7 Reasons to Invest in Hawaii Real Estate

By Invest In Kona | June 7, 2021

7 Reasons to Invest in Hawaii Real Estate

Anyone who visits Hawaii vividly remembers the experience. Even if you spend just a short time on the islands, its stunning beauty and leisurely pace stay with you. That’s why many people return again and again, to enjoy Hawaii’s tropical landscape, bask in its warmth and embrace its relaxed way of life.

After visiting Hawaii, perhaps you imagined owning a place of your own there, instead of having to stay in a hotel when you visit – especially if you can stay for a week or two, or more. If so, you are not alone. Owning real estate in Hawaii is a way to enjoy the tranquility of the islands on your terms, whenever you like, and can be a sound financial investment. Here are five of the top reasons to invest in Hawaii's real estate investment opportunities.

1. Hawaii’s Consistent Property Appreciation

Hawaii works its magic on people from all over the world, and there will always be new visitors who decide they want to own a vacation home in paradise. Even though the real estate market does experience some ups and downs, as virtually any market does, Hawaii’s allure is constant and property values tend to have steady appreciation. As long as people continue to visit the islands, some of them will decide they want to own a vacation home there, providing underlying support for the market.

2. U.S Rental Income Benefits

Furthermore, while beautiful island destinations exist in foreign countries, buying a vacation home in many of those jurisdictions exposes buyers to uncertain and unfamiliar legal systems, and even political instability. The safety and security of the U.S. legal system helps to distinguish Hawaii real estate from other tropical real estate investments, including the financially rewarding income stability from owning a rental property.

3. Vacation Home Flexibility Opportunities

 

The Covid-19 pandemic showed everyone that it is entirely feasible to work from home for an extended period of time, even when “home” is a tropical island! Although Hawaii is primarily a vacation destination, people who may have hesitated to buy a second home in the islands because of work commitments now realize they can spend more time in Hawaii while continuing to work. That is likely to increase the number of potential buyers.

4. Benefits of Having a Real Estate Portfolio with a Dependable Income

The continued growth in visitors from the U.S. mainland also supports the local economy. Over the period from 2010 to 2019 (we intentionally exclude 2020 as the pandemic shut down tourism to the islands), the number of visitors from the mainland increased an average of almost 5% per year, according to the Hawaii tourism authority. As the number of visitors grows, permanent residents benefit economically and they buy homes, and that supports the real estate market. With no limitations on seasonal rental periods, a dependable income and steady cash flow is typical all year round. 

5. Hawaii’s Limited Investment Space (In a High Demand Market)

TDemand for homes in Hawaii is likely to grow, but the supply is limited. The population of the U.S., the largest source of Hawaiian tourism, is aging. The number of people 45-65 years old is expanding, and that is the time of life when people are most likely to buy a vacation home. However, Hawaii’s housing supply of homes is limited. Almost 95% of land in the islands is designated for agriculture or protected for conservation, and is therefore not available for real estate development. This means there is little chance the market will become “overbuilt”, as happens in some other vacation destinations.

6. Luxury Properties Yield Big Returns in Hawaii

A large percentage of visitors who come to the islands expect high-end accommodations and services. That tends to support the high-end of the real estate market as some percentage of those higher-income visitors seek to purchase a second home in Hawaii permanently. Hawaii Life, the only statewide, locally owned and operated, full-service real estate brokerage, recently released its 2020 Hawaii Luxury Market Report that showed Hawaii's luxury property sales increased by 26.25% by volume over the previous year, despite (or perhaps due in part to) the extraordinary situation created by the pandemic. Realtors expect several more years of low inventory in the single-family residential sales market, which is likely to lead to an increase in sales of luxury townhomes and detached condominiums. 

7. Deferring Capital Gains Tax

In addition to these specific reasons for buying Hawaii real estate, the advantages of investing in real estate anywhere also apply. This may include tax deductions, as well as favorable tax treatment in the future, when the property is sold. If you rent out your Hawaii property to generate income, you may be able to deduct mortgage interest,  maintenance costs, property taxes, insurance, and depreciation. Even if you do not use the property to generate rental income, if you decide to sell your “slice of paradise” some years down the road, any increase in the property’s value will be taxed at the capital gains tax rate, which is typically more favorable than ordinary income tax rates.

Tax Deductions: Your Benefits

If you do rent out your property, whether it is a single-family home, a townhome or a condominium, you can defer taxes on the gain using a 1031 Exchange (named for the section of the Internal Revenue Code that specifies the rules on this issue.) A 1031 exchange allows investors to sell properties defer paying taxes on the capital gain by purchasing similar types of properties. Investing the capital gains generated by selling your property in Hawaii into other, like-kind real estate allows you to continue to enjoy the portfolio diversification, rental income and potential for appreciation that real estate offers, while providing substantial tax savings.

Invest in Hawaii

If you are intrigued by the possibility of owning property in Hawaii, we invite you to learn about the Kona Estates Fund I, LLC, a real estate investment fund. This opportunity to invest in luxury Hawaii real estate gives accredited investors an equity stake in an entire real estate project along with their own vacation home or estate. The Kona Estates Fund, which is currently accepting new investors.

An investment in Hawaii real estate offers many rewards, both financial and personal, including all of the wonderful memories you and your loved ones will create whenever you spend time in the islands. Aloha!

Read More: 9 Facts About Kona Real Estate 

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