If you have ever visited Hawaii, I am sure you find it hard to forget the experience. It doesn’t matter which of the 6 major islands you visited, the tropical beauty and laid back pace is sure to be remembered. From the white sandy beaches, lined with palm trees to the tropical forest hikes, people return again and again, to nourish their need for relaxation and to just 'reboot'.
Hawaii is a magical place and people from all over the world, come here and consider buying their own piece of Paradise. Owning real estate in Hawaii is a way to enjoy the tranquility of the islands on your terms, whenever you like, and it can be a sound financial investment, as well. Here are just a few reasons why investors put their money in Hawaii real estate.
1. Hawaii Property’s Consistent Appreciation
Over the past 37 years (1985-2022) Hawaii real estate has increased a median average of 5.1% each year. Of course the real estate market does experience some ups and downs, as any market does, Hawaii’s allure is continual and property values tend to have steady appreciation. Also realize that there are areas on each island that have a much higher appreciation rate, as well as some areas that bring that median down. Areas in and surrounding tourist destinations, will always continue to increase. As long as people continue to visit the islands, there will be those who decide to invest in and own a vacation home here, providing a strong underlying international support for the market.
2. Part of the United States
Hawaii is part of the United States, making this a safe investment. Considering investing in other tropical climate countries is always a consideration, but one never can tell if their investment is going to be safe from government tyranny, or hostile takeovers by cartels and oligarchs. The safety and security of the U.S. legal system helps to distinguish Hawaii real estate from other tropical real estate investments, including the financially rewarding income stability from owning a rental property.
3. Work from ‘Vacation Home’ Opportunities
If there is one thing we have all learned from the recent pandemic, it is that we can continue to work with our staff and clients, from virtually anywhere. Even if that ‘Anywhere’ is a on a Tropical island in the middle of the Pacific. Sure there is a slight time difference, which means you may have to wake up earlier to get into the morning meetings. But, you also get off work earlier, to go off and enjoy the many things you like to do, like surf, hike, or paddle a canoe. This has caused a recent increase in our tourism and is likely to continue, which will support the number of potential buyers of real estate.
4. Real Estate with a Dependable Income
Hawaii's economy relies almost solely on tourism. Since the pineapple and sugar cane industries left the islands in the 1970s, making way for building more homes and cities, Hawaii has been left with tourism to be its primary source of revenue, with US military coming in at a distant second. Hawaii was experiencing a constant 5% increase year over year of visitors prior to the pandemic. In the first half of 2022, it has started back up again, to pre-pandemic levels. And the kicker is, we haven’t been allowed to have any visitors from the Pacific Rim like Japan, Korea, China and Taiwan yet. Because Hawaii’s climate is consistently warm year round, there is not real ‘slow season’. Visitors from all over the world support our local economy and help support our real estate market.
5. Hawaii’s Supply and Demand
To preserve Hawaii’s beauty and attractiveness, most of the land in Hawaii is set aside for agricultural and conservation. Nearly 90% of the land is not available for real estate development. Therefore, while there may be room for more homes, there is little chance that the island will be overbuilt, making the supply of homes less than the demand. Demand makes the prices go up.
6. Aging Baby Boomers are Buying
Baby Boomer generation is now between the ages of 57 to 76. While many are working later in life, they also have a lot of money built up in their investments and savings. Enough to retire anywhere they want. There is a huge recent flood of retirees from all over the country (predominantly the West coast), that are selling their homes and moving to retire in Hawaii. The desire is not only limited to condos in Waikiki, but even the rural areas of the islands. A huge subdivision is in the process for the area of Princeville, where people are buying 5-40 acre lots for their ‘Dude Ranch’. Thanks to the success of shows like Yellowstone, Longmire and others, people are looking for that ‘Last Frontier’ and they are willing to pay several million for it.
7. High End Properties Bring Big Returns on Investment
Hawaii has the highest cost of living in the United States. Not surprisingly, a large percentage of visitors who come to the islands can afford and expect high end accommodations and services. Whether they come to rent or come to buy, this upper end market tends to continue upward in value. The Honolulu Board of Realtors announced the Hawaii Luxury Market increased, even during the pandemic, raising luxury home prices up over 26% from 2020-2021. It is also expected to continue to increase due to low inventory of homes in the islands.
Deferring Capital Gains Tax
The advantages of investing in real estate still apply in Hawaii as they do anywhere else. If you plan to rent out your Hawaii property, you may be able to deduct interest portion of the mortgage, maintenance fees, management fees, property taxes, insurance, and depreciation. Even if you do not rent out the property to generate some cash flow, later on when and if you decide to sell your ‘piece of paradise’, any increase in the property’s value will be taxed at the more favorable, capital gains tax rate, instead of the typical tax rates.
For all of the reasons above, Investing in Hawaii makes sense for your portfolio, as well as for your sound peace of mind.
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