Investing in Hawaii doesn't work!
This statement (and ones similar to it) is probably the most common thing you’ll hear in Hawaii. I would imagine the same is true in other high cost/low cap rate areas like California and some East Coast metro cities.
I'm not wanting to start a debate as to what is better, cash flow or appreciation. My point is simply this; real estate investing is possible (and profitable) in Hawaii.
You give me someone who has a solid job, saves, and is willing to sacrifice for a little bit and I can show them how to become a millionaire in real estate in Hawaii. Man, that comes across so arrogant. But anything more subtle just seems to fall on deaf ears.
Two real examples (both on Oahu) that I think are relatable to a broad range of people:
1. Kimo and Lani (pseudonyms). Both completed college and started working as humble teachers, with annual salaries of $30k and $40k respectively. For the next two years they lived with Kimo’s parents, drove old cars, never went on vacation, and rarely did any recreational activities that cost money. Basically they lived a simple life and saved every penny they could.
With their money they purchased real estate in Hawaii:
Year 1 – studio and 2 bedroom condo
Year 2 – 3 bedroom condo
Year 3 – Sold the studio and purchased a 1 bedroom condo
Year 4 – sold the 2 bedroom and purchased a duplex
Year 5 – sold the 3 bedroom and purchased a SFH
Year 14 – in the process of selling the duplex to purchase an apartment building
Highlights:
*By Year 14 their net worth was about $800k. All while working as humble teachers in a city where a gallon of milk can cost $8!
*After Year 4 Lani was only a part time teacher, meaning they only had 1.5 incomes.
*They sacrificed for 2 years and lived modestly for the next 12 years
*No out of pocket money was used after Year 3
2. Kawika and Pua (pseudonyms). Have two kids. Combined annual salary of $100k. Have a small savings of $25k. Purchased a duplex (4 bed / 2 bed) and they rented out the 4 bedroom side. After collecting the rent, their monthly payment was $500. They then saved every penny they could and purchased a studio the next year. Now they save every penny and pay down the studio’s mortgage. The plan is to sell the studio and buy a 3 bedroom condo. Then eventually sell the 3 bedroom and purchase an apartment building.
Highlights:
*Their plan is modest
*Accelerated pay down ends Year 2
*Sacrifice for 2 years
*By retirement age they will have an apartment building netting $8k a month
These families are not wildly rich, but they are comfortable, which is nothing to sneeze at. There are certainly examples of average people becoming tremendously wealthy through Hawaii real estate (like the family of teachers with a $50m portfolio), but that’s for another day.
So much more could be said (and probably will in the comments). Cash flow is better than appreciation, who would want to sacrifice, I want cash flow now, I have too many kids, there are better strategies, my situation is different, etc.
All I want to get across is that investing in real estate in Hawaii (and probably other high cost areas) is completely possible. It is definitely not easy, but it is definitely possible.
For me, it's a no brainer. Sacrifice for a little while so that you and your children's families can afford to live in Hawaii Nei. No need move mainland. You can do it!
Aloha!
Thanks for sharing Isi.
Originally posted by @Isi Nau:So much more could be said (and probably will in the comments). Cash flow is better than appreciation, who would want to sacrifice, I want cash flow now, I have too many kids, there are better strategies, my situation is different, etc.
Ah, the cash flow vs appreciation discussion that will ensue. It's actually very simple as to which one is better. The answer is there is no answer. One method is not blanket-idly better than the other. They are both good avenues. It's all about the individual and their goals.
Good case studies and thanks for sharing.
Aloha Isi,
Love it. I got goosebumps reading your client's success stories. Thx for sharing. - I agree. It is possible even with a modest income in an expensive market like Hawaii.
The ones that succeed usually give up the popular "I want to get rich quick mantra." It takes sacrifice and focus on the long-term goal.
Your clients resisted the urge for instant gratification and used resourcefulness and initiative to start within their means. They kept their focus and somehow managed risk while success compounded over time. - That is awesome!
~ Aloha
Thanks Isi for standing up for Hawaii nei...not easy but certainly doable...especially if you really call it home, the will, will find the way!
Move the the main land suck it up for a few years buy some main land rentals and move back.
Mahalo all for your positive feedback. I always hate to see good local families leave Hawaii or struggle while being here. Hopefully we can help as many as possible improve their situation, whatever the details may be.