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Investing in real estate can be like playing Monopoly: buy real estate; avoid bankruptcy; receive rental income; buy more real estate; protection against inflation; and see cash flow. Real estate is an excellent investment for a variety of reasons, and Hawaii real estate has historically been an excellent choice for a portfolio.

Why should anyone invest in real estate in Hawaii? 

Here are some reasons.

You earn more money 

When purchasing real estate, you typically only have to put down a percentage of the amount, allowing you to make more money with less debt, also known as leverage (loan from the bank).

For example, if you purchase $500,000 worth of shares, you will pay $500,000. However, to buy a Waikiki condo for $500,000, you may only need to pay $100,000 (20% downpayment). If prices increase by 5%, the price increase of $500,000 would be $25,000. 

The Waikiki apartment cost you $100,000 to earn $25,000, but the stock cost you $500,000 to earn $25,000; it is the leverage that real estate investing provides.

Depending on your lender’s requirements, your financial situation and assets, a different amount of interest advance will be required. However, even with multimillion-dollar properties, investors usually don’t have to pay the entire price.

Real estate resists inflation.

Over time, prices tend to rise, and you won’t be able to buy as much for a dollar as you used to. Do you remember enjoying snacks for a few cents in Honolulu stores? Ask an old Hawaiian about the stores and prices many years ago and you won’t remember.

Because properties are purchased at a specific price and monthly mortgage payments are typically fixed, the price you pay for your real estate investment will not rise over time to counteract inflation. However, the rent (Rent) you charge may increase with inflation, increasing your overall income.

Homes in Hawaii have always had long-term value.

Appreciation or capital gain is the increase in the value of a property over time. While the Hawaii real estate market has its ups and downs, historically it has always been on a steady upswing and the downturns are not as steep as those on the US mainland. Since 1972, long-term average annual growth has hovered around 6 percent for a single-family home and 5.4 percent for a condominium.

Average home sales prices in Hawaii have continued to rise in recent years. 

In June 2019, the median sales price for a single-family home was $800,000, and in May 2021 it was $978,000. For condominiums, the average sales price was $432,500 in June 2019 and $457,750 in May 2021.   Hawaii Real Estate Price Statistics .

In Hawaii, the sales price graph always seems to find a new peak.

You can invest in a fixed top and make a profit.

While  flipping a home in Hawaii  is a risk that can be very profitable, another idea is to buy a home as an owner. Lower interest rates are available for owner-occupiers, and you can make cost-effective home equity improvements without rushing to resale deadlines. 

Once the renovation is complete, your property will likely increase in value, giving you the opportunity to invest more in the future, such as renting or buying another property.

You can have cash flow from rental income.

Cash flow is the income generated from rent after paying expenses such as taxes, insurance, utilities and depreciation. This money is like an extra salary each month and can increase as rents rise with the market. Rents typically increase in Hawaii, so your monthly cash flow may increase over time.

As of July 2021, the average rent for a one-bedroom apartment in Honolulu is around $2,000. If you close the deal and buy a one-bedroom apartment for $250,000 cash, with utilities and maintenance of $1,100 per month, you will receive cash flow of $900 per month. If you had a mortgage after the 20% reduction at closing, your mortgage could be around €900 dollars, and with maintenance and utilities you would break even, while also getting your apartment appraised and hoping for an increase in the average rent.

Because mortgage payments are high in Hawaii, it is not uncommon for homeowners to rent rooms to cover the mortgage. While living with a roommate may not be for everyone, it can help a homeowner build equity and save money for other investments. 

You can take tax deductions every year.

The benefits of real estate tax season are numerous: mortgage interest deductions, cash flow from investment properties, operating expenses, property taxes, insurance and depreciation (even as the property gains value, etc.). accountant about the tax benefits of your Hawaii real estate investments.

When selling real estate, you can use a 1031 exchange to defer capital gains taxes.

A 1031 exchange from the Internal Revenue Code (IRC) is another great tax benefit that allows investors to sell real estate and buy other similar real estate—fully tax-deferred. For example, a family home purchased in 1940 for $40,000 may be worth $1,000,000 today. If you were to simply sell the family home, you would have to pay capital gains tax (about 20 percent) on the $960,000 (less improvements).

With Code 1031, you can take the money you receive from the sale and invest it in another property on a tax-deferred basis. Investing capital gains from this family home allows for portfolio diversification, potential rental income and appreciation, as well as huge tax savings.

Your real estate portfolio can generate stable income and contribute to a comfortable retirement.

Have you built up your real estate portfolio over the years? Are you getting a stable rental income after your mortgage and other expenses? You may have already paid off your mortgage. Property investments and rental income can provide a stable and reliable source of income that will help for many years and into retirement.

If you plan and buy correctly, real estate investments in Hawaii are generally safe and profitable. And if you or someone else lives in the property, it can also provide years of happiness and memories.