Some financial planners will tell you that your investment portfolio should consist of 1/3 Cash or liquid funds, 1/3 stocks and bonds and 1/3 real estate. On the mainland many investors play the stock market and some make money and some lose money. In Hawaii, there are probably more investors in real estate than stock investors. There are many ways that investors have made money in real estate in Hawaii.
Some investors have made money by buying real estate and rent the property for decades and inflation has made them money. If you bought a house for $30,000 40 years ago, it is probably worth $500,000 to $800,000 now depending on where the property is located. Others have bought an ugly home that is structurally sound, fixed up the house and either held it for rentals or flipped them for a profit in a market where prices were going up.
I have personally looked for properties that were capable of having 2 or more homes and created 2 or more separate saleable units by either subdividing them or condominiumizing them and sell one or more or keep them as rentals. I have also purchased apartment buildings and condominiumized the units and sold the units at or below market prices and made money on the investments. Investing in properties that can be split is one of the safest ways to invest in Hawaii real estate as long as you do not pay too high a price for the property. I teach my clients and agents that you make money when you buy and realize the profit when you sell. In other words, there should be projected profits when you buy and not pray for inflation to make a profit. Inflation is a bonus when I invest in real estate and not my main objective in buying investment property. I have made millions on safe conservative projects and have also lost millions when I took too many chances on a development. In my old age, I do not take on riskier projects and stick to short term quick turnarounds and do not do long term projects. Short term is one to two years for the type of projects that I will invest in.
Doing a realistic projection on the ultimate sales price after the development is crucial to making a wise decision. My agents will email me regularly and ask if I would consider buying or developing property every week and I turn down most of them because the land is too small and there are too many units for the property or the asking price is too high or the condition of the homes are terrible and will require too much money to repair or the house or houses are not situated on the lot that is conducive to a split of the land. There are many many reasons that a property is not right for investment and development but we have found over 130 such properties in the last 25 years that I have been developing and selling real estate. Our projects have consisted of 2 houses on a lot, one house with vacant land to build more units, 3 to 12 homes on a lot that we condominiumized and sold separately, apartment buildings with 10 to 72 units that were condominiumized and many others that would be difficult to describe in this article.
I have taken raw land and have done cluster condos, site development plans, subdivided the lots and condominiumized the houses. I used to do larger vacant land projects that took 3 to 4 years or more and built houses on the lots. I do not do them anymore because long term projects can be disastrous if the market turns down and you are left with unsaleable units at reduced prices. A good example is when the Persian Gulf War broke out and the Japanese bubble burst and all hell broke loose in Hawaii and around the world. I got hurt tremendously along with many other developers and investors. I have also stopped doing new construction of homes because prices have gone up tremendously and what used to cost $50 per sq. ft. to build a house is now at minimum $150 per sq. ft. to build an average home. Good honest and reliable contractors are difficult to find and they are busy.
You have to know the zoning code so that you will know how many units are allowed by the city. I have agents that will call me and say that they found a nice lot with a house and there is room to build a second house. My first two questions are: how big is the lot and what is the zoning? Then I will ask about the terrain and where the house is located on the lot, what is the neighborhood like, have they done a budget to see what the ultimate sales price will be and how much will it cost to do the project, etc. Let's say the lot is 6,500 sq. ft. on R-5 zoned land and there are 2 old homes. The current zoning code for Oahu is that you need 7,500 sq. ft. on R-5 zoned land to build a duplex. You need at least 10,000 sq. ft. to build 2 detached homes. R-5 means that the land is zoned Residential and the minimum lot size is 5,000 sq. ft. if you were to subdivide a larger parcel into smaller parcels. The 6,500 sq. ft. lot with two homes is grandfathered and is considered to be legal nonconforming which means that you cannot rebuild the 2nd house if it should burn down or be destroyed by natural disaster by more than 50% of the value of the building. You can remodel and expand the 2 homes but cannot tear them down and build new homes. Only one house is allowed on the 6,500 sq. ft. of land. A zoning variance will not be allowed to get the 2nd house rebuilt.
You have to even more careful in areas that do not have municipal sewer connection. The state health department has mandated that minimum subdivided lots shall be 10,000 sq. ft. no matter what the zoning designation. If you have an R-5 zoned land, the city lets you build 2 homes but the state says the minimum lot must be 10,000 sq. ft. You also need to have one septic tank per 10,000 sq. ft. which can service no more than 5 bedrooms. The city will allow you to build 2 houses but the state rules say that you cannot have more than 5 bedrooms between the 2 houses. The septic tank can cost around $18,000 to $20,000 to install and connect to the 2 homes. One house could be a 3 bedroom and the other house can be a 2 bedroom unit. It is imperative that you know the rules between the state and the city and buy wisely or you will not be able to do what you thought you could with the land.
There are opportunities in this market to make money in real estate. You need to be very careful and not be overoptimistic in the ultimate sales price and not pay too much to buy the property. You need to know the zoning and what is allowed by the city. There are many variables that go into good investing. You need an experienced and honest mentor to teach you how to invest wisely. You need to be conservative in how you invest or you will overpay for property that cannot be developed. If you need more information, feel free to email me at abelee@hawaii.rr.com or call me at 216 4999. Go to
www.abeleeseminars.com for a schedule of my continuing education classes and you will see many classes on zoning, permits, land use ordinance, condominium process, wills and trusts, understanding contracts. The classes are certified by the state for real estate license renewal education for agents. The public is welcome to attend. The fee is $50 per class. If you agree to work with Abe Lee Realty in buying and selling real estate, the classes are free on a space available basis.
I also recommend that you take the 60 hour prelicensing course from me before you buy or sell real estate so that you will understand the sales process from start to finish. You will become a much wiser consumer and will know what to expect when you go through the exciting and sometimes scary process of buying or selling a home. I will refund the tuition when you buy or sell through Abe Lee Realty.
In light of recent layoffs and company closures at Aloha Airlines, ATA, Norwegian Cruise Lines, etc., I am offering a special $200 discount on the school tuition to anyone who has been laid off or displaced. The discount is good for all live classes and Independent study classes. The regular price is $450 and $425. The new tuition is $250 and $225 for all displaced employees. This offer does not have an expiration date. You can make thousands of dollars in real estate as a referral agent or as a full or part time agent.
I welcome your comments and if there are specific topics that you want me to cover in future articles, please let me know and I will try to accommodate you. There will be many articles in the future on various topics related to investing and developing and education in real estate and hope that you find them helpful.
