Our Full Guide to Hawaii Real Estate Investment
Our Full Guide to Hawaii Real Estate Investment
The Hawaii real estate market moved out of a rut over the last six months in 2021 to follow the hot trend in states all over the USA. A notable exception to this was the Kona development, which we will deal with in detail lower down. Kona, it seems, bucked the general trend. It has been booming since the pandemic and hasn't slowed down. Kona aside, it appears that as the COVID-19 virus began fading, it gave birth to a welcomed appreciation in property prices.
Picture this: The average value of a single-family home in January 2020 was $656,000 and one year later stood at $685,000 - a tepid five percent growth rate. The year before that was more or less the same. However, in August, the Hawaiian numbers had escalated dramatically to $764,000, representing a $103,000 escalation and a year-on-year leap of close to 15%. The shift occurred across the board, but here’s the thing - not equally when you analyzed it region by region.
Anyone buying a home for hundreds of thousands of dollars is making a serious investment. It requires a pinpointed approach, picking out those spots where renting or renovating to resell in the future presents the most enticing opportunities. Single-family investing also embraces acquiring properties traditionally as a primary residence and for vacation purposes. Taking a broad overview across all three verticals, we are going to address which districts are:
- Fueling the boom.
- Dragging it down.
- Provide the best affordability.
Naturally, demand is a significant contributor, but things can get interesting when it's super-charged with scarcity in stock.
First, let’s get some perspective: According to Zillow’s latest (August 2021), the average Hawaiian home stood at $764,000 - 152% higher than the national average of $303,000. So, it’s understandable that the post-pandemic fillup wasn’t as strong as some other states. For example, Florida, rising to an average price of $313,000, jumped 20% in the comparable period. Nonetheless, a rapid appreciation that’s propelling an average single-family home toward $800,000 is nothing to be sneezed at.
Secondly, Hawaii is a vast region with diverse attractions from a real estate investment viewpoint. Unfortunately, frequently, good opportunities fall by the wayside as investors focus only on the more popular islands like Maui and Oahu. With the latter's prices touching overbought levels and living conditions getting too congested, the potential for property appreciation is limited. Conversely, new single-family developments in the South Kona Coast represent a bright, fast-growth outlook that's worth investigating.
So, with that out of the way, a good analysis of important sectors will create a better understanding.
Understanding Real Estate in Hawaii as an Investor
Here are the best (and worst) places to seek out a return on Hawaii property investment.
1. Kona:
Kona has a unique take within the framework of this article. It appeals almost exclusively to investors drawn to outstanding real estate opportunities with high demand and low supply characteristics. In addition, this investor category is aware that the South Kona Coast represents the future path of Hawaiian property development. And that's only half the story.
If you are an accredited investor with experience and the right perspectives, there are Kona features that are particularly compelling:
- Connecting to an experienced developer with a stellar 40-year track record specializing in destination real estate.
- Early interest incentives that promise twenty-seven percent IRR (Plus) returns for those prepared to stay the course.
- A zero-leverage project during infrastructure development, thus creating a significantly lower risk scenario.
All the above aside, savvy investors gravitate toward Hawaii - already carrying an unsurpassed international reputation. Its breathtaking scenery, abundant resources, beautiful culture, and perfect weather attract ten million global visitors annually, spending around $16 billion. Many of the latter make the state their new home or/and leave their mark as investors, fueling the currently robust real estate market.
As pointed out above, Hawaii boasts one of the country's highest average median prices for SF homes. It's no wonder, considering that it has limited habitable space, vast protected zones, and it's the 7th smallest US state. With growing demand and the brakes on supply, Kona leads the way for continually rising property prices. Indeed, the region represents one of the few opportunities to get in on luxury homes in private settings at prices appealing to a large market segment.
The Kona Estates Fund I, LLC at Opihihale can offer you entry to a portfolio with the following highlights:
- One-acre estate homesites
- Luxury custom homes
- Unobstructed panoramic views of the Pacific.
- Located in an exclusive community.
- Competitive price points.
- Equity ownership interests alongside of the developer for $100,000 per unit.
2. Waikiki
If anything has been a drag on home state real estate values, Waikiki is it. Forget about holding value; this region’s properties depreciated by 5% from March 2019 for the next two years. In the last nine months, the uptick of just under 5% (year-on-year) is gratifying but still around one-third of the state average. However, for first-time homebuyers (and even vacation home buyers), Waikiki represents a fantastic opportunity to zone in on an average price level that’s an eye-popping 43% below the state average. Moreover, it doesn’t take long for piercing value gaps like this to fuel escalation in the trend; this laggard may indeed motor forward and appreciate faster as stock gets snapped up.
3. Pearl City
Located close to the famous Pearl Harbor site (i.e., the 1941 Japanese attack, the region offers impressive views and waterfront living. Pearl City's average property prices, at $894,000, are 17% above the state average and are also motoring up by 17% faster. So, in contrast, where Waikiki weighs the investor market down, this district lights it up. It's leading the way, so investors should pay heed. Even though properties may look relatively expensive, the saying, "buy the cheapest house in the best area," applies here in spades.
4. Hilo
Hilo is a diamond in the rough, demonstrating prices as low as Waikiki but with appreciation that's keeping pace with the rest of the state (i.e., 14.8%). It should appeal to second-home, first-home, and investment seekers. Why? Because Hilo reflects a healthy balance of all the positive metrics buyers look for, particularly an average price level significantly below the average (i.e., 55%). If it's between Waikiki and Hilo right now - the latter wins hands down, but the jury is still out in a market going through a fast upward trend. Median household incomes in Hawaii continue to grow as well (more than 4%), so renting out shouldn't be a challenge.
5. Other regions worth noting
- With 13% property price growth and a $778,000 average price, Kahului typically represents the overall state action year-on-year, looking back from August 2021.
- Urban Honolulu Metro real estate appreciation over the last year (14.8%) has taken prices well over $800,000 on average, making its mark. Rental momentum is exceptionally high here, with employee numbers rising by 2.43%.
Conclusion
With typical graphs like the one above for every mainstream district in Hawaii, one can see a dramatically altered real estate picture (versus only nine months ago). Of course, some may argue that it still lags other states, but a double-digit jump year-on-year, from a platform that was as flat as a pancake for years is somewhat mind-blowing.
Fast price movement inevitably spells opportunity for investors, 2nd-home buyers, and Hawaiian residents alike. However, with median prices way higher than the national average, take your time, and don't hesitate to secure professional realtor advice before making a choice. Nothing can replace the time and effort it takes to apply detailed microscopic analysis. Oh yes, and don’t forget to contact Kona (see above) for a look at extraordinary value on the South Kona Coast.