Reasons to Invest in the Hawaii Real Estate Market

Today we’re gonna go over four reasons why you may want to invest in real estate in Hawaii specifically in Oahu. There are four main reasons why it’s a great place to store your cash, so let’s just jump into it.

#1 Multiple Markets

If you’re looking to purchase a property out here in Hawaii, the one thing that I really like is that we have multiple markets from a buyer standpoint. And what I mean by that, is if you’re going to buy property, you have a local market. That’s basically it.

Let’s face it. Everybody wants to come to Hawaii. Everybody wants to live in Hawaii. Everybody wants a vacation in Hawaii. and we have lots of different submarkets. The presence of military bases out here keeps the economy very much alive in the real estate game. More specifically in the rental, buying, and selling market. This is because they’ll be here for three years and then they leave and then a new crew comes in and they are given a basic allowance of housing to pay to either rent or buy a place. So you have that market.

This is a very strategic place for the military to be and it’s not going anywhere. Then on top of that, you’ve got the foreign market, you’ve got Europe, the Japanese market, the Chinese market, and the Mainland market. Snowbirds, You have this new tech market that’s coming over here, People working remotely. They want to live in this beautiful place So we have so many different markets that come here to either by live invest that if one drops out, there’s three other that are going to take their space. So it’s not like if the market crashes, let’s say in the United States. Well, guess what? You’ve got the japanese the chinese in the europe market that could pick up the slack and there’s lots of different places that don’t have that same situation.

So if the market crashes in the US, a lot of the mainland prices of homes are all gonna crash, right? But that’s not the same for Hawaii specifically because we have so many other markets that pick up the slack.

#2 Appreciation

Another thing is Appreciation. A lot of investor clients that I’ve worked with, especially beginner investors, look at Hawaii and they go, “I would never invest there because the cash flow is horrible, you can never get it” And they’re absolutely right. It’s very difficult to find properties that cash flow. And what I mean by that is basically your expenses, your mortgage payment, all of that. and when you throw a renter in that the rent exceeds your expenses, so that means anything extra You have, you have cash flow and that’s great. But having a couple extra 100 bucks a month doesn’t excite me too much.

If you’re making $200 a month on a property that’s basically $2400 of taxable income, you’re gonna get taxed on that and that’s not gonna change your life. Now remind you, if you get 6,7, 10, 20 doors, then yes, cash flow makes sense. But here in Hawaii, the main strategy is appreciation. And that’s because we have such a strong and stable market for that same reason I mentioned before the multiple markets to pick up the slack when things dip. We’ve seen the prices of homes in Hawaii steadily growing for the last 30 years. On average, the annual appreciation is about 4-7% and sometimes we have crazy years where it’s 10-18 or like this year we had 27% appreciation for single-family homes.

Some people really made out well. And that’s simply for the fact that there’s only so much space we have out here. Everybody wants to live in Hawaii and it just pushes the prices up so it’s really about getting in the game and holding on to that asset for as long as you can and building wealth through appreciation. So if you get cash flow, $200-2400 a year, taxable let’s call it 2000 after taxes. Now if you purchase a property, let’s say a townhouse for $600,000 at a 6% annual appreciation, in the first year you’re gonna make 36 grand in appreciation and that’s equity. That’s 36 grand compared to $2400. And then on top of it that hasn’t been taxed yet. You can pull that equity out and he locked cash out refinance what have you.

But then that starts compounding every single year and that’s where the magic really happens. let’s say that we get a great market and it’s at 6%. So if you bought a $650,000 property at 6% annual appreciation compounding for the next five years. That property is now worth $869,000. So as you guys can see appreciation and with the effect and the eighth wonder of the world compounding interest that’s really where the money’s at, I could really care less about cash flow. I’m more in the appreciation game and you should be as well if you’re looking to investing in Hawaii.

#3 Hold for a minimum of 3-7 years

Now the third thing I want to go over is possibly the reason why you may want to or may not want to invest in Hawaii. And so ,we’re gonna kind of play both sides. My general rule of thumb is if you’re going to own a property for less than three years and that’s the bare minimum I’d really prefer. If you own it for at least five years, then maybe you shouldn’t invest in Hawaii because the time and energy it takes to not only get the property but when you need to sell the property in three years having only three years of compounding interest of appreciation and factoring in, well maybe the market just flattens out or doesn’t appreciate significantly you don’t have the best chances to getting the best return.

The magic area is about 5 to 7 years where you’re going to see massive returns because you can ride the wave right? The real estate market is very cyclical. Fortunately out here in Hawaii it’s pretty steady. But we do have certain times where maybe flattens out for a bit And you want to make sure you own that asset for enough time to allow that compounding interest to kick in because you will have expenses when you need to sell the property. So general rule of thumb, if you’re planning on owning the house for less than three years, don’t invest in Hawaii. But if you are planning on owning it for more than 35 or seven years, definitely invest in Hawaii because compounding interest will be your best friend to building wealth

# 4 Multiple Rental Markets.

Now using that same example I had before, Ohio and North Carolina, you basically have one rental market. Long term renters people that have a six month or one year lease that you can rent? Two. That’s good and great. But what if I told you out here in Hawaii we have three rental markets. First rental market is of course the long term six months to a year plus leases. Those ones you’ll get a good amount of money, hopefully it’ll cover your mortgage. The second one is short term, for 30 days or less. That’s basically like the Airbnbs and the short term rentals. But that’s another way that you can create potentially great cash flow on your property. And the third market that has just recently really started to pop off is the midterm rental market. And that’s for these people who are living out here but working remotely and don’t plan to rent or live out here for a significant amount of time. Maybe they’re looking to live out here for three months or just under six months. That’s another market. The long term, you’re going to charge, bare minimum short term we’re gonna charge the max and the mid 3 to 6 months you’re gonna charge somewhere in the middle. We’re gonna finish the place and do all that stuff. So you have three different markets, you could potentially rent to depending on your zoning, your strategies and things of that nature. But it’s always good to have options, and out here in Hawaii you got options.

Alright guys. So like I mentioned before, those are four reasons why you may or may not want to invest in Hawaii. If you guys have any questions, please put them in the comment section down below or if you’re looking to invest in Hawaii and need someone to guide you through the process, I’d be happy to be that person for you I am a licensed agent out here in Oahu and on the surrounding islands so feel free to contact me.