All Forum Posts by: Isi Nau

Aloha Eric.

For most areas and properties on Oahu the assessed value is below the market/appraised value.  Which is good for the owner (less taxes).  There are some properties (value add) and areas (West) in which the assessed value is above the market value, but this is only a small percentage of the market.  In the multi-unit sphere there are even fewer properties selling below assessed value.

The C&C will reassess the values each year.  The formula for doing so is definitely not perfect and often works out in favor of the home owner.  

I have never contested the assessed value for our properties because in every case it would have hurt us by actually raising the assessed value/taxes.  During the recent recession there would have been more reason to have the assessed value adjusted, but the result would have been minimal  For example, if the assessed value was $100k over the market value, and the owner was successful in getting the tax department to close this gap, it would result in an annual savings of $350 (assuming it is owner occupied).  For most people it's not worth the trouble.  Also by the time the C&C got around to making the adjustment, the property values would have probably increased, closing the $100k gap, making the petition even less appealing to the owner.

As a side note, the county tax rates (not assessed values) were recently adjusted higher.  Oahu has the highest increase and now has a two tiered system, effecting only nonowner-occupant homes.

For nonconforming properties on Oahu, the biggest issue will be financing.  Banks will only appraise the home for it's legal configuration.  For example if a 1200 sq ft home had an addition built on without permits, and the home is now 2500 sq ft, the bank will only look at the original 1200 sq ft and base your loan off of that value.  If the zoning does not allow for multi-unit/family living and you're renting out multiple units, the county could step in, but it rarely seems to happen.

In Honolulu, pre-recession cap rates were in the 5% range.  During the recession they were between 6-7%.  Now they are pretty consistently in the 4% range.  If you didn't have to sell, you were fine.  Rents held pretty well.

We saw rents drop about 15% during the recession. Most owners weathered the storm well. Local banks here typically want a DSCR of 1.2, so even with rents dropping 15%, most owners were still able to stay afloat and meet their obligations, even those who bought just prior to 2009.

Maybe take a look at historical rent data for your target market and structure your financing to provide yourself a reasonable cushion.  As was mentioned above, most commercial lenders will be fairly strict in their underwriting, but others may not be.  Just because a bank will lend you the money doesn't mean the terms are financially sound for you.  Especially in the current climate, some restraint may be necessary when purchasing.

We saw very few (1% or less) multifamily owners go under.  Those that did were mostly in the lower price range of properties ($500k-$800k).

As others have mentioned, the more cash on hand the better.  Obviously banks will tighten up and require more from the investor (reserves, downpayment, etc).  Cash requirements today may not be sufficient to purchase when the market adjusts, so plan on over-saving now.

Aloha Theodora.

Whitmore has been selling close to the assessed value, for residential listings.  So he may think he's asking a fair price.  But this data is for residential properties, not vacant lots.

 At the asking price it'd be tough for an investor to make money on this one.  Land for $321k, build a home for $150k (1000 sq ft), all in at $471k.  That's the price existing homes of similar size are selling for.  This is probably where you could negotiate with him.  No one is going to buy the land and go through the hassle of building a home, when they could go buy an existing home for the same price and without the hassle of building.

If you're planning on holding on to the vacant lot and selling after it appreciates, Whitmore might not be the place to do it, due to lackluster appreciation.

As for financing, most lenders will have to broker it out since it's vacant land. The terms of the loan aren't as favorable as residential. For example they may require it to be an ARM with a larger downpayment.

With new construction, you'll want to have a plan for how to finance the build and also make the loan payments, while the property isn't generating any income in the mean time.

All the best!

@Royce Talbo

Thanks for the input!

Our unit in Wahiawa (1bed) rented in a few days, but we only had 5 applicants.  We usually have 10+.  We had it listed at $950, which is definitely at the bottom of the range for the area.  The reasoning for the low rent is for another day.   :)

We have a client who just listed (August) a single family home for $2580 in Mililani Town (3bed/2 bath/garage).  Had a few applicants and filled the vacancy in about a week.  At the time, the rent was in the 75th percentile of all listings.  Not sure where rents are now.

$2200 seems like a reasonable price for Mililani Town (except for maybe Nob Hill, which might be a little lower).  I'll be shocked if you don't get someone soon at $2000.  

I just took a quick look and saw two posts with "Price Reduced" and First Month Free", within the first 10 or so postings.  It's been a while since I've seen those.  Interesting.

Well, I am still optimistic on Oahu.  Investors will just have to be (or have someone who is) smart and conservative in their number crunching.  The market over the past few years has been very forgiving towards those whose analysis may have been less than perfect.  It may be time to tighten up the due diligence on new acquisitions and portfolio management, as the market might be more punishing in the years to come.  It's always good to practice sound investment strategies, but in the current cycle it's been tempting to be a little riskier and bite off a little more.

@Andrey Y.

Thanks for the input!

I believe you are correct.  New troops (arriving in Hawaii after Jan 2017) have a lower BAH than those who were already here (current troops BAH remained unchanged).  I don't know how many troops that is, but long story short, I'd imagine it's about 10k troops.  A $250 drop in BAH for 10k troops could have a noticeable affect.  If the current BAH remains at this new level, then in about 3 years all Hawaii troops will be at this reduced amount.  But I guess we'll see in January when the new BAH allotments are announced.

Overall, I am not too concerned.  We'll have to give it another 6 months or so to see a trend.  It's hard to identify causality after just a few months.  But it definitely seems to be island-wide and it definitely seems to have started around March.  Hopefully other Hawaii investors will chime in as the year goes on.

On the bright side, the people of Hawaii (renters) are getting a chance to catch their breath financially.

Aloha @James Crockett

As far as mentors go, I might try and find one in the areas you'd like to invest in (i.e. North Carolina).  They will be able to provide area-specific strategies and information.  General investing strategies can be found here on BP.

As for investing in Hawaii, it is possible.  Here is a previous discussion on the topic, that touches upon two strategies, while there are certainly numerous others. https://www.biggerpockets.com/forums/48/topics/443...

All the best!

@Jared Lichtin

Unfortunately I don't have any connections for foundation work.  It looked like it had shifted towards the back, with angled window frames and a 6 inch lift in the middle of the dining room/kitchen.  There appears to be additional slipping in the front of the home, in the front bedroom, but someone has re-taped the drywall and painted, so it is covered to a certain extent.  All the best!

Aloha @Jared Lichtin

Have you had a chance to visit the property?  I'd be interested in your thoughts regarding the foundation of the home.

Aloha @Sean Sakaida

I'm assuming the unit is a 1 or 2 bedroom in town?  If you have $100k in equity, you could exchange the property for a duplex on island and net $200 a month.  Nothing too exciting, but that would be a $320 swing in cash flow from your current situation.  That way you still have your hand in the Hawaii market.

You mentioned Sweep. Did you flip the whole mortgage into a HELOC, or you have a HELOC on the side? If you flipped the whole thing, then your cash flow should be pretty good for now.

Seeing that you're purchasing two properties on the mainland now, I'm assuming you don't need the equity from your condo here to finance deals in other states?  That's perfect.  I'd recommend keeping at least one asset here in Hawaii (maybe not your current property).

@Kealii Murray

I do. I can't remember the exact amount, but it's around a $1000 per year. MLS fees and Board dues.

I'm not sure about each state or Board, but here you would need to pay both. Your license would need to be active to have access to MLS, and in order to be active you have to be current on your Board dues.