This one’s for you Nui! One of our favorite clients bought a vacation rental in Waikoloa. The interest rates were historically great when they purchased. The cash flow was good. Trouble was, as the market increased, real property taxes quickly followed. This affected the owner’s bottom line. While their vacation rental was still breaking even, the profit was not as much as they programmed.
Appreciation is the Focus
When they called to talk about selling, I quickly reminded them that Hawai‘i is among those states where you don’t necessarily invest for cash flow but rather, appreciation is the focus. Watch this. Ten years ago, the median price of a home in Hilo was $275,000. HPP homes were $213,5000 and Ainaloa hovered around $121,000. Today, those numbers are $575,000 in Hilo, $447,000 in HPP and Ainaloa homes are selling for about $355,000. In other words, the median priced home has more than doubled in East Hawaii neighborhoods.
Generally speaking, the higher the price point, the higher the appreciation so the numbers on the West side are often more stunning! We recently sold a home in South Kona owned only 2 years. That seller realized a $700,000 profit! The home was also a licensed vacation rental with what was probably an acceptable rate for Hawaii but an anemic return on investment by general standards. But let’s see what can Hawai‘i appreciation do for owner-occupants?
Imagine living in your Hilo home as a married couple for 10 years and selling for in excess of a tax free $300,000 gain. Not bad, right? The tricky part for the owner-occupant, of course, is the exit strategy. Some folks are aware that their IRS exclusion on capital gains allows them to sell their principal residence tax-free every two years, so buying a fixer is their path to wealth building.
Some sellers relocate while others move to different markets, some Hilo owners even move to HPP, some become renters, others keep their cash, take a loan and start over. Even at 7% interest, Hawai‘i appreciation still tends to come out on top. So, as you see, buying in Hawai‘i just isn’t the same. Whether it’s your principal residence or an investment, Hawai‘i is special and always in demand and always appreciating!