In Hawaii: Opinion on Investing in Leasehold properties ...

5 Replies

Aloha Hawaii Property Investors,

In your opinion, what do you think of Investing in Leasehold properties?  Specifically condo's in Honolulu?  Any experiences?  Pro's & Cons ...

Also, when a seller is marketing his leasehold (stock certificate), how would you verify the value of it?  If a seller says "I'll sell you my my stock certificate for $50,000 and there's 25 years still on the lease", how can I tell if that asking price is too high or too low?

Thank you in advance,

Mike

First off whats your ROI on that property? If you're only making 300$ a month after covering mortgage, 1-2/12 months vacancy included in your math, 100$ on a property manager, and 5% deductions for possible repairs needed and your initial investment is 20% of 50k thats 10k. (300x 12months) divided by 10,000 = an ROI of 36% that means you wont see a return on your 10k for 3 years but after that the rest is profit. Just dont forget to get your monthly cashflow theres a lot of extra numbers to consider than just the ones above.

Now as for the price of the certificate, whats the comps in the area or more specifically the building in the past 3 years? That will give you a general idea of if hes selling it at a fair price.

Hope that helps.

@Michael Gayer Jr You need to also look at the maintenance fees and reserves.  Does the condo have enough money to keep up with major improvements to the building?  Is there a special assessment coming?  You need to know these things and figure out why this owner is selling?  Sometimes they are selling because they have knowledge of a major improvement that the condo is going to do and they don't want to pay for the special assessment.  You want to watch for maintenance fees increases.  You don't want to be caught off guard.

@Gavin Shiraishi , I will be sure to add these things into my questions.  Very helpful.  Thank you.

Regarding special assessments, I had eye opening event Sunday.

I went to a condo building for an open house on a one bedroom unit. While in that unit I had a great conversation with the presenter who was very careful to make sure that I understood that a special assessment had been levied on the building and that the seller had paid off that balance.

She went further to warn me that I need to be very careful when buying condos as many folks seem to forget to talk about any special assessments until later in the process of discovery (I guess in hopes of getting you emotionally invested in the property and therefore more likely to bid closer to asking price rather than try to factor the assessment into the offer).

Anyways, when I went to leave she asked if I was interested in looking at another unit- I did so she took me to another unit and turned me over to that agent. He didnt mention any assessment, but when I asked he explained that it had been paid off.

On the way out, ran across a third agent in the lobby. We spoke and she took me to a third open house. Not one mention of the special assessment. When I asked, she had no clue and then called her office and came back with the assessment had been paid off.

For the one bedroom condo of about 650ft3 the special assessment was a little over 10,000 bucks. I didn't even ask how much for the 2br units.

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