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Hawaii Real Estate Investment Opportunities

May 10, 2012 by Michael Borger Leave a Comment

Hawaii Real Estate Investment Opportunities

The recent ups and downs of the housing market, both nationally and locally here in Hawaii, have put both current and would-be homeowners in a pickle. If you’ve been hit by the economic downturn, maybe even put in an underwater mortgage situation, then you’ve either had to seek help, such as a short sale or loan modification, or be forced to ride out the wave until the market picks up.

However, for real estate investors, there’s no denying that the doldrums of the market the past five years have presented unique investment buying opportunities. The old adage of “Buy low, sell high” certainly rings true when a bottom falls out, whether it be in stocks, baseball cards, cars or, yes, real estate.

The drop in prices combined with very low interest rates present unique buying opportunities for savvy real estate investors in Hawaii, especially with inventory starting to shrink to normal levels. Of course, not all investors are the same and the type of investor one is determines what, where and how one views these opportunities and ultimately invests. Let’s look at a few examples:

The House Flipper – Today’s investors who flip houses (such as my company, Big Rock Investments) can find opportunities in Hawaii today in niches such as short sales and preforeclosures. It wasn’t too long ago that Hawaii’s foreclosure rate was in or near the top ten nationwide. While the moratorium on non-judicial foreclosures for most of the past year brought that “deal source” to a crawl, there were still judicial foreclosures being processed. These are homeowners who need options, and the investor who can have a short sale processed can pick up great properties at discount prices. Most of these are centered in the Ewa and Kapolei areas on Oahu, but neighborhoods across Oahu and all Hawaii (ex. Kihei in Maui) have all had distressed properties hit the auction block. Now, with the expiration of the moratorium set for this summer, these homeowners won’t have that protection anymore and will need a helping hand.

The Landlord – For the savvy real estate investors who love the idea of cash flow (who doesn’t?), picking up properties in Hawaii now to buy and hold for the long haul is a great idea. Buying houses and condos now before prices increase allow you to capture rent checks monthly in addition to market appreciation – passive income now with a long-term upside. While Hawaii has, no doubt, been a difficult place to cash flow compared to other states in the country, there are good deals out there. Look to multi-family properties in neighborhoods of Honolulu such as in Kalihi, Kaimuki and Moiliili and out west in Maili and other parts of Waianae. You can also pick up plenty of cheap studios, 1 and 2-bedroom condos in Waikiki and Kihei that you can use as vacation rentals for international visitors. Guess what? They’ll pay well if it looks good!

The Property Buyer – Some people just love to own property because they know that real estate is almost universally a sound investment – if acquired strategically and wisely. Hawaii is at the top of many lists for these types of real estate buyers and with good reason: it offers year-round wonderful climate, it attracts international visitors and is easily rentable if desired. The sand, sun and surf sure help as well! These types of investors usually have a very long timeframe in which they view their investments, and the aforementioned low interest rates with low housing prices make now a good time to pick up a house or two while the opportunity is there. How about a house in Poipu, a multi-family house in Kailua or a couple condos in Lahaina? All good bets right now.

The “Hands Off” Private Lender – If you’re not familiar with private lending, please check out our full-length explanation video at http://bigrockinvestments.com/smart . Basically, private lending allows a wise investor to park their funds in one of our short-term rehabs with a fully collateralized and recorded lien while they earn 10% or more on a fixed rate promissory note. Since the value of the property is always worth significantly more than the loan, the investor is always in an equity position while they passively earn a very high interest rate. No volatility of the stock market, no susceptibility to unforeseen market events and no miniscule returns of savings accounts. If you like the idea of collateral and high fixed interest but don’t want to do the actual ‘heavy lifting’ of a house flip, you can align with a local investor company like us who can put your funds to use, all held by a third-party escrow company. You can even use a Self-Directed IRA to earn the interest tax-free or tax-deferred – ask us how.

As you can see, the Hawaii real estate market offers opportunities to a diverse array of savvy buyers. With the anticipated summer expiration of the non-judicial moratorium, there will be more distressed properties hitting the open market. While this increase in supply may, in the short term, prevent a large uptick in prices it will also present more properties to be had with upfront equity at closing since these types of properties – primarily short sales and REOs – tend to be sold off quickly at discounts to move them through the pipeline.

If you’re a Hawaii real estate investor, no matter the type, who wants to get into the market while the time is right, don’t spend too much time on the sidelines. There are great deals to be had, but it remains to be seen how long they will be available.

Aloha,
Mike

Filed Under: Buying & Selling, Foreclosures, Hawaii Tagged With: Hawaii investing

2012 Predictions – What to Watch Out For

January 4, 2012 by Michael Borger 2 Comments

Aloha, friends. I hope everyone enjoyed a safe and happy holiday season as we bounce into 2012. I’ll spare you all the recap everyone else is giving you of the 2011 calendar year, which is old news, and jump right into what I see happening in the next 12 months.

Flipping Houses Just Got Easier

If you didn’t notice, the FHA just extended its anti-flipping waiver. That means it doesn’t matter how long the current owner has held the property if a buyer is using FHA financing. Those 90-day seasoning periods are gone for at least another year, so house flipping investors with capital should step up the plate because you just increased your buyers pool and reduced your holding costs. With the economy of the last few years, not everyone is a Cash Buyer (if you are, then get on this list!). Marketing to FHA buyers not only helps people get a new home but should also help the banks plow through their backlog of REO inventory.

The Hawaii Foreclosure Moratorium Backfires

I’m not saying I want this to happen, but I fear the intended objectives may not be attainable. I still get calls from people in foreclosure asking about their options because they’re getting taken through the judicial foreclosure process. Keeping someone in a pay-option ARM mortgage isn’t always the best decision for anyone, especially the homeowner. I know it’s a process that needs to take its course, but I’m skeptical. I’m wary that people in trouble before will be put right back in a situation of not being able to make their monthly payments and need foreclosure help all over again. Another downside to this is that it will clog up the banks’ property pipeline, likely delaying a Hawaii housing market rebound.

Landlords Line Up

There’s been a lot of talk lately about the “Nation of Renters” that’s headed our way and I think there’s a lot of truth to that. Investors are getting creative again in how they purchase and sell properties, and this includes the Lease Option. It’s no secret that Hawaii has some of the highest housing prices in the nation. As such, many people who’d like to buy simply can’t do so the conventional way, but a lease option gives them a way to get their foot in the door. What does that mean? It means landlords and cash flow investors should reach out to this group of buyers who will take better care of their place because they see themselves as the future owner and will pay a rent premium for that right. Until the economy comes around, it’s a specialized yet profitable niche.

Investors Will Step Back From Stocks

Ok, this may not be housing related, per se, but there’s a correlation, of course, between real estate prices and the stock market. The S&P 500 reportedly finished right where it started twelve months ago. Let me repeat that another way — the market gave out DIDDLY SQUAT for the entire year. When you consider that most people are taught that stocks and bonds are the only way to grow your portfolio, it’s outright depressing. A year wasted.

My friends over at New Direction IRA just reported phenomenal growth for another consecutive year in their Self-Directed IRA business (SDIRA). These financial instruments allow people to invest in much, much more than the stock market. You can invest in gold, silver, startups, and, yes, real estate. Flip houses, earn cash flow or grow at 12% or more as a private lender for real estate investors — all inside your IRA. With the growth reported, I predict that more and more people will step out from behind the tightly-controlled veil of commodities brokers and embrace the freedom of a Self-Directed IRA. Education is empowering.

Need another reason to watch out for the market? The next country in Europe to go belly up or Arab country to get overthrown or natural disaster in who-knows-what corner of the globe affects your return on investment. Scary, isn’t it? I agree.

One Giant Leap for Mike…

I also predict that my wonderful girlfriend Nanae will move here in early April from San Diego and start a very successful career as a Honolulu piano teacher (here’s her current site in SD). Know any kids needing lessons? Let me know!

That’s all I have on this Wednesday afternoon before I head over to the FAMES Hawaii monthly event at Dave and Buster’s. Let’s all keep a watch out in this first month for some signs of where the new year is taking us.

Filed Under: Buying & Selling, Financing, Foreclosures, Hawaii, Market Analysis, National

2012 Economic Outlook, Luxury Market and Turkeys

November 18, 2011 by Michael Borger Leave a Comment

Aloha, friends. Getting ready for Thanksgiving? More on that below! Let’s get right to it…

APEC is done and many are more than a bit ‘thankful’ for traffic to return to its normally sticky state. Driving 10mph through Honolulu is better than standing still, right? I was conveniently in San Diego (and Idyllwild – great mountain town!) last week, so I luckily missed all the craziness. Still, in hindsight it’s always nice to put our state on the world map. As a vacation hotspot, we can never have enough press.

2012 Economic Thoughts

Hawaiian IslandsJust last week KITV ran an article on some economic expectations for 2012. Now I’ll be upfront and say that I’m not an economist, but I found some good tidbits in there. Firstly, I think most people understand that the world is more global now than ever before. Yes, local economies are often heavily driven by local policies and activities, but we’re more intimately connected around the world now than ever before. That means that economic bailouts in Greece, Portugal, Italy and elsewhere in Europe can substantially impact your investments while shopping in Lahaina. The domino effect of this year’s “Arab Spring”, as the revolutionary efforts of Tunisia, Egypt, Yemen, Bahrain, Jordan and now Syria are termed, is a particular shocker for me, having once lived in the region (Tel Aviv). If Assad is overthrown in Syria, the fallout from regional uncertainty could ripple through your IRA while you’re hiking Waimea Canyon on Kauai or tending to your bromeliads in Hilo.

So while real estate is definitely driven by local markets, whether Hawaii or elsewhere, it’s definitely worth keeping your eye on world events. And yes, I know the news is often depressing and I’ve often considered a “news fast”, but “no man is an island” — even on an island (bad pun, I know).

Jobs (not Steve)

However, there’s some good news in there. You may or may not know, but the current Hawaii unemployment rate is one of the lowest in the nation, hovering around 6%. Compared to our mainland neighbors, that’s a promising number. The trick will be whether that sustains into the new year, but on the surface it is a possible signal of a potential housing rebound. The thinking is that the more people are working, the more income there is which leads to greater affordability of houses. Of course, there are always other factors at play but it’s something to at least keep our eyes on.

Visit Hawaii – PLEASE!

The other side of the Hawaii economy coin is almost always our travel industry. The same article points out a higher uptick in visitor numbers than expected. Right now, any growth at all is to be celebrated. We’re a luxury market, and it stands to reason that most people need to be financially secure in their own home and household before taking a vacation to Hawaii. You could call us a “secondary market”. Again, we can look to China and other promising economies to fill in the visitors gap of the mainland.

Again, here’s an opportunity to remind those of you who sell Hawaii real estate to look beyond the good ol’ USA for your buyers. China is HOT right now. If you don’t speak Chinese, there are countless resources here to hire or partner with someone to help get you hooked into the Chinese market. Of course, Japan, Korea and Canada remain great sources or international buyers. And of course, we have to hope that the collaboration of world leaders will provide benefits to us all into the future.

Turkey, Turkey

turducken

Turducken (duck in a chicken in a turkey) - it's delicious!

As I sit here writing this article in my favorite neighborhood coffee shop, Thanksgiving Day sits just 6 days away. This will be my 6th Thanksgiving in Hawaii and while I’d love to be with my family back in Pottstown, Pennsylvania, I’m happy to be able to celebrate it here with some great friends. I’m also thankful that I’m not responsible for preparing the turkey. I’m a fan of all things culinary — including people with better culinary skills than this guy here — so I’ll do my part, but I’ll leave the turkey to the others (don’t be this guy).

So to all you turkey chefs, what are your tips to preparing the best bird on the block? Is there a magic temperature or time for cooking that leads to no-fail perfection? Some secret glaze or do you use one of those ‘flavor injectors’? Any turducken cookers out there? Share your tips below…

Filed Under: Buying & Selling, Hawaii, Market Analysis, National

Real Estate, Retirement & Poke Trucks

October 31, 2011 by Michael Borger Leave a Comment

Aloha, friends! As we head into the last couple months of 2011 (can you believe it??), it’s an opportune time to look back and think about how our investments have fared in the past year. I know for many, it was a rocky year, especially if you were invested heavily in the market. But while it’s important to assess your performance to date, it’s even more important to decide how to invest for the future as we head into 2012. And unless you’re a Mayan doomsdayer, 2012 could present you with some fantastic ways to rebound from a rough year.

A favorite investment vehicle for many of today’s Hawaii real estate investors is a Self-Directed IRA. You can use a SDIRA for private lending, to flip houses and to hold properties for cash flow. We’ve discussed it here before and it’s my pleasure to once again bring back Dan Falardeau of Entrust Hawaii for another Q&A:

Hawaii real estate trouble

Your SDIRA could flip a house like this!

Mike: Welcome back, Dan. Since we last spoke, there’s been a big shakeup in the Hawaii real estate scene. Governor Abercrombie recently signed into law a moratorium on non-judicial foreclosures. This is on top of the volatile market returns that still hover around net zero, the failure of record low mortgage rates to stimulate the economy and the new Occupy Wall Street movement that’s recently hit the streets. Have you seen any broad changes in the investment strategies of self-directed IRA holders the last few months? Are they moving into or out of real estate or has there not been much of a noticeable effect?

Dan: The most noticeable effects that I have seen are an increase in out-of-state Real Estate purchases and Precious Metals investments. Our clients have control over their retirement funds and make the decisions to invest in what they feel most comfortable in. The Occupy Wall Street movement has shown a light on how many Americans feel about the financial markets. Self-Directed IRAs can invest in assets that you choose. If you don’t like the Dow Jones, you can get out of stocks and mutual funds and invest in Koa trees on the Big Island or buy a rental property or many other green investments. You can know that in your own small way, your retirement investments are not adding to the greed of Wall Street.

Mike: No doubt the phrase ‘real estate’ has become somewhat polarized over the last few years, depending on whether you’re on the homeowner or the investor side of things. How do you feel real estate ranks in popularity against other investment types like precious metals or stocks for folks with self-directed IRAs? Is it a primary reason that people choose a SDIRA in the first place?

Dan: Real Estate is still the bulk of our business. There are so many different investments that our clients choose for their Self-Directed IRAs, but by far Real Estate is still the most popular. The Precious Metals markets are a close second. Gold and Silver are historically used to hedge losses in times of volatile markets and the world seems to be divided between those people that think Gold is over priced and a bubble about to burst and those who think it has never been this high and is going to continue to increase in price. If we only had a crystal ball…

How to Start a Self-Directed IRA

Mike: Ok let’s change gears slightly. If someone were to want to take charge of their own retirement instead of be handcuffed by the limited funds their current custodian offers, how would they start the process of converting to a self-directed IRA? Is it a simple rollover? Who do they initiate the transfer with, you or their current custodian?

Dan: It’s a 3 step process: Open an account, move the money over to your Self-Directed IRA and find the right investment. I’m here to help new clients with the application to open the account. The moving of funds from their current custodian is either a “transfer” if they have an IRA or a “rollover” if they have a 401k. Either way, there are not any tax or penalties in moving funds to their Self-Directed IRAs and we help with the transfers and rollovers. That step usually takes about 2 weeks. Then once the account is open and funded, the third step of finding the right investment is typically known ahead of time. Often new clients come to me with step 3 done in their minds and just need to get steps 1 & 2 taken care of to move forward with their investment plans.

Traditional or Roth Self-Directed IRA?

Mike: Does it matter if it’s a traditional or Roth IRA? Could someone convert from one to the other and would they convert before or after they rollover their funds?

Dan: Both traditional and Roth IRAs can be Self-Directed. Clients consider converting from a traditional to  a Roth for several reasons. It’s not a one size fits all answer to the question of “should I convert my traditional IRA to a Roth IRA?” I explain it this way to my clients. The traditional IRA is pretax and you get to deduct your annual contributions from your Adjusted Gross Income (AGI). This lowers your income on your taxes and may help you to pay less when you file your taxes. Then when you are retired, you will likely be in a lower tax bracket since you will not be making as much earned income as you were before you retired. You will pay tax on your distributions from your traditional IRA as you take money out to live on.

The Roth is the opposite. You already paid your taxes on this income so it does not lower your AGI, but since you already paid your taxes on that money it can grow tax free. The Roth is a great vehicle, but the one thing I have to remind our clients is that you either pay the taxes later with the traditional or now with the Roth. When you “convert” to a Roth, you pay the taxes that year.

Running a Business With Retirement Money??

food-truck

Your New Retirement Plan? Just add poke and a SDIRA...

Mike: Here’s something I was wondering about the other day. Is it permissible to actually form and operate a business entirely owned by a self-directed IRA? Is that done very often here? I mean, could someone start a poi and poke lunch truck totally owned by their SDIRA as long as they’re not the ones pounding the taro or cutting the fish?

Dan: The short answer is Yes, and it is done all the time. Self-Directed IRAs can own businesses. You are not able to work for the company because you are a “disqualified person” from having direct relations with your retirement investments, so you couldn’t work at the lunch truck. You could, in your example, hire the manager and make the menu and prices, design the business model and what color the lunch truck would be. You still make the decisions, but you can not work or get paid. All the expenses and profits are in the name of the IRA because the business is owned by the IRA. This type of investment is often profitable because the client probably knows something about that business.

To use your example again, maybe the client is a fisherman and has been making poke for years and has some great recipes. Or maybe they already own one lunch truck and know how to operate a profitable business. They could use their IRA money and buy another lunch truck under a different business name owned by the IRA and then hire the manager and employees to run the business.

Mike: Let’s take that one step further. Without breaching any client confidentiality, of course, what’s the most creative, interesting or unique use of a SDIRA that you’ve seen? Let’s give our readers some ideas!

Dan: While I would like to share this with your readers, I need to protect our clients’ ideas. We don’t sell any products or give any investment advice, so the great ideas are out there and our clients know them when they see them. The nice thing about Self-Directed IRAs are that our clients are comfortable with their risk levels. They are the “Self” in “Self-Directed IRAs”.

Koa Tree

Who needs a 401k? You've got Koa!

Maybe you’re a Realtor and know a good deal on an investment property when you see one. Maybe you’re a dentist and have been working with Silver for years and know that market. Maybe you have experience loaning money and making a profit on the interest. Maybe you see the value in Koa wood and think investing in timber is the right investment for you. Maybe you’re a world traveler and have intimate knowledge of foreign currency markets. Maybe you have owned a profitable business and think you could duplicate that success with a business owned by your IRA.

We believe that investing in what you know lowers the risk levels and raises the potential for profits, and our clients agree.

Mike: Ok, fantastic. In full disclosure to our audience, I have a self-directed IRA with Entrust Hawaii for Hawaii real estate investment purposes and am very pleased with the decision. If someone else wants to explore this opportunity, what’s the first step?

Dan: Call me at (808) 521-4472, email me, or go to our website. I’ll be glad to answer your questions and help you open your Self-Directed IRA.

Filed Under: Buying & Selling, Hawaii Tagged With: Self-Directed IRA

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