Have you ever thought of owning a second home? Or maybe you have one but because of your schedules, they do not permit you to spend more time in it than you’d love? Guess what? Your options are limitless especially when the property is located in the island of Hawaii. Hawaii is known for its rocky landscapes of cliffs, waterfalls, tropical foliage, and beaches with gold, black and even green sands.
We are blessed with diverse natural scenery, abundance of public beaches, oceanic surroundings, warm tropical climate as well active volcanoes. These attributes have all contributed immensely to make this island a popular destination for tourists, surfers, volcanologists, and environmentalists. Among other things, a lot of Hawaii’s rich cultural diversity, as well as the exotic location, have made this island what is today. Hawaii is a huge investment hot spot for not only businesses but most important investment in real estate.
We spend so much of our lives working. It is important to think about what tomorrow holds for you and your families. This thought may be supported by the desire to buy a home in a quiet and pristine location, which is calm, peaceful, has friendly local, and has a safe environment. There isn’t any place better to buy a second home than in the island state of Hawaii.
Owing a second home is regarded by many as extravagant, especially when viewed from a neutral standpoint. Critics may oppose a second home, as it may stay unoccupied year upon year. What they fail to understand is that having an unoccupied second home in an island is like discovering a gold mine. You can generate thousands to even a hundred thousand dollars in rent profits per year, depending on the house.
Here are some of the benefits of renting out your second home.
Getting A Shot At Real Estate Investment Firsthand
There aren’t many better ways out there to get a shot at what investment in real estate really is, but you can get a taste of it by renting out your second home.
Cash Flow Generation
An extra few hundred or thousand dollars a month generated by your second home really comes in handy during these uncertain economic times.
Who Doesn’t Need a Security Blanket
Aside from cash flow, the property will go up in value, giving you an investment to fall back on if ever needed.
Buy More Properties
Considering the finances the second home generates on rents, it may help you with the funds to buy a third home to be leased out as well. This leads to more financial security.
There are Tax Benefits For Being A Landlord
here are some great tax benefits to owning rental property. The cost of repairs to the rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows. The insurance premiums you pay can be deducted for almost any insurance for your rental activity. They may include fire, theft, flood, and the mandated hurricane insurance for the rental property, not forgetting the landlord liability insurance. Finally, you can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.
Conclusively, considering the fact that selling your second home or renting it out are both profitable, know that their levels of profitability differ immensely. What this means is that if you are seeking a short-term investment, then selling your second home is definitely the best option. However, if you intend to be in it for the long term, then listing it out as a rental can be quite profitable, and as you are earning the rental income, your house will be increasing in value over time, maximizing your investment.
Every year, landlords need to consider the pros and cons of raising the rent on our tenants. Sometimes it’s clear. If they paid late or were difficult, we raise the rent. But many of our tenants are amazing, so it’s a difficult decision. Do we risk losing a great tenant by raising the rent?
Here are three important considerations when deciding whether to raise the rent.
1. Is your rental at market value?
On the Big Island, rentals are hard to come by, and rents are high. However, rents are high because of all the costs associated with renting out your home. There are property taxes, insurance costs, landscaping, and repairs and maintenance.
Landlords all know that finding new tenants is never a fun process. However, if you haven’t raised the rent in a while, chances are the market value has increased. Is your rental way below other comps in the area? You have a few choices for learning the market value.
There are rising costs with any rental property. Taxes go up. Insurance premiums may increase. Upcoming maintenance needs might be expensive. Here on the Big Island, you may need to take action against invasive pests, such as termites. Take all these things into consideration before renewing a lease at the same rent.
If you are making a profit and have a great tenant, it is probably best to leave the rest as if. However, you should not lose money on your own rental, so if you are not making a profit, it is best to raise the rent.
3. Are you able to raise the rent without losing your great tenant?
It is a delicate process to raise the rent. Some things to consider are trying to keep it under comparables in the area to still give your tenant a benefit. Provide at least 45 days notice, a law here in Hawaii. The most notice you can give, the better. Be kind in your communications, and let your renter know of your rising costs and that it is not just an arbitrary rent increase just for the sake of getting more money out of the renter.
There are times when rent increases are inevitable, but if you can do it the right way, you can likely keep your great tenant.
Here is what you need to know about the Big Island Vacation Rental Bill. Vacation rentals have become popular on the Big Island. They are often less expensive than hotels or resorts, and they come fully equipped with everything you need to enjoy your stay. The big websites to book vacation rentals are VRBO.com/Homeaway.com and airbnb.com.
Hawaii Appleseed Center for Law and Economic Justice reports that one out of every twenty-four homes in Hawaii is a vacation rental, a number that has been increasing over the past few years. The report also says the amount of vacation rentals is leading to less affordable housing in Hawaii.
This bill proposed is not taking aim at homes in resort zoned neighborhoods. Instead, it is taking aim at homes in residential or agricultural zoned neighborhoods. Many homeowners in these residential and agricultural neighborhoods either visit the island part time and vacation rental it when they are off island to supplement their income or bought the home as an investment and vacation rental it to cover their costs associated with ownership.
Many local residents take issue with the vast amount of vacation rentals due to the lack of affordable housing. They feel the vacation rentals take even more rentals off the market, which makes it harder for locals to afford to live here. In addition, some of these vacation rentals are not claiming they are vacation rentals and thus are not paying the required taxes associated with renting one’s property. These are some of the reasons the Big Island has proposed restrictions for vacation rentals.
So what exactly will these restrictions be? These restrictions are for vacation rentals outside of resort zoned areas. They will not apply to owner-occupied units that rent out a portion of the property. In approved zones, owners will simply have to register as a vacation rental. In non-approved zones, existing vacation rentals who have been diligently paying their taxes may be grandfathered in by applying for a non-conforming use certificate and for some a special permit from the state. If you have not been paying taxes, you likely will be unable to have a vacation rental in non-approved zones, if this bill should pass.
The bottom line? If you want to short term vacation rental, you should start now, before the bill passes, and pay your GET and transient taxes. This is your best chance at being grandfathered in. Even if this bill doesn’t pass, restrictions on vacation rentals will likely increase in the future, so be sure you are following local laws and paying the required taxes. Always pay attention to the zoning laws and any CC&Rs in your neighborhood to be sure you are complying with any restrictions or requirements.
If you are looking for a property manager to treat your home as their own and to maximize rentals, please reach out to us at Lokahi Properties and see how we can make your investment truly pay off for you.
Consider this: if you needed work done on your teeth, would you go to a dentist or do it yourself? The same theory applies to real estate. The art of selling a home is something that takes years to perfect. There are so many aspects of home sales that the average buyers and sellers are unaware of. Also, there are many aspects of the process that are only easily available to a Realtor. The actual process of selling a home is very time consuming, and right about now, the seller has many more important things to consider, such as the impending move.
Realtors spend years learning the art of selling and how to interpret the real estate market. They can offer you insight and information that only comes from years of experience. Realtors are also experts on their area; they know the communities and what they have to offer, the location of schools, transport routes, and how the current market will affect the sale of your home.
Using a Realtor to sell your home has several advantages over a for sale by owner (FSBO). Perhaps the most important of these advantages is exposure. The marketing of your home is of the highest importance. Without a robust marketing plan, your home will not be seen by prospective buyers, and as such, will take much longer to sell. Realtors utilize the latest in internet technology to ensure that your home is seen by as many buyers as possible. Also, realtors have a large budget to purchase ads, hold open houses, and create flyers and information packs about your property. Realtors can also utilize a CMA to evaluate the correct value of your home and to price it correctly in your local market. This will enable your home to be competitive and attractive to buyers. Remember, homes sold by a Realtor sell for considerably higher than homes sold by the owner in most cases. Use a professional to sell your home, and free up the time you need to organize yourself for the process of moving your own new home.
If you are a renter who is tired of paying someone else's mortgage and want to own your own home, there are many ways to buy a real estate; one of them is Rent to own (RTO) option, a means of acquiring ownership over time without taking on debt. The renter agrees to lease the home for a predetermined time, usually from one to three years. There may be an up-front consideration fee. The seller allows the buyer to lock in a monthly price for the property until it is paid off. This is a way to settle on something that is right for you even if you are not in the position to make an immediate purchase. A lease purchase can make your rent money work for you instead of making your landlord rich.
This type of agreement works well with those who are new to the housing market or have made a job transition. It also is positive for anyone who needs to strengthen his/her credit or pay off an obligation to qualify for a home purchase. Another advantage to a rent to buy situation is that if you compare how much rent money is applied monthly to the home price, even if it is only 25-50%, it will still be much more money paid on the principal of the house than if you had taken out a loan for it. If you look at how much money goes to the principal payment of a home with a typical mortgage loan, you will find that most of your mortgage payment in the beginning is just paying interest on the loan. The best part about this is that with a rent to own home, you get to live in the home you want to buy while you work on fixing your credit up.
This creative process of how to buy a rent to own house is becoming more and more popular because it creates a "Win - Win" scenario. The Buyer is able to get into a home with limited money and credit, and the Seller is able to get a fair price for their home and get it sold more quickly.
There is so much to remember when you are moving! These moving tips may include a few things you hadn't thought of or things you just need to be reminded of. Forget that safe deposit box, for example, and you may have to drive a long way to get at it!
1. Get rid of things. Consider carefully what you need to keep. People spend hundreds of dollars to move things that will undoubtedly be thrown away some day. It's not just a matter of the expense but the hassle too. Moving time is the best time to get rid of the things you really don't need.
2. Have a yard sale. It's a good way to get rid of those things, and you might even raise enough money to help pay for the move.
3. Use lists. You will forget things, especially if you don't have a list or two. Start with a list of things to do before the move. It may include getting school documents transferred, filling out change of address forms, returning borrowed books and movies, transferring prescriptions, getting maps, and arranging utility shut offs and start ups.
4. Make the the moving company reservation a month ahead. You wouldn't want to find out they are booked up on the date you need them.
5. Pack early. It's hard to say how long it will take until you are doing it. Start early to avoid running around looking for boxes at the last moment.
6. Have an "essentials" box. This will have things to make your arrival easier, like toilet paper, paper plates, soap and such. Pack the box where it is easily accessible.
7. Check weather reports. It's no fun arriving in a snowstorm or moving during a hurricane. Allow for extra moving time if the weather is going to interfere with your move.
8. Notify family and friends of your new address and phone number(s).
9. Save your receipts. Save receipts for moving expenses, like gas, hotel rooms, and anything else related to the move. Then ask your accountant or tax preparer if you are eligible for a tax deduction for moving expenses.
10. try to re-establish your routines quickly. It helps to quickly re-establish routines in your new home, so if Friday night is movie night, don't break with tradition. Moving is less traumatic, particularly for kids, if you have some consistency in daily life.
Why let your money stay idle in the bank when you can grow it big time with Real Estate Investment?!?
If you have been working for some time, you probably have accumulated some form of savings, and the first mistake we don’t want to make is to let the money stay idle. There are many ways to work your money hard, and one highly recommended approach is through real estate investment. Here is why:
1. If you choose the right property, it can appreciate in value over a shorter period of time, hence providing good profits when rented out or re-sold.
2. Real estate plays a critical role in advancing towards financial freedom, especially for those with the passive and recurring income through rentals.
3. Real Estate has less volatility as compared to stocks and shares, hence lower risk.
4. In Kona, both the long term rental market and vacation rental market are profitable. There is a need for long term housing, and if you have a long term rental available, it is easy to get quality tenants in your home so you can enjoy passive income each month. The vacation rental market is also lucrative, as Kona is a premium tourist destination.
It is all about the 3 Fs: finding the right property, funding that property, and farming that property (making profits).
Given the thousands of properties available in the market, we want to choose the right property, so that the value can go up, and it can be easily rented out and resold when desired at a good price.
To choose the right properties, we consider the following critical factors:
In real estate, size matters! This is the first impression when a potential tenant or buyer steps into your house. Besides considering space for the living rooms and bedrooms, extra spaces like garages, lanais, backyards, storage, and car spaces are important.
3. Swimming pool
In Hawaii, a swimming pool is a huge draw. If you want to rent your property (and particularly if you want to vacation rental it), I would highly recommend a home with a pool.
4. Age of the property
This is important in determining its value. Older houses have much different styles from modern houses, and this can be both a pro and a con. It is a pro in the sense that if your house preserves some nice traditional architectural designs, and that is highly loved by the prospective client, you could take the opportunity to increase the selling price, hence making better profits. It is a con in the sense that if the client prefers houses with more contemporary designs, this could have a dire impact on your older property given that it is harder to sell or rent. In Hawaii, if the house is older, there is a higher chance it has termite damage.
Price is definitely in the consideration, hence it is essential to do a market research in the neighborhood for similar properties you are looking for before jumping to a decision. Also, if you intend to take on financing, you should check on the availability of loans and interest rates to ensure you can afford it and qualify for it.
6. Condition of the property Arguably, this is one of the most important attributes to look out for in a property. You may have found the best location, the biggest size at the most bargain-able price, but if the condition is inhabitable, what does it make of your newly bought property? Nothing !! Hence, it is crucial to observe the condition of every potential property and take into account the potential repair fees required for that property. Factor this into the overall pricing of the property to see if it is still worthwhile to buy that property.
To conclude, I have shared with you some valuable insights about to why you should adopt real estate investment as one of the very feasible methods to grow your money and create a steady passive income to achieve your long term financial freedom goal and also essential tips for choosing a property to fulfill that aim.
Contact us at Lokahi Properties today. We specialize in both long term and vacation rentals and know what it takes to have a successful rental property!
People often make preventable and costly mistakes when choosing a potential home to buy. Here are some guidelines to evaluate potential homes from a layman’s perspective so you can prevent some unpleasant surprises after you’ve signed a purchase agreement.
Choosing the correct home from the start can save a lot of time, money and aggravation. Too often, homes can have major defects that could have been visible to even the untrained eye.
Now, I am not saying that a home that is less than perfect (aren’t they all?) cannot remain a candidate. It can, but having all the information you can gather up front can help you in your home buying decision. For example, let’s say you’ve narrowed it down to 2 homes. They are the same price, size, quality, age and neighborhood. Both homes are 18 years old. One has a new air conditioner, roof and water heater. The other has original everything. Which one is the best buy? I know the answer is obvious here on paper, but you’d be surprised how often home buyers never look at it from that perspective. We’ll attempt to change that here.
After you’ve chosen the potential school districts and neighborhoods, it’s time to start narrowing down the homes. This is a layman’s version of the process a good home inspector uses. It should help you narrow your decision down.
First we want to walk around the exterior twice, once up close, then the second time farther away. The first walk around we will be looking for things like wood rot, unusual cracks in the exterior or anything out of the ordinary. Look closely at the windows and doors, roof overhang, gutters, etc. Look for water stains and damage on the soffit overhang. This often indicates roof leakage, especially with tile roofs.
On the second trip around the exterior, we want to be far enough away to get a good look at the big picture. Does the home sit up high, or down low? Homes that sit high are ALWAYS preferable, and the ground should slope away from the home. If water is draining towards the house, that is a recipe for trouble.. Look at the home’s roof line. Look for framing sags, look for shingles that curl or look worn. Look at the walls and make sure they are plumb and square. Take in the entire home scanning left to right, top to bottom. Look at the condition of the wall cladding and the entire exterior.
Next we’ll look at the mechanicals. We’re not going to get too technical here; we just want to look at the general age and condition. The HVAC (heating, ventilation and air conditioning) system is one of the biggest concerns here. We’ll start with the air conditioner. They can usually be dated by looking at the serial number. This can usually be found on a metal plate fastened somewhere on the AC unit.
Air conditioners generally have a lifespan of 8 to 10 years, sometimes less. With newer technology, systems are not made to be repaired as they used to be. They often need to be replaced. If you are by the ocean, your system will rust and have even a shorter life span. I know opinions vary widely on this, but this is a pretty fair estimate; my husband has worked in A/C for over 30 years.. You will want to turn on the AC and hear it run. Listen for any unusual noises. On the inside, just check for cool air coming from vents. Your Home Inspector should do a more thorough check later. For now, just note its age and condition.
Now let’s look at the furnace/air handler. Most houses in Hawaii don’t have these, but some do in the cooler areas. I recommend you observe it without opening anything on it. Leave that up to your home inspector. Look at its general condition and try to judge the age. Electric furnaces are commonly called air handlers, especially in warmer climates like Florida. Again, don’t open it, just look it over and judge its general appearance. Does it appear neglected, or well maintained?
Water heaters: You can generally date water heaters the same way you date AC units. Look at the serial number on the rating plate and determine its age. With most brands, it’s pretty easy to figure out. Depending on a number of factors, such as water hardness, water heaters will generally last from 7 to 10 years. Fortunately, a water heater will not break the bank when you need to replace it.
Kitchen: The kitchen is fairly easy. Give a good look at the appliances and cabinets. Operate all doors and drawers; just be careful in case a door comes off in your hand. (Hey, it happens.) Operate the disposal, and run water in the sink. Note the age and condition of the appliances. Your home inspector should to a more thorough inspection later.
Plumbing: Run water in all the drains, and flush the toilets with the seat lid open so you can observe the water flow. If there is a septic system, you may want to run water for several minutes then check over the septic field for backup or a foul smell. Either could indicate a serious problem with the septic system.
Interiors: Nothing complicated here. Operate doors and windows, look over walls and floors. If tile floors are present, look for cracked tiles and grout. Minor cracking is usually acceptable; major cracking or offset cracks will need further evaluation. Look over the ceilings for water stains. An important hint: Bring a flashlight, and look at closet ceilings. Homeowners often forget to cover up water stains in closets.
Electrical: Don’t get in over your head here. We simply want to operate all lights, and look at the main panel – NEVER remove the cover, simply open the door on its front. What size is the main breaker/disconnect? (It is often not inside the main panel, but near the electrical meter.) The most common sizes are 100, 150 and 200 amps. This will be printed on the main disconnect itself and tells you the size of your electrical service. I still see some older homes with 60 amp “fuse boxes”. If that is the case, you need to budget for an upgrade.
Following these instructions will increase your odds of writing an offer on a home without major disappointments. After the offer is accepted by both sides, now you have to find a good home inspector. They will help you find out anything you missed, but you will be off to a good start if you have followed this advice.
Many people who have built a significant amount of equity in their primary residences have found the stock market doesn't provide anywhere near the returns they could make when buying investment properties or vacation homes.
Vacation homes are especially popular here in Hawaii. They allow families a great place to visit during the year and produce great income for you the rest of the year while you are not enjoying your home for yourself.
While buying a vacation property is typically the same as buying your primary residence, you might want to consider visiting and spending an extended period of time in the area were you’re looking to purchase so you can get a feel for the local market and also to see what it’s like to live there.
No matter where you choose to purchase a vacation home, some of the best spots are found near water. Here in Kona, there are many great areas with vacation rentals and many opportunities for you to find that perfect rental.
Most vacation homes are purchased with the idea in mind to rent the property while it’s not a use by its owners. This is a great way to afford a vacation home, but be sure to consider who is going to manage the property when you’re not there. If you’re going to employ a management company, you should expect to pay some type of fee for this service, so this needs to be factored into your expenses. Lokahi Properties offers full service management along with partial management options for those who want to maintain some of the management duties, such as bookings, for themselves. We will work with you to create the perfect management solution for your needs.
All in all, a vacation home can be a great getaway for you and your family to enjoy while earning income when you are not there. Be sure to reach out to us at Lokahi Properties for personalized property management services for your vacation home or for help finding your perfect income producing property.