Most savvy investors realize there are only two plays when it comes to investing in real estate – cash flow and/or long-term appreciation. Ideally, it would be great if you could invest in real estate and get both, but rarely does that happen. Generally, you’ll invest somewhere in the country that has great cash flow, but the appreciation may be minimal over time. There are plenty of places around the country where appreciation is skyrocketing, like Boise, Idaho, Denver, Colorado, and right here in Kona, Hawai`i. However, in all of those locations, it’s very difficult to get the properties to cash flow. In fact, with interest rates currently in the sixes and sevens I would go so far as to say that if you’re getting a mortgage with those interest rates, getting any place in the country to cash flow is probably going to be very difficult.
Never more so than here in Kona, Hawai`i. We meet wonderful people from the mainland all the time that are real estate investors, but many of them come here with a mainland mentality when it comes to investing in real estate. They are used to buying homes at a much lower price. Generally, those homes provide good cash flow and moderate appreciation over time. This is not the case in Hawai`i. Here, you do not invest for cash flow, you invest in long term appreciation.
Because of the high prices you pay for a condo or single-family home, plus HOA dues, plus taxes and expenses, rarely does a property in Hawai`i have great cash flow. In most cases it breaks even, comes close to breaking even, maybe even loses a little money. But again, that’s not why you’re buying it. You’re not buying it for cash flow. You are buying a residence to enjoy a Hawaiian lifestyle and gain long-term appreciation.
Here is an anecdotal example: A client of mine bought a three-million-dollar condo and closed on it in January of 2022. In May of 2022, the same unit in another building sold for $3.8m. That’s $800,000 in appreciation in five months. Today, there are two of the exact same condos on the market for $4.2m. Assuming one or both sell for no less than $4 million, my client would see a one-million-dollar appreciation in 14 months. Pretty amazing! Where else in the US are you going to get that type of appreciation? Sure, there are places like Miami, parts of California, Boise, and others, but my point is the places in the US with this kind of appreciation are few and far between. That’s why you buy here, for the opportunity to create wealth with long term appreciation. Cash flow is nice, but it’s not the bigger pay off. I would agree it would be great to get both, but few people do. People buy here for the opportunity to live the Hawaiian lifestyle and get some or most of their expenses covered through rentals.
I hear people say all the time, “Well Dan, I crunched the numbers and really, I can do better investing that kind of money in the S&P 500.” I am sure you can! But can you go to one of the most amazing beaches in the world at the S&P 500? Can you have an amazing sunset dinner at the S&P 500? Can you bring the whole family to the S&P 500 and make once in a lifetime memories? I think you get the point. Making money is nice; investing wisely is great; everyone wants to make a smart investment. I get that. But sometimes making an investment that feeds your soul is even better. Don’t come to Hawai`i hoping for great cash flow; you’ll be disappointed (yes, I realize there are always exceptions to the rule). Instead, come to Hawai`i for the possibility of tremendous appreciation and to live a lifestyle that few people ever get the chance to.
Dan Polimino is the owner of the Hawai`i Team in Kailua-Kona, Hawai`i. He and his team are the luxury residential experts for the Big Island. If you are thinking about buying or selling in Hawai`i, then please reach out to us at team@thehawaiiteam.com or call 808-913-0899.
