Views from a Maui Realtor

The recession has had a long-lasting effect in the lives of most Americans, with an unacceptable number losing their homes and their lives’ savings. Many have been blamed, from banks for having loose lending criteria (i.e. no loan docs, stated income), to mortgage brokers for ‘pushing’ through loans without giving consumers the opportunity to review, to Realtors for selling homes to consumers they couldn’t afford, to, well, buyers who ultimately purchase properties they knew they couldn’t afford to keep. Although for many the financial meltdown negatively impacted their lives, there are lessons that we can all learn and hopefully implement as we move forward.

Our collective mentality has changed in how we see our properties, no longer is a house a cash-dispenser to be refinanced with ease and sold at profit at any time. Properties have transcended from being a dispensable asset, into what they are and should be: a HOME! Hard-earned equity has become a treasure, to be increased not necessarily by market fluctuations (which are obviously unpredictable and not to be relied on any time in the near future) but rather by paying down the principal through years of ownership. We, as a society, have changed our spending habits, not relying on available credit to live well outside of our means. Unnecessarily lavish lifestyles and MacMansions have been replaced with frugal behaviors and eco-friendly upgrades. Even in markets such as Maui that have not been hit as hard as REO-riddled Florida, Michigan, Arizona et al, buyers are making purchases with a mentality of staying put long-term. Although many fortunes were made by investors/homeowners flipping real estate at the peak of the market, most potential buyers realize that given current conditions, it may be several years before they can sell at a profit – surely foreclosures laws such as Hawaii Act 48 are only prolonging the inevitable: REO’s that must be absorbed by the market before we can move to more normal market conditions.

Those affected by the economic downturn (which is, well, most of us) have changed our credit-card maxing ways into a more simpler life: buy only what you can afford, treat our homes as our most precious financial asset, and have a cushion for that rainy day. Clearly these are only my opinions based on observations/experiences and may perhaps be wishful thinking on my part.

Comments are always welcomed and appreciated.

This week we were humbled and honored to be nominated for a prestigious award: Inman News 100 Most Influential Real Estate Leaders. To put it in perspective, Inman News is to real estate what the Wall Street Journal is to finance. We ask that you please vote by going to:

Inman 100

Scroll down the list of nominees and vote for your favorite (of course, we would ask that your vote be casted for ‘Alex Cortez’, but vote freely and openly).  Should you have any questions about Maui (local news, real estate trends, general information), contact Alex at Alex@MauiRealEstateSearch.com or Mariah at Mariah@MauiRealEstateSearch.com

We receive many requests for information from prospective buyers who would like to invest in Maui real estate but are unsure as to how to proceed. Today we will explore how to successfully implement a ‘Buy and Hold’ strategy. To briefly summarize, ‘buy and hold’ is a long-term plan of action in which an investor purchases a property and rents it to tenants with the goal of maintain positive cash flow while building equity.

Harbor Lights offer tremendous investment returns on Maui real estate

Rather than talk about abstract economic principles, I thought it’d more conducive to illustrate my points by giving actual examples. Let’s take a look at a 2 bedroom / 1.5 bathroom Harbor Lights condominium (Maui MLS# 343800), currently listed for $34,900.  With a down payment of 25% ($8,725), which is typical for investment purchases, financing the remaining 75% ($26,175) with a 30 year fixed rate APR of 4.8% (which is conservative, given that we are experiencing historically low rates) results in a monthly payment of $137.  These units typically rent from $900 to $1,200 per month, so for the sake of argument we’ll take the average of $1,050. Monthly expenses include mortgage payment ($137), maintenance fees, which are extremely high on this particular complex ($688), taxes and insurance (approx. $30), totaling $847. Deduct the rent collected from the monthly expenses, leaving $203 a month. For the first year, you would have a surplus of $2,436 ($203 x 12) and $400 paid towards the principal. So your investment of $8,725 results in a first year ‘profit’ of $2,836. How many investment opportunities give you a rate of return of 32%? Notice that I didn’t take appreciation into account.

Is a Keonekai Villages short sale the right investment for you?

Now let’s take a look a Short Sale 2 bedroom / 1.5 bathroom condo at Keonekai Villages (Maui MLS# 343842) listed for $165,000. With a 25% downpayment ($41,250), financing the remaining 75% ($123,750) at a 30 year fixed APR of 4.8% for a monthly mortgage payment of $650. Additional monthly expenses include monthly maintenance of $340 and approx. $100 for property taxes and insurance, bringing the total of expenses per month to $1,090. These units typically rent for $1,150, leaving a surplus of $60 per month. The first year, the amount paid towards the principal on the mortgage totals $1,892, to which we add $720 ($60 x 12) for a total of $2,612.  Now the original investment of $41,250 ‘only’ returned $2,612 the first year.  Although this property does not enjoy the whooping 32% return that the Harbor Lights unit did, it returns a very respectable 6.3% and is in a much more desirable area (near one of the most popular beaches in Hawaii, Kam III) which makes it more prone to appreciate at a faster pace.

When implementing this type of strategy, remember to build ‘reserves’ for repairs, which would be kept at a minimum in condominiums as compared to single family residences, and take into account vacancy rates and status of special assessments. If you would like to learn more about real estate investing in Maui, contact me at Alex@MauiRealEstateSearch.com

As the most authoritative voice of the real estate industry, Inman News is respected for having the intuitiveness to see the brightest leaders as they come to influence the industry.  The Innovator Awards as presented by Inman is awarded to the most influential, forward-thinking, creative minds and this year the award will include “The People’s Choice Innovator Award”.   This year Hawaii Life Real Estate Services is proud to be among the finalists, which is further evidence of its ground-breaking core values and innovative modus operandi.

Hawaii Life is committed to the human connection of real estate services, while employing the latest technological advances.  Their Customer Relations Management (CRM) is bar none the best I have seen in any industry and their marketing tools are effective, custom-designed, and stand above the competition.  Buyers and Sellers enjoy solid representation, with an unconditional commitment to the customer void of the conflicts of dual agency.  The overall corporate views seem very “un-corporate”, more focused on the human element and making a change in the communities served, which include all the Hawaiian islands of Kauai, Oahu, Maui, Molokai, Lanai, and Big Island.   The Maui Real Estate Search team is proud to be a part of Hawaii Life.

Click here to view the Innovator Awards Nominees and cast your vote.