I’ve owned property in Honolulu (Kaimuki) since the late 1980s and I don't recommend buying rental property in Honolulu or any part of Hawaii at the moment. Rents in Honolulu are soft now because there's a glut of new condos being built in the downtown area.
Take a look at this chart on nationwide rents from peak levels. Notice how 2 bedroom condo rent is down 25.4% from its peak in January 2015 and down 12% from a year ago.
There's also a large increase in inventory in 2019 as the market cools off. Prices have outstripped wage growth in Hawaii for almost a decade and China money has cooled off.
Instead of buying a rental in Honolulu with a <4% net rental yield, I’d much rather buy rentals in the heartland of America where net rental yields are 8% – 12% plus stronger capital appreciation. We're talking about growing cities such as Dallas, San Antonio, Austin, and Omaha.
Take a look at real estate crowdfunding and check out various projects around the country for free. I’ve personally invested over $800,000 in crowdfunding to take advantage of pricing arbitrage and higher returns. I'm personally focused on investing in heartland real estate, a multi-decade demographic trend.
Real estate markets in expensive coastal mainland cities and Honolulu are soft because of prices far outstripping wage growth and job growth, a SALT cap of only $10,000, a mortgage interest deduction cap on mortgages of only $750,000, and rising interest rates.
There’s no reason for people to have to live in expensive cities anymore thanks to technology. The heartland should see a multi-decade investment trend as more and more people and capital relocate out of places like Honolulu, SF, and New York City.
As for Honolulu, I’m personally looking to buy a nice home in Kahala. I’ve been looking for three years now and several homes I visited in 2015 are STILL on the market! Owners are stubborn to cut prices, but cutting they are.
Related: It's Always Good To Dream About Living The Dream
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate.
FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1.5 million organic pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.