All Forum Posts by: Isi Nau

@Ben Lukes sounds good!

The only investing we or our clients have done on the neighbor islands are single family homes (flips and long term rentals).  I'm not too sure about vacation rentals on the other islands.  Sorry about that!  But I'm sure there are good opportunities there.  It just comes down to preference, since most people plan to use their unit for personal use as well.

Hey @Ben Lukes.  Right now our clients are lucky to squeeze out 50% occupancy.  Most of these bookings are 14+ days.  With all the uncertainty, visitors would almost have to plan on 14+ days just in case the State implements new travel restrictions. 

Local economists are projecting hotels to be at 50% occupancy by the end of 2021.  So I think STRs could be slightly better than that if their pricing is right.  2022 and 2023 should be much better.  We've seen some good improvements in the visitor industry so far (the last 40 days, when tourism opened back up).  If the US can make it through the Winter and the vaccine comes soon, I think the end of 2021, and definitely 2022-2023 will be good years.

Tourism opened Oct 15th.  In October we had 75K visitor arrivals.  10% of the number of arrivals in Oct. 2019.  But that's only 15 days in October.  And almost all of them came from the West coast of the US.  Japan has opened up, but less than 200 visitors came from there so far.  Hopefully Canada will open travel soon (another big market for Hawaii).  All that being said, there are still some major markets (pre-COVID) that haven't started arriving yet, which will be a big boost.

Yes, there are some unique aspects and regulations of the market in Hawaii, but nothing that can't be worked through.  If a property price seems way too low it is likely leasehold.  Unfortunately Zillow (and similar sites) don't do a good job of listing this information about a property.

75% of all 1 bedrooms in Waikiki will be between $375k and $500k. Most will come with one parking stall, which I would recommend. If the unit is a legal STR, it will definitely be in the $500k range.

Many people expected to see prices drop significantly after Aug 2019, when the City passed an ordinance allowing for better enforcement of illegal rentals.  We didn't see much in price drops.  We saw a lot of listings, but not a lot of price drops.  Even now with COVID, some units sell cheap, but not very many.  There's a ton of units on the market, but sellers aren't budging much on price.  Most of these owners had to put substantial down payments (many paid with cash) due to strict lending requirements.  Meaning these units aren't typically owned by average wage earners.  These are people with deep pockets, who can weather the storm pretty well.  For example, many units are being remodeled during this time since vacancies are low.  That is a strong indicator of the sellers' optimism towards the future of tourism, and also their financial health.

I hope this helps.  Please feel free to reach out.

@Kyle Keller We’ve used Seacoast Brokers for our flips in Hawaii. No issues with the home being vacant. We usually get full coverage (except volcano). It costs more, but not much since it’s only for a few months. They’ve insured all our flips, no problem. They also have very quick turn around times. Unfortunately my contact there just left the company. Good luck! Isi

Hi @Kate Malchow

Sorry to hear!  The market now is pretty unprecedented.  It looks like you've done some pretty good research and have a good picture of both choices.  I did a little research and have a thoughts.

As a rental:

The rental market right now is all over the place.  Meaning we're seeing a lot of variance across neighborhoods and property types within those neighborhoods.  It's hard to predict if a specific property will rent quickly or not.

Also, the most recent numbers I saw were that 11,000 renters are behind on rent.  There are always renters behind on rent, but this is a little more than normal.  Which brings us to the eviction moratorium.  If a renter is behind on rent, or a renter feels they may soon fall behind on rent, they have a huge incentive to stay in their current rental.  They'd be crazy to move.  So we're seeing less movement in the rental market overall.

I would recommend allowing Section 8.  We have had very good experiences with tenants using Section 8.  This would expand your potential tenant pool.  Your unit has a great outdoor space, is ground floor, and is a good size.The only thing I would recommend might be to redo the flooring with vinyl planks, which is very affordable.  But removing the tile would a beast of a job, possibly making it not viable at this time.  How are the views and breeze?  If there are any, I would highlight those in the description.

I think $2500 is a good rent price for this property.  With the 10% management fee, plus all expenses, you could be about $150 negative a month.  Not ideal, but not a major loss.

In addition to allowing Section 8, maybe the property manager could be more flexible on showings (maybe they already are), remove the application fee (if there is one), be one of the lowest priced 3 bedrooms in Makakilo.

Whatever you do, do not settle for a mediocre tenant!  It would be better to lower the rent by $200 and get a great tenant than to get one that will cause problems.

As a sale:
A 3 bedroom townhouse like yours is a rare product in Makakilo right now.  I believe you could get an offer in 7-10 days.

I agree that a sale price of $440k is reasonable, with a range of $435k to $450k.  And that a sale price of $465k would be needed in order to break even.  I believe this would be hard to achieve, since similar units that are fully remodeled are selling close to $450k.  You would need to bring cash to closing for any sale price under $465k.  Assuming a sale price of $440k, you'd need to bring $25k to closing!  That's a pretty big hit.

Overall:
I would recommend renting it out.  Even if you were to be negative $200-$300 a month.  I believe that's better than a $25k loss right out of the gate.  And then watch the market and be ready to sell when (not if) prices get up to $465k.

Good luck!
Feel free to reach out with additional questions.

Aloha @Kenneth Burdick

You bring up a good point of being financially left behind in this market.  With appreciation as it is here, it's hard for most people to save enough each year to keep up with market prices.  I have met very few people who say they are glad they didn't buy earlier, and a ton who wish they would have bought earlier.

We are in a unprecedented time right now as far as the economy in Hawaii and the residential real estate market.

First, the current economy is effected by a non-financial issue; COVID.  Whereas previous downward pressure on the economy has been financially related; sub-prime mortgages, Japanese boom, etc.  So, hopefully once COVID is resolved (whatever that means) things can turn around.

Second, the September stats were just released and several new records were made. SFH sale price and SFH days on market.

Third, the market here has followed a pretty predictable cycle over the past 70 years.  From 2008-2018 we were in a predictable cyclical pattern, but 2019 and 2020 bucked the trend.  We should have seen several years of low single digit depreciation, but we haven't.  2019 was a slow year, relatively speaking, then early to mid 2020 things were obviously slow.  Now we are in a significant upswing.  An untimely and arguably unfounded upswing.

Fourth, there are no positive economic indicators right now.  They are all very bleak.  Every reputable local economist has painted concerning pictures of the future.  The sky isn't falling, but it's definitely not rainbows.

If we truly are in a natural, non-artificially inflated upswing in the market, that will be very unfortunate.  A few mild depreciation years gives people time to catch their financial breathe and get ready for the next appreciation cycle.  I don't think people are ready.  The gap between the haves and have-nots will widen.

I am not sure what the future holds for the residential market here.  But to provide some context, during the last recession (2008) prices in most neighborhoods dropped a total of 10-15%, which is very good compared to other major cities in the US.  The Hawaii market is pretty well buffered and resilient.  I would anticipate a leveling off or increase in prices once a vaccine is out, or the election is over, or whatever.  Until then, everything could change tomorrow.  The surest hedge against this is finding a home you can build sweat equity in.

If I understand correctly, you are thinking of purchasing a property on
Oahu soon, renting it out for a few years, and then moving into that
property when you move to Hawaii?  One of the trickiest parts to this strategy is finding a home that makes a good rental, but is also a home (and neighborhood) you'd want to live in.  Also, a million dollar home is not over-extending in this market, if done right.

It's possible to make this plan work, but will require more discussion than is appropriate for a forum post (mine is too long already).  Please feel free to reach out to discuss a more in-depth plan.

Aloha @Austin Yamamoto  It sounds like you have two plans.  Rent or sell your current home.  Purchase another property to rent out and then move in to. 

Regarding your current home.  I'm assuming it's a single family home.  I would recommend selling it and buying something with better investment returns.  Single family homes on Oahu are one of the least performing property types.  You could take the money and make better returns in almost any other property type.  After selling you'd have around $400k to work with.  That is an excellent amount of seed capital.  If invested right, you shouldn't have any problem meeting your investment goals.  The key being investing right.  Make sure you get advice from those who have been doing it since before 2008.  The current market (post 2010) has made everyone look smart.

Also, a quick note about realtors.  On Oahu, I would estimate that less than 10% of realtors invest in real estate.  Of that 10%, only about 1% invest intentionally and intelligently.  Every realtor can help you buy and sell a home, but very few can help you invest wisely.

Most often, the only type of single family homes on Oahu that have good returns are nonconforming (a single family home converted into multiple units).  There are some nuances for this type of rental.  Appraisals, zoning/permitting, neighbors, floor plans, tenant relations, utilities, laundry, etc.

Regarding your potential second home purchase.  One challenging part of this is finding a home that is both a good rental and also a home that will fit your lifestyle.  Usually the home will lean one way or the other, and you'll need to be a little flexible.  Typically buyers will purchase a home that is more suitable to their lifestyle and less stellar as a rental, which is fine.

Another factor to consider in this model is renovations.  The scope of renovations for a rental (more practical and durable) are often different than those for an owner occupant (a little higher end).  You'll want to plan ahead as to when to do the renovations.  It might be a good idea to hold off on nice renovation items until you are ready to move in. 

Last, it might be a good idea to purchase the second home as an owner occupant first, and then decide later if you'll need to rent it out.  This will allow you the benefits of owner occupant loan terms and rate.

Feel free to reach out with any other questions.  Aloha!  Isi

@Nick Ung great idea using it for personal use for the time being.

The cash offer allows for a quicker closing and less hiccups with financing, giving the seller more reassurance, and ultimately motivation to sell for a lower price. Financing during the pandemic has been tricky. Add to that the complexity of financing a legal STR (more hoops, longer close times, stronger financials, higher down payments, etc.). A lot of things could go wrong. It's probably the number one reason STR transactions fall through. Paying cash eliminates those issues.

Your purchase certainly doesn't need to be all cash.  A preapproval letter is great.  I would recommend getting it from a lender who has a proven track record of closing deals on STRs in Hawaii.  More specifically, condotels.  Central Pacific is one of them.

Hi @Jim G. You are correct, it can be a little challenging searching for legal STRs.  They need to be in a Resort zone, or have a NUC.  Redfin and other sites do not do a very good job of identifying this information.

Hopefully the listing description will identify if it is legal for STR. If not, you'll need to reference the zoning map and also the NUC list of properties to know for sure if a unit is legal. There are quite a few options in Waikiki.

On the Windward side there are very few.  I don't know of any Resort zoned areas.  For NUCs in the area, there are about 65 properties, which is a really small percentage of the whole.

The state has not issued any new NUCs for a few decades.  In light of recent changes (August 2019) I would assume they won't be issuing any more for a very long time.  So your best bet is to purchase a legal unit, rather than hope for making it legal later.  There are some buildings in Waikiki that have filed for an exemption to allow the entire building to be STRs.  If this is approved it will provide for quite a few more legal units.

Those units with a NUC definitely sell for a premium.  

Aloha @Nick Ung. We have several clients who invest in this niche. The conditions right now are about as bad as they could be. Bascially 0% occupancy. A number of them have decided to remodel their units now while they're empty.  Some buildings have almost shut down completely in order to reduce costs.  Hopefully others on here can share more positive results.

I would plan for an occupancy rate of 0 nights for a Waikiki STR through the end of 2020 (hope for the best, plan for the worst). As of now tourism is expected to open in Oct. If this happens it's likely that visitor arrivals will be fairly slow and gradual. Beyond 2020 it's anyone's guess.

Then there is the mind boggling government of Hawaii. I have almost 0 confidence in their ability to get the economy up and running. Based on the total lack of leadership and common sense in the past 7 months, I wouldn't be surprised if tourism didn't open up until 2021. Or they'll open it and then shut it down again. Sounds crazy, but so does opening the beaches for singles only.  ;)

I would not recommend buying now.  There isn't much need to.  The future is too uncertain, I don't think there will be a mad rush to purchase units right when tourism opens (so you'll have time to jump in), and the potential monthly losses between now and opening up would take a long time to recoup.  But, I have seen a few units sell recently for some pretty deep discounts.  You'll need all cash, find one that's been on the market for a while (100+ days), and find that one seller whose pockets aren't deep enough to weather the storm.  This will allow you to make up for the monthly losses in the end, but the big factor is still having sufficient reserves to make it through the next 6 months.

Prior to the pandemic we were seeing occupancy rates of 27-28 nights a month. Consistently.

Hey @Christopher Hughes That's great!  Good job remodeling for only $12k.  Doing the work yourself is great for savings and education.

Most of the investment principles are the same for big of small projects, so now that you got your feet wet, you can reapply on a larger project!  Great job.