All Forum Posts by: Isi Nau

Hi @Christina Hall

Here's a quick rundown on the market on Oahu.  Month over month the market looks okay.  Year over year the market looks less favorable.  In almost every metric.  Neighborhood to neighborhood, things vary.  So it will be most helpful to focus on specific neighborhoods.  Over the next few years I would assume we'll see similar percentages that we've seen in previous cycles.  Low single digit declines or no appreciation.  This isn't necessarily a problem, as long as we are aware of it during due diligence and factor it in to our calculations.  One interesting thing I've noticed in August 2020 is that the number of properties coming on the market each day have increased by about 60%, while the number of properties going into escrow and being sold have stayed pretty constant.  We'll see how long this lasts and the effect it has.

Specifically for the North Shore, the market is pretty stable.  This part of the island is probably the most diverse region (based on property types and features) and the largest geographically.  It will be important to analyze properties correctly here.  Not all single family homes are created equal on the North Shore, with each neighborhood having their own niche in regards to feel, community, and life style.  It might be helpful to narrow down your preferred areas of the North Shore, which runs from Mokuleia to Laie.

Lots of people expected prices to tank after August 2019 when the City's law against illegal STRs was given more teeth. We didn't see much effect in inventory or pricing. There is enough demand and diversity on the North Shore that I believe it swallowed up any flailing STR properties. Also, some illegal STR property owners have been able (prior to COVID) to keep a pretty steady flow of occupants despite the new law enforcement.

Overall right now we are seeing single digit (0-3%) depreciation on North Shore, year over year.  Sale to list price ratios are between 95%-100%.  Days on the market are still fairly low, but creeping up.  Overall the market is pretty stable, and doesn't show signs of significant decline.

There are about 50 legal STRs on the North Shore, if we don't count the condos at Turtle Bay.  That's not very many, so it'll take some patience to wait for those.  When those properties come up for sale, there is a definite price premium placed on the nonconforming use certificate.

Please feel free to reach out with any other questions.

Aloha @Jared M Pilarski

It is definitely possible in Hawaii.  House hack and/or live in flip will be necessary to make it work.  Our most recent client to complete this strategy is @Christopher Joseph.  He did a live in flip and eventually turned it into a rental.  He executed it perfectly.  It takes time and effort, but it's worth it.  You can DM him for details on his experience.  Aloha!

@Benjamin Yeager

We (us or our clients) haven't closed on any walk-ups this year in Hawaii.  Our current walk-ups are performing well, but we haven't made any moves recently.  There have been a few value-add opportunities but the timing wasn't right, due to lack of time to commit to this strategy.

We haven't considered pursing opportunities related to Bill 7.  Again, time is the biggest barrier.  Also it is somewhat out of our area of focus.  There are a lot of great ways and places to make money in real estate.  It's pretty tough to pursue all of them.

If you have any questions on walk-ups I'm happy to discuss.  Aloha!

@Ky Polo

No problem.  You are correct.  The parcel is zoned residential for single family use (most commonly R-5, R-7.5, or R-10).  But the house has been divided into multiple units.  The owner put in walls or blocked of stairwells to separate the units.

There are several potential issues.  Financing - when you go to purchase or sell, the lender may ask that the walls and/or stairwells be opened up so it is all one house (not multiple units).  So the units will need to be vacant.  Permitting - the DPP will not issue permits for this type of property.  So if you plan to do permitted work to the house it will need to be opened up as one house.  Also, if the neighbors complain to the DPP they could ask you to only have one tenant in the property.  I have not heard of this happening, but it is possible.  The DPP seems to turn a blind eye since these types of properties fill a major need on Oahu in providing housing.

Regarding the rail, I'm not sure.  I guess it depends if it ever gets finished.   :)  But I know for some buildings and neighborhoods it has caused an eyes sore and concerns of potential noise for would-be buyers.

Your best bet for anything West of Pearl City will be legal multi-units, which will most likely be found in Pearl City/Waimalu, Waipahu, and Ewa Beach.  There's also some condo complexes that are good, but I know you're looking at multi-units.  I would stay away from conforming single family homes.  These are some of the worst investments in Hawaii, from a metrics standpoint.

I don't see any problem with living on the East side and investing more central or West.  90% of real estate investing is finding the right tenant.  If you get a good one, then you shouldn't have to spend more than 15 minutes a month on managing it (virtually).  Physical visits would only be about 2 times a year.

Feel free to send me any other questions you have.

Aloha @Ky Polo

In Makiki (or nearby areas) you'll have a few options regarding property types. There are some nonconforming single family homes, but most will only have 2-3 units. The units will be small and you'll have to visit every potential property to make sure the layout/flow isn't weird. If you want more than 3 units, it'll need to be a small apartment building. I can't recall seeing a nonconforming SFH in that area with 4 or more units.

As for cap rates in town, both SFH and apartment buildings will have pretty low cap rates (assume 4%). Investments in town are excellent appreciation opportunities, but tough on cash flow. You'll likely need 30+% down in order to break even. If your personal finances/cash flow is strong, then investments in town can be great.

Higher cap rates can be found in central, leeward, and ewa areas of Oahu.

Aloha @Jake Silverman

Right now we're seeing wide ranges in DOM, sale to list ratio, year over year appreciation/depreciation, etc. depending on the neighborhood and property type within the neighborhoods.  You'll want to determine which neighborhood and property type you're interested in, and then crunch numbers within those criteria.  The market right now in Hawaii is requiring a little more work to determine if a property is a good buy.  It is too risky to look at island-wide or state-wide metrics.

We're still seeing strong metrics for properties in the $700k to $1.5m range on Oahu.  I can only provide anecdotal theories as to why.  The buyers we're seeing in this price range are those who still have strong employment (i.e. not effected by the pandemic and 14 day quarantine).  There is still quite a bit of competition in this part of the market.

Feel free to reach out if you have any additional questions.  I hope you folks can make the jump!  NYC to HNL would be an awesome change of pace.

Aloha @Jacob Trimble

House hacking and live in flips are the best investment strategies for Hawaii, especially when breaking into the market.  

Time.  Once you buy in February, or later depending on what opportunities are available, you'll have about 1.5 years left.  In light of this, you'll want to run your numbers strictly as a flip, even though it will be a live in flip.  18 months isn't enough time to have the buy vs rent part (or live-in part) of the investment play out in your favor.  Typically the break even point in that portion of the equation is 3 years.  This isn't a problem, but just something to be aware of so your due diligence is focused correctly.  Your profit will be based almost entirely on the flip aspect of the investment, and most likely none on the live-in aspect.

House hack.  Having a renter will add another layer of financial protection, and will help overcome the costs of owning a home.  Finding a flip-able property that can also be house hacked is about as good as it gets.

Underwriting.  You'll want to make sure your due diligence is spot on and conservative.  An unpredictable market (which we're in now) is when lots of people lose their shirts.  Hopefully the market will be more predictable by February.

Flow.  There are some multi-unit properties that are non-conforming houses.  These are fine, just make sure the flow of the house is good.  Some are pretty awkward and can make it difficult on the resale side.  You'll want a property that can appeal to a single family and/or investor.

Foreclosures.  I would recommend not having your first purchase in Hawaii be at a foreclosure auction.  There are some nuances there that add another level of risk.  There are enough deals out there that auctions can be avoided for now.

It sounds like your financials are very strong.  Good job!  I don't anticipate any issues qualifying for a loan.  You'll want to get prequalified before February so you're ready to hit the ground running.

Good luck!  Feel free to reach out as you go along.

Exactly!  There is definitely room for abuse, especially in Hawaii where things are processed so slow even during normal times!  I'm praying our tenants don't get any ideas.  I believe the state of emergency proclamation for Hawaii is set to expire tomorrow.  Fingers crossed.

Aloha @Dale Balsis

Times are definitely tricky right now in Hawaii.  Here's what we're seeing on Oahu:

-The DOD stop movement order has had a big impact. Basically very few new military personnel are moving here. May through August is usually pretty heavy with military movement, allowing lots of rental vacancies to be filled. With no new military coming here right now, things are extremely slow. The military members who are already here, waiting to PCS out of Hawaii, already have housing and aren't looking to move.

-A 3 bed in town will likely draw local families more than military ones.

-The local people are sitting tight. Many are wanting to wait and see. This applies to buying and renting. So there's very little movement with this group as well.

-We usually list our vacancies on Craigslist, FB, and the MLS. FB is quickly becoming our best source for bringing in applicants. The MLS is good because all the big real estate websites (Zillow, Realtor, etc.) are populated from the MLS.

-Landlords are definitely offering move-in incentives.  They have to in order to attract the few people moving around right now.  I would recommend doing the same.

-Since the future is so uncertain, I'd try and find a tenant whose employment may not be effected during this time.  But at the same time, pickings are slim, so this type of ideal tenant may not ever apply.

-I would consider allowing Section 8, especially in the current economic conditions. We have very good tenants who receive Section 8, and the rent is virtually guarantied. Not sure how many Section 8 recipients are looking for a 3 bed in town though, but who knows.

-Worst case scenario, I would plan to not have it rented until late June.  Fortunately you are closing in late May, so your first mortgage payment likely won't be until July.  This should buy you enough time to find a tenant.  Hopefully the economy opens up again in late May or June.

Hope this helps! Good luck!

We've received a number of questions over the past few weeks regarding what landlords can and can't do during the COVID-19 state of emergency.  Here is a helpful Q&A on some common scenarios right now.  This is helpful for both landlords and tenants in Hawaii.

Hang in there everybody!

https://cca.hawaii.gov/ocp/lan...