Hawaii can be a hard market to tap, but if you can afford it, now is a good time to buy. The market has cooled and allowed some openings for investors. Here’s what you need to know about flipping houses in Hawaii.
Everyone who has spent an afternoon glued to HGTV knows what it’s like to want to flip houses. There’s something intoxicating about the idea of finding a great deal on a property, making some repairs and improvements, and selling it for a big profit.
Unfortunately, house flipping isn’t quite as easy as it looks on TV. Fortunately, it’s still possible and accessible to many people.
House flipping is more popular than it has been in a decade, but flippers are getting a lower average return than in previous years. There’s a lot you have to take into account when thinking about becoming a house flipper. Here are just a few of the things you need to take into consideration if you want to flip houses in Hawaii.
2019 Hawaii Housing Market Analysis
Hawaii isn’t an easy market to break into. The median home value in Hawaii is $617,800, nearly $400,000 higher than the national median and the most expensive state in the country.
Despite the steep price tag for the Hawaii market, the state’s market is cool overall, making it a good time to be a buyer. The cool market has real estate prices rising minimally each year, with a 2.6% increase last year and a 1.7% increase expected this year.
Even within a small, expensive market like Hawaii, there are still fluctuations based on island, city, and neighborhood. The median home value is $993,000 in Kailua versus $310,200 in Hilo.
Market trends vary within the state and the real estate market can shift quickly. Would-be house flippers should work with a local real estate agent to find the best deals at the right time.
How to Tell if a Hawaii Property is a Good Investment
If you want to flip houses, you have to find good houses to flip. There are endless things to think about when evaluating potential properties, but if you’re patient and focus on these key considerations, you’ll eventually find what you’re looking for.
One way to find good investment properties for flipping is to look for cheap homes in great neighborhoods. You have the ability to improve a house; you don’t have the ability to improve a neighborhood.
Spend some time researching the cities and neighborhoods you’re thinking about investing in. Some things you should look for are employment growth, rising real estate sales prices, and good schools. Try to avoid areas that already have a lot of homes for sale.
Look for homes that are structurally sound. Try to find properties that need only minor repairs and fixes to be marketable. Avoid homes that need pricey repairs, like mold, new pipes, or a new roof.
There are a number of considerations that should be taken into account when evaluating properties. Evaluate the current condition of the house and the cost of necessary repairs. Get a comparative market analysis done of the homes in the neighborhood where you’re looking. Evaluate the potential return on investment for a number of properties before you make a final decision.
With all of these factors and more, novice house flippers should seek expert guidance when assessing prospective investment properties.
How to Turn a Profit When Flipping a Hawaii House
When flipping houses, there are a lot of numbers to crunch. One of the most common formulas to use in house flipping is the 70% Rule. The 70% Rule says that you should never pay more than 70% of the after repair value (ARV) of a property, minus the cost of needed repairs.
Before you get started, figure out how much you can afford to spend, total, on the property — purchase price plus repairs. Then start looking for properties in your price range, and evaluate how much money in repairs you’ll need to make for each property.
The amount of money you’ll have to put in depends on where in Hawaii you’re investing. A median home in Hawaii is worth almost $618,000. If a home’s ARV is $600,000 and it needs $30,000 worth of repairs, the 70% Rule says you should pay no more than $441,000 for that property.
$600,000 (ARV) + $30,000 = $630,000
$630,000 x 0.7 (70%) = $441,000
The 70% Rule is a good guide for house flippers to follow, to help avoid overpaying for a property, even in an expensive market like Hawaii.
House flippers should always keep in mind that the cost of flipping a home is the total acquisition cost of the property, the repair and renovation costs, the carrying costs, and the cost to sell the property (including marketing).
Paying Cash vs. Taking Out a Loan
If you can, invest with cash. House flipping involves risk; this way if something goes wrong, you won’t have to pay interest for the time you’re repairing and trying to sell the property. Using your own finances without going into debt also allows you to take the best course of action if flipping takes longer than you expected. People who take out a loan to finance their flips can act out of desperation and sell lower than necessary to ensure a sale.
Of course, not every prospective flipper has the cash on hand to purchase and repair homes without a little help from lenders. Your options include a "hard money" or "rehab" loans where a short-term loan is granted so that you can buy and renovate a property.
You may be able to finance your home flip through a home equity line of credit. HELOCs have minimum equity limits and require good credit scores, but they are one of the easiest ways for people with good credit to secure money for their potential flips.
In some situations, a standard home equity loan is a good fit. This gives you a lump sum to complete your repairs. The idea is to sell your property as quickly as possible and repay the loan. This can be done repeatedly, as long as you repay the loan in a timely manner.
A professional realtor will work with you to determine the potential rate of return after factoring in the costs of your loan, the money needed for repairs, and the cost of the purchase property.
5 Best Cities in Hawaii for House Flippers in 2019
1. Hilo
With a median home value of $310,200, Hilo is one of the most affordable markets in Hawaii. The largest city on the Big Island, Hilo is known for Wailuku River State Park, featuring Waianuenue, or Rainbow Falls and its colorful mist effects. Boiling Pots, the bubbling basalt-lava rock pools, are nearby.
2. Kapolei
Kapolei, long considered the "second city" of Hawaii, is a very attractive place for buyers and sellers alike. Kapolei is home to many lush beaches, the West Oahu campus of the University of Hawaii, and a new rail line that connects Kapolei to Honolulu.
3. Waihee-Waiehu
Waihee-Waiehu is in Maui County on the island of Maui. 81.6% of Waihee-Waiehu residents own their homes. 18-hole Waiehu Golf Course and the Waihee Coastal Dunes and Wetlands Preserve are in this part of Maui Island.
4. Kalaoa
Kalaoa is on the dry side of the Big Island, over 70 miles from Hilo, the largest city on the Big Island. The Kalaoa community is continually growing. Hawaii’s Kekaha Kai State Park is located near Kalaoa and offers access to Kua Bay and hiking trails to the summit of Pu’u Ku’ili for scenic views of the coastline.
5. Hawaiian Paradise Park
If you’re looking for inexpensive homes or interesting in building on an undeveloped lot, look at Hawaiian Paradise Park. The subdivision is still a work in process, but its population is growing quickly and real estate prices are expected to continue to rise.
Next Steps for Hawaii House Flippers
If you want to become a house flipper, you should work with an experienced real estate agent. Clever can help. Clever Partner Agents are all full-service real estate agents who are top-rated in their fields. When it comes time to sell, Partner Agents work for a fraction of the typical commission rate, helping you maintain the highest possible margin on your flip while also bringing in a great price and ensuring the sale goes through without a hitch.
