Newbie from Hawaii - how delusional am I?

Question

Aloha! I'm new to investing and am currently in the learning and preparing phase. I live in Hawaii where housing costs are very expensive, so I've been researching properties out of state (and even out of country). It's not ideal but it's necessary.

I've been wanting to invest my money in real estate because it's less volatile and more tangible than the stock market. Currently my spouse and I are both working full time with a startup on the side. I'm a little concerned I won't be able to make any worthwhile returns in real estate unless I build up a portfolio large enough to be considered its own full time job. This concerns me because I don't want to leave my current career. Is it realistic to work full time and make a good return on real estate simultaneously?

I've been looking into single family rentals but am perhaps most interested in the commercial storage unit sector. But again...I'm intimidated by the idea of taking on a full time business in addition to my career. While I'm learning I'd like to save up some more so I can pay cash for my investments. I haven't found a lot of info about the cash strategy, but I abhor dealing with loans.

I don't personally know any real estate investors so I'm grateful for such a large network of people like this and I look forward to being a part of it!

Melanie Johnston · Answer

@Jessica Lynn Welcome to BP! I lived on Oahu while growing. As a real estate agent, I'm always looking to share info on living and investing in Arizona. So when I went to Honolulu this summer to attend a SDIRA conference and visit my childhood friend, I researched events on BP and found the REI Professionals Lunch - Downtown Honolulu. It's a great group of very welcoming investors, founded by @Travis Henry and @Kiley N.

I was honored to be a guest speaker at their August luncheon. They have a good mix of new and experienced investors who are investing in all kinds of real estate, especially across the mainland. And doing it very successfully. I bet you would find it a great place to network and learn. I just looked at here are the details for their next lunch meeting:

https://www.biggerpockets.com/forums/521/topics/779772-rei-professionals-lunch-downtown-honolulu

Hope you get to go and enjoy their company. Tell them that Melanie from Arizona sent you!

Melanie

Account Closed · Answer

My California Turnkey investors like Arizona. If you have to invest on the mainland, Arizona has low taxes and high returns. I have to agree that cash flowing in Hawaii has got to be tough. The Turnkeys I work with don't require much time from the investors so that might work for you. Whatever you do and whoever you work with, I'd suggest visiting and seeing the actual properties if at all possible. Using Facetime works when travel isn't possible. It's a good idea to learn the business side of investing as well as having the properties. I did a spreadsheet for a client and this is how it looks:

Average Turnkey Cash Flow Per Door In Phoenix
Metro Area No Bank Financing Needed

https://www.biggerpockets.com/forums/600/topics/584916-average-cash-flow-per-door-in-phoenix-metro-area

Melanie Johnston · Answer

@Travis Henry and @kiley_n. You guys are the real deal. Wish I was there to attend!

Travis Henry · Answer

Sorry - my post was removed. Guess I'm not allowed to link to an Eventbrite page.

@Melanie Johnston Thanks for the shout out!

@Jessica Lynn Welcome to BP! As Melanie mentioned, @Kiley N. and I organize a monthly meetup with other investors to network and learn from one another. We'd love to have you at our upcoming event on Thursday (12/12)! I sent you a DM to get the conversation going.

Mike V. · Answer

In Kauai the money to be made is in the STR's on the south shore, new Poipu Beach.  Anything walking distance is a cash cow and this is my honey hole.  Very friendly regulations, easy tax system, and the whole area is set up for rentals.  I purchase 1-2 units a year and manage a few for friends / people i've met here.. couldn't be happier.

As a local, you should qualify for some fantastic loans on the islands that us out of staters don't... Why complicate things and look towards the commercial sector when you're in one of the easiest STR markets in the country?

Spencer Askin · Answer

Welcome to BP! I was just in Kaua'i for the first time last month and loved it! Seems like a short term rental Air BNB situation might be the best way to make money off of rental properties on the island. Good luck!

Lane Kawaoka · Answer

@Jessica Lynn

Hawaii is not going to cashflow unless you go into a class D area.Too much unsophisticated money chasing deals and including international money.

You need a Rent-to-Value Ratio of at least 1% or more to be able to cashflow after expenses. You find the Rent-to-Value Ratio by taking the monthly rent dividing by the purchase price. For example a $100,000 home that rents for 1,000 a month would have a Rent-to-Value Ratio of 1%. let me know if you have any specific questions.

James Wise · Answer

Probably be a good idea to look at the Turnkey route. Lots of folks in your situation do the same. Tons of turnkey markets out there. Many of these markets are very well represented by sellers & turnkey operators here on BiggerPockets. In no particular order I have listed some of the most popular markets for out of state investors

• Cleveland, Ohio
• Dayton, Ohio
• Toledo, Ohio
• Youngstown, Ohio
• Cincinnati, Ohio
• Memphis, Tennessee
• Birmingham, Alabama
• Kansas City, Missouri
• Saint Louis, Missouri
• Indianapolis, Indiana
• Detroit, Michigan
• Erie, Pennsylvania
• Louisville, Kentucky
• Milwaukee, Wisconsin
• Jackson, Mississippi

Each of these markets is popular with turnkey investors because of the low barrier to entry, high rental demand & high rent to price ratio. I recommend setting up keyword alerts for each area as they are discussed in the forums daily with advertisements posted in the BiggerPockets marketplace hourly.

One thing to note when looking at the individual markets, you can make or loose money in any market. Don't think that one particular out of state market will shoot you to success or abject failure. It's not really that complicated to buy out of state. It only becomes complicated when investors try to over complicate or over think everything. Whenever you are buying a property out of state you should do a few things to ensure it's as smooth as possible.

• Don't buy in the roughest neighborhood in the urban core. Pick a solid B-Class suburban area. Perhaps a nice 1950's built bungalow.
• Always hire a 3rd party property inspector to give you an unbiased feel for the home. The reports are 40-90 pages long and go through the entire house in great detail.
• Get an appraisal. If your using financing the bank requires this. This is good. The bank isn't going to let you blow their money. They have more skin in the game then you do.
• Make sure you get clear title. If using a lender this is a non issue. They will make you do this. It's those maniacs that buy homes cash via quit claim deed off of craigslist that really get screwed.
• Make sure your property manager is a licensed real estate brokerage.
• Google Clayton Morris and/or Morris Invest for a cautionary tale of what not to do when buying turnkey real estate
• Understand you can not eliminate all risk, only mitigate it. If you are risk adverse real estate, (especially out of state) is not for you.

Duc Ong · Answer

@Jessica Lynn Hawaii is hard to make cashflow and requires a higher barrier to entry, or a willingness to be flexible with the neighborhood. However, it is possible to profit. Two methods are legal short term rentals, and multiple units/entrances (house-hack). It's similar to most other primary markets, where the long term rental numbers are usually negative cashflow at 80% loan to value. As for cash, what you would be giving up is the opportunity cost of getting a greater return by deploying your capital optimally. Also, it would take a lot longer to get in the game if you need 100% for every deal you look at. The most important metric in my opinion is Return on Equity, which is your profit divided by the equity in the deal. Lastly, if you run your investments like a business, it should be possible to maintain a full time job and still manage your assets.

Anthoney Hanks · Answer

Welcome to Biggerpockets! Good luck on your endeavors. Wish you the best going forward! We are all scared but you will overcome that. There are several podcasts that feature investors who work full time jobs and have a good portfolio or rental properties. And you biggest advantage is @Brandon Turner lives in Hawaii and does meetups. You might check those out.

@David Greene does some good webinars to watch.

Newbie from Hawaii - how delusional am I?

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