Archive for May, 2008

New Real Estate Brokerage Company On Oahu Coming Soon

FYI……Just a quick note to all my friends and clients that I received my Real Estate Broker License today from the State of Hawaii and I plan on opening my own real estate brokerage company next month….so stay tuned for further details….and…..many thanks to God and all those that have supported my efforts these last few years……Aloha, Jon.

Oahu First Time Buyers’ Dos And Don’ts

Content for today’s blog entry was contributed by Broderick Perkins.

If you are a first time Oahu home buyer, you have a lot to learn.

Working from a blank slate you must build an understanding of the housing market, determine what you can afford, land a loan and hone in on a home that’s a good fit for your lifestyle.
The transaction will likely become your largest asset ever so there’s little room for error.

It is a daunting task, but you can ease your concerns if you take the process step-by-step, watching your footing as you move along the path toward the American Dream.
Below is a list of “Dos and Don’ts” to help first timers turn that stress into the self-confidence you’ll need to move closer to your first home.

The list focuses on areas first-timers typically stumble over in their initial home buying attempt. Knowing what you could face will help you avoid some of those trip ups.

The Dos:

DO examine your credit standing.
You need to know your credit standing. You may need to request corrections if there are errors. You may need to adjust your habits if your credit behavior is less than sterling. And you need to take those steps before seeking a loan. Your credit report is free from AnnualCreditReport.com, the federally regulated place to go. You can stagger retrieval of your credit report from each of the big three credit bureaus, getting one from a different agency every four months. Your report is free, but you may have to pay a nominal fee for your credit score (a numerical scoring of your creditworthiness) depending upon your state law and other factors.

DO explore a mortgage pre-approval or commitment.
An early green light on a loan will put you in a good negotiation position when you find your dream home. It will also help you shop within your budget.

DO line up a dream team of professionals.
You will need a real estate agent, mortgage broker, home inspector and others to be your professional eyes during your home search. Call me at 808-737-7694 and I will assist you with your efforts.

DO buy for your lifestyle.
Your first home may not be your last, so try to anticipate how long you’ll live in your home and buy based on plans for the duration. Raising kids, starting a business, taking on a new job, housing Grandma could all impact the size or type of home you need first.

DO heed housing priorities.
Separate your “wants” from your “needs” so you know where you can compromise to stay on budget.

The Don’ts:

DON’T get taken by the first house or neighborhood you see. Keep an open mind and spend sufficient time finding the right fit in a house and neighborhood for your needs.

DON’T buy more than you can afford. Lenders will often loan you as much as your financial condition warrants, but that may not be what you can comfortably afford. It’s better to live with a comfortable mortgage on a smaller home than to struggle every month paying a mortgage on a house with more room than you really need. The down payment, closing costs, monthly expenses and taxes must in total all be within your income and savings range.

DON’T treat your home like a stock portfolio. Homes appreciate and depreciate in cycles which often aren’t so predictable. Don’t expect your home’s value to skyrocket. Buy a home because you need a roof over your head, not for a quick profit.

DON’T try to time the market. Pinpointing the bottom of the market almost always happens after the market has started to turn up. How, otherwise, can you see the bottom? Focus on personal lifestyle needs, not market trends, in terms of timing your home buy.

DON’T sign for a confusing mortgage. Shop around for the best loan, read every detail of your loan contract and get some help understanding terms and provisions that confuse you. Avoid exotic, “creative financing,” multi-option loans you don’t understand. Again, lifestyle is key. Get a loan that fits.

Hope this helps……..Aloha, Jon.

“There are three kinds of lies: lies, damn lies, and statistics.” – Commonly attributed to Benjamin Disraeli.

I paid over $4 per gallon to fill-up my car today. I paid slightly over $60.

I am having a hard time believing that the inflation rate is only 4% as recently reported by the government. I imagine you feel the same way if you have recently purchased fuel, or for that matter, groceries.

John Mauldin, an investment expert, who authored the book “Bulls-Eye Investing” says that if beauty is in the eye of the beholder, then inflation is in the eye of the statistician. He says the inflation number you end up with is dependent on the models and assumptions you choose, and that the government has modified those assumptions over time. See the chart below regarding different ways of measuring inflation………

different-ways-of-measuring-inflation.jpg

I realize the annualized inflation rate is supposed to represent such for an average person….but I would like to suggest that the inflation stats reflect truer purchase patterns, with more weight given to things that folks purchase frequently (like fuel and groceries) and less weight to the infrequent purchases (such as furniture, appliances, and vehicles). For example, the price of sofas may have declined 10% this year, but I do not purchase a sofa every year, but not a week goes buy I do not buy groceries or fuel. The next time you go to the doctor, pay a private tuition bill, or simply have a meal at the mall, ask yourself if 4% sounds right to you…..and if it doesn’t, then send me an email and let me know I am not crazy….Aloha, Jon.

Increase in Hawaii Foreclosures Significant But Not Severe

Content for this blog entry was taken from the article in the Honolulu Advertiser written by Advertiser Staff Writer Andrew Gomes.

To view the contents on www.honoluluadvertiser.com, go to:

http://www.honoluluadvertiser.com/apps/pbcs.dll/article?AID=/200805140100/BUSINESS04/805140373

Here are some key points from the article:

Hawai’i home foreclosure filings last month rose above 200 for the first time in recent years, according to a count by RealtyTrac, presenting another weakening – yet still not alarming – sign for the local real estate market.

Still, foreclosures are relatively low for the state historically, and haven’t dragged home prices down dramatically as they have in some markets on the Mainland.

During Hawai’i's mid-1990s housing slump, there were 300 to 400 foreclosures per month as measured by foreclosure lawsuits filed.

Today, most foreclosure cases in Hawai’i occur outside court, with some estimates of nonjudicial foreclosures as high as 90 percent of the total.
While judicial foreclosures can be easily tracked through court documents, nonjudicial foreclosures are more difficult to quantify because some of the information, such as default notices, typically aren’t public.

Though job losses, divorce and health problems are traditional causes of financial difficulty that lead to foreclosure, many consumers are now losing their homes after mortgage interest rates reset at dramatically higher rates on exotic loans that were heavily marketed to subprime borrowers over the past several years.

In Hawai’i, local lenders say borrowers generally were more conservative and didn’t take out as many of the riskier loans as in some Mainland markets.
Also helping the local housing market avoid a foreclosure deluge have been mostly stable home prices, relatively low unemployment, rising personal income and an economy that is still growing, albeit only slightly.
Constrained land supply also prevented developers from over-saturating the market with unsold new homes.

In many Mainland markets, plummeting home values, a glut of inventory and weak buyer demand have prevented troubled owners from refinancing or selling their property. In some extreme cases, foreclosure waves have eroded property tax bases and placed municipal budgets in peril.

Nationally, the foreclosure rate in April was four times higher than Hawai’i's at one filing per 519 households, or a total of 243,353 that represented a 65 percent increase over April 2007.

Hawaii foreclosure Ranking Slips To 36

The Pacific Business News reported this week that Hawaii ranked 36th in the nation in home foreclosures rating in April, according to the latest report from RealtyTrac.

Last month, Hawaii ranked 45th. Hawaii had 210 foreclosure filings in April, up 75 percent from March and up 218 percent from April 2007. There were 120 foreclosure filings last month and 66 foreclosures in April 2007. Hawaii had a foreclosure rate of one filing for every 2,381 households, said the latest survey by California-based real estate research firm RealtyTrac.

Nevada had the highest foreclosure rate in the country again with one filing for every 146 households. California had the second highest foreclosure rate, with one in every 204 households receiving a filing in April. Arizona ranked third, with one filing for every 224 households. California had the highest number of foreclosures at 64,683. Nationwide there were 243,353 foreclosure filings for the month, up 4 percent over March and up nearly 65 percent from April 2007, according to the report.

I have alot of investors ask me, “What is a typical Oahu Gross Rent Multiplier?”

……..Now there is no hard and fast rule on this subject, but my personal experience suggests the number is somewhere between 16 and 22.

With the question answered, let me back up a bit and explain it.

Simply put, the Gross Rent Multiplier is the ratio of the price of a real estate investment to its annual rental income before expenses such as property taxes, insurance, and even utilities for vacation rental properties. Other expenses could include the cost of hiring a property management company. Basically, the Gross Rent Multiplier is the number of years the property would take to pay for itself in gross received rent. For the investor, a higher GRM (perhaps over 22) is a poorer opportunity, whereas a lower one (perhaps under 16) is better.

The GRM is useful for comparing and selecting investment properties where depreciation effects, periodic costs (such as property taxes and insurance) and costs to the investor incurred by a potential renter (such as utilities and repairs) can be expected to be uniform across the properties or insignificant in comparison to gross rental income. As these costs are also often more difficult to predict than market rental return, the GRM serves as an alternative to a measure of net investment return where such a measure would be difficult to determine.

The common measure of rental real estate value based on net return rather than gross rental income is the Capitalization Rate or Cap Rate. In contrast to the GRM, the Cap Rate is not a multiplier but a rate of annual return. FYI….a typoical Cap rate on Oahu is about 3% to 8%, based on my recent experience.

I frequently get the question…….”What is the Conveyance Tax?”

The short answer is that the conveyance tax is a tax paid on all real property transfers that must be paid by the SELLER at the time of a sale and it is based on the SALES PRICE, CLASSIFICATION OF OWNER, and the following information:

……………………………………………………………………Home Owner…………………………………Non Homeowner
Sale Price under $600,000…………………………………….$1.00/$1,000…………………………………$1.50/$1,000
Sale Price between $600,000 and $1 Million………………..$2.00/$1,000…………………………………$2.50/$1,000
Sale Price over $1 Million………………………………………$3.00/$1,000…………………………………$3.50/$1,000

Exempted transfers include gifted or willed properties.

Examples:

A seller would owe a conveyance tax of $300 if they owned a property that sold for $300,000 to a buyer who was to be a homeowner.

A seller would owe a conveyance tax of $1800 if they owned a property that sold for $900,000 to a buyer who was to be a homeowner.

A seller would owe a conveyance tax of $3850 if they owned a property that sold for $1,100,000 to a buyer who was to be a non-homeowner.

If a property were given as a gift to someone, the seller would owe no conveyance tax.

Hope this make it clear…….Aloha, Jon.

Landlords and tenants are routinely asking me questions about their relationships with each other……..and I regularly refer them to this helpful handbook of Oahu Landlord-Tenant Information…….

Residential Landlord-Tenant Handbook (PDF) (2007 edition)

http://www.hawaii.gov/dcca/areas/ocp/landlord_tenant/landlord_tenant_HB_final.pdf

And if your question is not answered in the handbook, you can try the following Help-Line, the Residential Landlord-Tenant Line at 808-586-2634, from 8am – 12 noon, Monday – Friday except state holidays.

Hope this is useful for your needs…….Aloha, Jon.

How To Build An Oahu Real Estate Investment Team

Unless your name is Donald Trump (just kidding), you probably will need need a team of professionals on your side as you dive into the Oahu real estate market as an investor.

In addition to a real estate agent (and your tax advisor), here some team members for you to consider are:

1. An inspector who can evaluate the structural integrity of a home;
2. An escrow specialist who can ensure a smooth closing process;
3. A mortgage professional who can offer you different financing options
4. A property management professional who can assist you with leases and ongoing management of your investment properties

Having a team of investor experts gives you more knowledge, as well as, more financial resources as well. One word of caution: While friends or family may be interested in joining your real estate investment team, it is best to pick individuals based on the experience they offer.

In addition to helping you find investment properties, please feel free to call me or email for the names of people who might be interested in becoming a member of your Oahu real estate investment team.

Checklist For Oahu Real Estate Investment Property

Homeowners look for one set of criteria when buying – school district, curb appeal, low crime rate, proximity to job, number of bedrooms, right layout, perfect-sized yard. While location is still a primary factor when you invest in real estate, most investors also add these to their checklist:

1. Single-family home built in last 25 years
2. A neighborhood that is mostly a primary-home community (rather than renters)
3. Square footage at least 1500
4. 3 bedrooms, 2 baths with 2-car parking (or better yet, a 3/2 living area upstairs and 3/2 living area downstairs with separate entrances and extra parking)
5. Nice yard but no pool (too much of a liability)
6. Safe neighborhood with little or no graffiti on public structures, fences, etc.
7. Acceptable GRM and Capitalization ratios.

Another factor to consider is close proximity to your own home. Especially when starting out, you may need to visit your rental properties frequently—to pick up a check, make minor repairs, etc. For these reasons, any property more than 30 minutes away becomes less desirable.

It is important to remember you are not purchasing for your own use but to attract a high quality renter. Savvy investors choose properties based on the criteria above rather than their personal preferences. Doing so lets them pick from a wider base of homes and find the better bargain.

If you have more questions on which properties would make the smartest buys for you as a real estate investor, please don’t hesitate to call or send an email….Aloha, Jon