I just typed out a very long answer to someone who emailed me this useful question, so I thought I would blog it. 

Assume you have $150,000 down for your investment property. (That's about the minimum you should have for a rental purchase)

Your $150k is 30% of a $500,000 purchase.  Say you are conservative and you buy a 3 bedroom house on Oahu for $450,000. Yes you can do this, in Ewa Beach especially, and it will look like this one.

$1500/month is the mortgage on about $300k at 4.5%.  You also have taxes of around $100-120/month and insurance of around $120-150/month.  So you are at about $1750 - $1800/month expenses.

The rent on a house like that is around $2500. Here are some rental listings in that price range.

If someone is managing it, they take about 10%, so you have about a $450 month profit on your $150,000. Also you will have repairs, etc., so I would bring that down to about $350/month maybe?

That is a return of about 3% a year on your down payment, if you don't have a lot of vacancies.  Add on top of that the appreciation of property value, and any tax benefits, and you have your long term investment return. If the house goes up just 10% in 10 years, that is an appreciation of $45,000.  Now you have made another 30% on your down payment, annualized to 3%.

Add it all up and you have about a 6% return, not including the equity you gained by paying down the mortgage.

I made this in about 20 minutes on my PC, video shot with my Android phone.

The President announced this week that 10,000 troops will return home from Afghanistan by the end of this year,
and another 23,000 by the end of next summer, a drawdown of the
30,000-troop surge he ordered to fight there in 2009.  

So 30,000 troops will return home from Afghanistan by next year, and that means that thousands of those soldiers from Schofield Army Barracks, Pearl/Hickam, and Kaneohe Bay Marine Corps Base will be returning to Hawaii.  And since there is already a wait list for homes on the military bases here, that means they and their families will have to rent or buy a house.  Either way, it's good for Oahu real estate. 

There is already a shortage of homes for sale on Oahu, and if even 200 more military families buy a house (like this one from Ewa) next year as a result of the drawdown, it will have a huge impact on prices, particularly in Ewa Beach, Kapolei, Royal Kunia, Makakilo, and Mililani.   

Whether you agree with the policy or not, the drawdown will be good for Oahu real estate, unless of course they get shipped off to some other new war.  But that seems unlikely in an election year. 

On an island with only about 900,000 people, the addition of a few thousand families is a huge economic impact. 

This very large, beautiful house was just listed today. With 8 bedrooms, 6 bathrooms, and nearly 4000 sqft under roof, it would be best used as a multigenerational home. There is a new full kitchen along with 2 wetbars, all with very nice counters and cabinets. 

The owner just put in new bamboo floors, granite counters, and fresh paint.  The large family room has room for everyone, and the extra large 2 car garage has plenty of room for their toys.  

MLS 1107732 , $1.777 million fee simple.  We will be having our first open this Sunday 2-5pm.  

More pictures can be seen HERE

Manoa is located in the heart of Honolulu, centered around the University of Hawaii.  Just minutes from Downtown Honolulu, and only 20 minutes from Honolulu Airport, Manoa is one of the most desirable neighborhoods in Hawaii.   The frequent rain keeps everything lush and green. This large, remodeled house is ready to be moved into!

After nearly 5 months on the market, we have lowered the price of this beautiful little Hawaii Kai home to $750,000. At just over 1400sqft, it's not large, but it sits on half an acre of land, and has been beautifully remodeled with travertine tile, silestone counters, and this brand new decking in the back. 

We started out at $846,000, and had plenty of interest, and at one point were in escrow when the price was $799k.  That buyer canceled due to personal issues. 

Now this is an opportunity to get a house in Hawaii Kai for a great price.  For $750,000, most houses in Hawaii Kai are totally junk. Usually they need a renovation just to move in, but this house is in great shape and newly remodeled.  

I'm certain it will be sold this week, after many showings this past weekend. 

Check out this picture taken from the living room, through the kitchen and into the family room.  This house has it all and it priced WAY TOO LOW!   I can't believe it hasn't sold yet ! 

How did your money do over the last 5 and 10 years?  Was housing a terrible investment?  Which did better, stocks or real estate? 

Well look back to 5 years go and say you had chosen to invest in stocks.  If you had $50,000 in (June 2006,) and you had invested in the Dow, you would currently have about $54,870, an increase of 9.7%. 

If you had invested that same $50k 10 years ago in the same Dow stocks, you would have about $54,445, an 8.9% increase.  Basically, any money that you had in the stock market over the last 5 years or 10 years is worth less when you include inflation.  By the way, I have been calling high inflation for about 2 years now, just following most economists.

Now let's say you had invested in Oahu real estate. 

In June 2001, the median price of Oahu homes was about $300,000.   If you had used that $50k as a down payment on real estate, the value of your house would have gained approximately $300,000, and you would have paid your mortgage down to about $206,000 over those 10 years.   

Fast forward to May of this year, and the median sale price on Oahu in May was $595,000.   Your $50k down payment is now worth about $400,000. 

Now what about the last 5 years?  Didn't the real estate market collapse?  Not so fast...

The median price of Oahu real estate 5 years ago was $600,000, almost exactly the same as it is now.   And your $550,000 loan would have a current balance of $507,500.  So guess what? 

Your $50,000 is now worth about $92,500.  Plus, you received tax write offs on the interest payments that whole time.  Had you invested that $50k and rented a house for the last 5 years, you would have... nothing. 

 Going forward - with rising inflation, a questionable economy, and faltering stocks, if you buy a house, you have something.  You have a house. 

With stocks, 10 years may go by and you may not have anything more than what you invested, and you might even have less. 

It's not an all time low, but it's close to a 5 year low.  Right now there are 83 homes for sale in all of Hawaii Kai at any price, most of them well over $1 million. 

In Ewa Beach and Kapolei combined, there are only 137 homes for sale.  That is extremely low.  In all of Kailua, there are 113 homes for sale, most of them well over $1 million. 

For the past 4 years, inventory has been on a steady decline, while sales have increased a bit.  Actually they were up 30% in 2010.  

Why?  Maybe everyone has such a low interest rate that they don't want to sell. Maybe people believe prices will increase if they hold for a while.  Maybe nobody wants to leave Hawaii.  

Whatever the reason, there are very few homes for sale, especially under $800,000.  In Hawaii Kai, there are 16 homes under that price.  

This isn't so much an interpretation as an observation.  The low supply of homes has kept prices stable in Hawaii, while other States are seeing huge numbers of foreclosures, high inventories, and quickly declinine prices.  

For the past 2 years, Freddie Mac's Super Conforming Mortgages and Fannie Mae's Temporary High-Balance Conforming loans provided higher maximum loan limits for high cost areas of the country ($793,750 in Honolulu County, versus the conforming maximum loan amount of $625,500). This was a temporary higher loan limit that is set to expire soon on September 30, 2011.

Right now, an Owner Occupant Rate on these "super conforming" loans are approximately 4.625%, 1.625 points according to Honolulu Home Loans, from whom I got an email this morning on this very topic.

It's unlikely that Congress would extend the temporary higher loan limits, so the impact on the real estate market in Hawaii could be substantial. However, in the past 2 years I've only seen 2 or 3 of those high balance loans, while most people seem to top out at $625k anyway, with cash for the rest.

Having worked in both the CA and Hawaii real estate markets, one thing that really stands out is that people in Hawaii are far more conservative, and often have very large down payments. In fact I think most people don't even consider the high balance loans, because they haven't even heard of them.

I don't think the government should extend higher loan limits, and actually it would probably be better if they got out of the finance business entirely. Fannie and Freddie caused the housing bubble via the "Community Reinvestment Act," as they forced lenders to give loans to people with poor credit and low income. Bad idea from the start.

Would you like 50 people through your first open house?  

Would you like multiple offers over asking price in the first week of your listing?

Would you like to get the market price of your home now, or wait 90 days to get a low ball offer? 

This week I listed this beautiful 2 year old house for $639k, while the comparable sales said we could probably list it $20k-$40k higher.  Had we done that, we would have probably taken 3-6 months to sell, and would have ended up at around a $650k sale price.

As a result of our 'too low' listing, we had over 60 people through the open house, and are now working with buyers on offers that are over asking price. We will certainly get this home in escrow by this weekend.  

The banks have known for a long time that listing a house 'too low' just results in people bidding up to about the market price.  That's why they always list their foreclosures way below the market price of a regular "fixer."

The problem is that sellers are fearful of under selling their home.  But in this market, buyers want to a deal, a good price, a fair price.  They would rather pick up a quick deal than low ball an old listing. The result is that you end up around the same price, but it sells faster.  

But here is the part sellers forget - if your house sits on the market 6 months, you've just made 6 more payments that you might have avoided if you had sold it quickly.  In the end, any difference in price (if there is one) is offset by the time you save and the payments you don't make.  

Bottom line - you almost CAN'T price a house too low.  The lower it is, the faster it sells, the more offers you get, the higher it gets bid up.  

This house will be open again Sunday, 2-5pm.  By then, we will probably be in escrow well over asking price.  It's been on the market for 3 days.