It’s easy to watch a show about house flippers on TV and become inspired to go out and try it for yourself. What’s harder is actually going through the myriad considerations, exhaustive work, and substantial expenses that are necessary to make this house-flipping dream a reality.
While it’s certainly not a real estate endeavor to take on lightly, buying properties for the purpose of renovating and selling them for a profit can be an exciting and fulfilling way to make money. If you’re thinking about flipping houses in Hawaii, there are some key factors that you should consider to help you navigate this sometimes prohibitive but highly profitable market.
A Cool Market in the Tropical Islands
Historically, the Hawaiian housing market has been notoriously difficult to break into. It’s a relatively small market when you consider it’s comprised only of the seven inhabited islands of the volcanic archipelago, a much different situation than on the mainland.
Compound with that the highly coveted nature of homes in this vacation destination and you have a recipe for the highest real estate prices in the United States. The prohibitively expensive nature of homes keeps many potential investors from playing the house-flipping game here.
Although the median home value in these islands still skyrockets above the national median, now is the time to invest. Yes, the 2022 market is competitive, but there is high demand for housing and low inventory. There are only minimal increases to the average property value every year – but that does add up. Potential investors who have the money but are stalling may want to make their decision before any unpredictable spikes in this market occur.
FINDING THE RIGHT HOUSES TO FLIP
- The most important thing when house flipping is to start with a viable, marketable property. Evaluating homes is a process that takes a great deal of time and concentrated effort because of the range of considerations that must be made.
- Look at the structure itself – is it sound? Have the building inspected and take note of any repairs that need to be made. If there are numerous expensive repair projects that you’re going to have to do in order to flip the house, it may not be worth your time and effort. Issues like mold, roofing, or plumbing are best steered clear of.
- Next, broaden your view by running a comparative market analysis on as many other homes in the area as possible. This will give you an idea of what kind of return you can expect from the property when it comes to flipping time. The more other homes you analyze, the better idea you’ll have of the property’s potential value.
- Examine the area. It’s important to keep in mind that you’re able to renovate the house, but the neighborhood is an environmental condition that you can’t control. With careful and extensive research on a neighborhood’s schools, employment growth, and rising home prices, you’ll have a better idea of where the most marketable properties lie.
Crunching numbers
There are a lot of figures to crunch when flipping properties. The 70 percent Rule is one of the most popular formulas used in house flipping. According to the 70 percent Rule, you should never spend more than 70% of a property’s after-repair value (ARV), minus the cost of essential repairs.
Before you begin, determine how much you can afford to spend on the property in total, including the purchase price and repairs. Then start looking for houses in your price range and calculating how much money you’ll need to spend on repairs for each one.
The total amount of money you’ll need to invest is determined on where you’re investing in Hawaii. Hawaii’s median sale price for a single family home is $1,050,000. The 70 percent Rule states that if a home’s ARV is $600,000 and it requires $30,000 in repairs, you should spend no more than $441,000 for it.
$600,000 (ARV) + $30,000 = $630,000
$630,000 x 0.7 (70%) = $441,000
Even in a costly market like Hawaii, the 70 percent Rule is a useful rule for Hawaii home flippers to follow in order to avoid overpaying for a property. The entire purchase cost of the property, the repair and remodeling expenses, the carrying costs, and the cost to sell the property are all included in the cost of flipping a home (including marketing).
With the laundry list of considerations that every investor has to consider when flipping houses in Hawaii, it’s highly advisable to talk to a real estate professional. House flipping is as popular as ever, but flippers are making less money from it. Professional guidance helps to navigate this market, which is prone to fluctuation and varies from neighborhood to city to island.
A local agent who knows the area will be able to quickly point out good market opportunities and warn you of any red flags. With the right professional assistance and enough capital to get you started, the Hawaiian housing market is a golden opportunity for tenacious home flippers.