Buying any home is an investment! But if you’ve been considering purchasing a second home as an asset used to build wealth, whether that’s a vacation home or a rental home, then you’re in the market for an investment property. And here’s what you need to know about buying an investment property in Honolulu.
Buying an Investment Home Can Pay Off
Yes, you can definitely make money on an investment property, but you do have to put in a little time and work—and some decent upfront costs. It’s not a get-rich-quick scheme by any means, but it can definitely pay off big and here’s why: Hawaii has high rent rates, low property taxes, and rising home prices. Plus, national mortgage rates are still fairly low.
Start by Determining Your Goals
You’re probably considering one of two main types of investment properties: a vacation home or a rental home. The main ways these two homes differ is that the first will be used as a vacation home for yourself, and possibly rented out to other vacationers while you’re away. And the second is more of a long-term rental option for those looking for a more permanent living space.
Choosing the Right Location is Key
Establishing your goals is crucial because this will help determine where you decide to buy. Depending on your target market (vacationers vs. long-term renters) the locations you’re searching will definitely vary, but in either case, you’ll want to pay attention to the desirability of the area as well as the current rental rates. Ideally, you’ll want to find a “hot” (highly desirable) market with high rental rates.
Finding the Right Home Makes a Big Difference
This could mean that a fixer-upper is the way to go, if it gets you cheap property in the right location. Just be sure you’re willing to put in the extra time, work, and money required by homes that need some initial repairs.
Always Do the Math
Before you invest in a home, take some time to run the numbers (preferably with a Realtor or accountant). Make sure this home is going to be a good investment for you by considering important expenses and costs, including:
- Mortgage rates
- Property taxes
- Homeowner’s insurance
- Vacancy Costs
- Cost of maintenance/repairs/cleaning
Once you have an idea of what these numbers will look like, you can compare them to the current rental rates… and see what kind of a down payment you’ll need in order for that rent to cover the costs. A 20% down payment may not be sufficient—you might want to consider a payment of 30% or higher. (Want to do some quick math? Use this handy calculator).
Don’t Forget About the Tax Deductions
If the math has you feeling a little hesitant, relax a little as you think about tax deductions. A lot more costs are deductible on investment properties than primary homes. For example, you may be able to write off property advertising or property management expenses, mortgage interest, homeowners insurance, maintenance and repairs, closing costs, property taxes, and more. So keep track of everything you spend!
Find Renters or a Property Management Company
Once you’ve purchased your home, it’s time to find some renters. You may be able to find renters on your own, using a site like VRBO or even Craigslist, but understand that it will be a lot of work, and can be risky to take chances on potentially unqualified renters. You may want to consider finding a local property management company that will take care of things like repairs and cleaning, advertising, and screening potential residents.
Always Work with a Qualified Local Realtor
The most important thing you can do is connect with a local agent who knows the O’ahu market and is experienced in buying and selling investment property. Your Realtor can help you find hot market locations, identify a good deal, and even recommend local property management companies.
Find an Agent Experienced with Buying Investment Property on O’ahu
If you’re ready to get started, or just interested in learning more, then it’s time to contact RE/MAX Honolulu. As highly experienced local agents, we’ve done it all, from military to investment to vacation to rentals. Learn more about how we can help, explore the area, or start searching for your investment home today.