BUYING OAHU INVESTMENT PROPERTY
Real estate rentals on Oahu do not pencil-in as well as they often do elsewhere in the United States for several reasons:
- Annual rental revenue as a percentage of the sales price of a property is typically lower on Oahu. Typical annual rental revenue ranges from three to six percent of the sales price.
- Repair costs are much higher on Oahu due to higher material costs (about 40% higher) and much higher labor rates. A reliable handyman charges about $75 per hour and licensed contractors, e.g. plumbers, charge $100 per hour or higher.
- The State of Hawaii charges a General Excise Tax of 4.5% on the rent collected and all services including repairs and yard care.
It is very rare that an investor will find a property that breaks even by putting 20% down. As a rule of thumb, an investor must put at least 50% down on a property if they would like the rent to cover the mortgage payments (and maintenance fees in the case of a condo or townhouse).
Out-of-state property owners typically fall under one of the following categories:
- The owner(s) originally bought the home to live in and then moved to another state. The owner(s) is holding onto the property and renting it out because the owner(s) is planning on moving back to Oahu in the future.
- The owner(s) purchased the property as a second home and stays in the property part of the year.
- The owner(s) purchased the property as a future retirement home.
- The owner(s) hopes to have timed the market so that the property can be sold for a much higher price in a couple of years.
- The owner(s) inherited the property when another family member passed away.
If you are interested in buying an investment property on Oahu, then you should seriously consider hiring a property manager as your Buyer’s Agent, even if you plan on managing the rental property yourself. Most real estate agents don’t have a good knowledge of market rents and/or don’t understand how vacancy rates impact an investor’s bottom line. If you do decide to hire the same property manager to manage the property, then the property manager has an added incentive to find a property that will serve you well over the long-term.
Great investors make their money on the purchase, not the sale. The best investments often have a temporary stigma or perception problem that negatively impacts the sale price of the property. Once that stigma is resolved, then the market price of the property will rebound. Additionally, that temporary problem may help you buy a property that provides better cash flow than you can normally expect.
Contact Tim Kelley if you are interested in buying Oahu investment property. Tim and Tracey currently own 15 rental units and have have two property managers managing their portfolio. Tim has led Stott Property Management, LLC since 2004. Leverage his experience to successfully purchase an investment property that fulfills your goals.