One of the best options can be to start with a small condominium. The key is to find something that will create a positive cash flow so that your investment pays for itself. There are a lot of factors to take into account, such as rent, vacancy, maintenance, fees, insurance and repairs. A real estate agent will be able to get more property-specific for you, but this online calculator can give you a rough idea of expenses and returns. While it defaults to a 3 percent appreciation in the market year to year, keep in mind that, from 2015 to 2016 on O‘ahu, we saw a 7.7 percent increase in the median home price, and since 1985, we’ve seen a historical rise of 4.7 percent per year, according to the Honolulu Board of Realtors.
In addition to positive cash flow, it’s important to look for low association fees and a building that is well maintained. You’ll want to research and make sure you’re buying into a well-run condo association, with adequate insurance and reserves to protect your investment. Final advice: Keep it simple to minimize long-term costs. Consider a walk-up, since buildings with elevators need to have them maintained and sometimes replaced, with the costs passed on to owners. Laundry facilities on site mean you don’t have to maintain a washer and dryer, or worry about them leaking or damaging your unit or those below. You can also expect to pay a higher interest rate than you would on a primary residence if the building is occupied by more than 49 percent renters. Your real estate agent can help you navigate the numbers for specific buildings.