THE CONVERSATION
The Wall Street Journal recently reported that an investor purchased $100 million worth
of luxury real estate in Nantucket and Martha’s Vineyard over the past five years. David Malm, the buyer, said, "I don’t invest in the stock market."
Longterm investing in the stock market and real estate can be a very sound strategy. In terms of equities, many financial advisors will argue that investing in low-cost index funds like the VOO could ensure your financial future.
Diversifying your investment portfolio is probably a good thing. Owning real estate is a unique investment because:
Leverage. You can put as little as 5% down on a conventional mortgage. If you quality for a VA mortgage, you can put 0% down. In addition, you can borrow against your equity too.
Assuming get a fixed mortgage, your mortgage is fixed for the life of the loan. This is how you hedge against inflation.
Real estate is a tangible asset. You can actually live in it.
If you had a $100 million, what would you purchase? Personally, I would only buy real estate on Oahu. Why? Since land is scarce and inventory is low, there is a high probability prices will appreciate steadily over the longterm. According to the Honolulu Board of Realtors, the median price for a single-family home on Oahu was $158,600 in 1985. Currently, the median is well over a $1 million.
This would be my wishlist...
Leased Fees
Leased fee transactions can be attractive when you have a strong tenant and lease agreement in place. You don't have to worry about tenants-and-toilets. Rather, you receive your monthly lease payment in the mail every month for the duration of the lease.
Multi-Family
This can be a duplex, triplex, quadplex, or even an apartment building. As a landlord, this is when scale comes into play.
Most importantly, there has been a strong movement on Oahu to build more affordable housing, especially rentals. Owning apartment zoned properties can allow you to use Bill 7 to your advantage.
Detached, Single-Family
This is the bread-and-butter of Oahu real estate. However, I would not purchase properties that are located in a special management area, sea level rise, in a high-risk flood zone, and or on a steep lot. I would not gamble with Mother Nature.
Would it be nice to own a 25 unit apartment complex? Maybe. However, there's nothing wrong with renting out your 2-bedroom condo and upgrading to fixer-upper single family home. Just remember, slow and steady wins the race.
TIDBITS
The capitalization rate formula is used to indicate the rate of return that is expected to be generated on a real estate investment property. Cap rate is a quick method to help you determine the value of the property and your profitability.
Here are some factors that may affect a property's cap rate:
Location.
Type of property (asset class). A condo cap rate will be different than a single family home. And single family home cap rate will be different than an office building. There is no "good" cap rate. Rather, the cap rate will help you determine your risk.
Rent growth. Are rents projected to increase?
Improvements. How much you invest into the property can affect your net operating income.
HOME MAINTENANCE
It might be beneficial to own a multi bit screwdriver, especially if you are a novice when it comes to home maintenance.
MARCH STATS
2019 | 2020 | 2021 | 2022 | 2023 |
$782,500 | $810,000 | $950,000 | $1,150,000 | ? |
After weeks of decline, mortgage rates rose sharply at the end of February. Here is a quick breakdown. Let's say your mortgage amount was $320,000 ($400,000 purchase price with 20% down) with an interest rate at 6.25%. Your principle and interest would be $1,970/month.
Now, let's say you borrowed the same amount of money and the interest rate was 7%. Your principle and interest would be $2,129/month. That's an extra $159/month or $1,908/year.
OPPORTUNITIES
KITV recently reported that One Archer Lane is having a special assessment of $21,000 per owner. According to the article, the condo has to undergo $6 million of common area repairs.
Pulling data from the MLS, the median sales price for a 2-bedroom/2-bathroom unit at One Archer Lane was $695,000 in the past 365 days. At the time of writing this article, there are three active listings:
Unit #1608 is listed for $618,000
Unit #2107 is listed for $640,000
Unit #1804 is listed for $670,000
It will be interesting to see where prices stabilize at One Archer Lane.
Stay safe and healthy,
-Ryan Oda