Considering purchasing a second home as an asset to build wealth? Then you’re in the market for an investment home—whether that’s a vacation home or a rental home (or both!) Here are some things you should know before you get started.
Honolulu is a Great Place for an Investment Property
It’s not a get-rich-quick scheme, and there are definitely some steep upfront costs, but overall, if you buy smart, your investment is very likely to pay off. Here’s why:
- Home values in the Honolulu metro have been steadily rising over the decades. From 2015 to 2016, values rose 7.7%. Over the last year, they’ve climbed 6.2%, and over the next year, they’re expected to rise 8.6%.
- Good properties and properties in good locations rent HIGH—at an average of $2,400!
- There’s a huge variety of rental clientele year-round. There are tons of vacationers from all over the world (especially eastern Asia and western America).
- Unemployment is low, wages are high, and more jobs are coming—paving the way for an increased demand for long-term renters.
So, How Do You Make Money Investing in Honolulu?
You know there’s a lot of potential to make money investing in real estate… but how? Here are some important steps to take before investing.
Determine Your Goals
There are three main types of investment. The fixer-upper or flip, the vacation home, and the long-term rental.
The Fixer-Upper: Can be lower upfront costs, but require a lot of work and repairs (and the costs for these). Buy in the right location and fix smart, you’re golden. Spend too much on repairs or buy in the wrong spot and you could find yourself in the red.
The Vacation Home: Typically these are all about the proximity to tourist spots—i.e., the beach. The benefit of a vacation home is that short-term rentals usually rent high on a weekly basis, but the downside is that high turnover means more wear-and-tear on your home and more overall maintenance costs.
The Long-Term Rental: Here, location is still important, but you’re less likely to be buying a beachfront house or condo and more likely to be considering commuter routes and major employers or military bases. It’s also important to find the right renter—one who plans to stay, who will take care of your home, and will always pay on time.
Pick the Home that Will Make the Most Financial Sense
Based on your goals, you’ll be considering three very different types of homes and locations. Buying a fixer upper is all about the location and the property, and less about the house. Buying a rental or vacation home is a balance between finding a location that will rent high and has a lot of demand and a property that’s in good condition and won’t need a lot of maintenance.
Don’t Forget the Details
When buying an investment, it’s important to consider all the costs and expenses—like repair and maintenance costs, homeowners insurance, utilities, association fees, and higher interest rates (as these are typically higher than on primary residences). If you’re renting, you’ll also want to consider that vacancies cost you money.
Or Your Tax Write-Offs
One of the big perks to owning a second home is taking advantage of the tax write-offs! It means being diligent and keeping track… but there’s a lot you can write off. Think: closing costs, travel costs, advertising, property management fees, mortgage interest, real estate taxes, homeowners insurance, maintenance and repair fees… the list goes on!
Ready to Make Money Investing in Honolulu?
If you’re thinking of buying an investment property in Honolulu or on O’ahu, then it’s time to contact RE/MAX Honolulu. Find out more about how we can help you meet your real estate goals—whether that’s buying, selling, investing, managing property, and more.