Hawaii’s multifamily sector is strong for a number of reasons, the first being that first-time home-buyers are mostly having a difficult time qualifying for loans. After the revamp of lender policies, banks have enforced extremely high standards for home-buyers that few are able to meet. This means that would-be buyers are still renting, stabilizing the potential tenants pool.
Also, should you glance at Honolulu’s skyline, you’ll notice the inventory of apartment buildings mostly was built between 1940 and 1970. The cost of scraping the earth and starting over is prohibitive unless there is some government financial aid, and it shows. The newer buildings you’ll see sprinkled here and there are either luxury condos that are for sale as condominiums OR HUD (Housing and Urban Development)-assisted developments, which have rental rate restrictions for occupants with lower incomes. For the most part, though, ninety-or-more percent of buildings in our market are from the building boom that came after WWII, when there was lots of land and not enough housing.
The second part of that equation has not changed, even after all this time. There is still a shortage of housing in Hawaii, but no one is making any more land. Which further contributes a stabilizing factor to the existing building inventory, keeping this sector robust and relatively low-risk.
Notice I didn’t say ‘no-risk.’ Without people skills and proper management, an apartment building will lose you money. Do you have a reasonable plumber and electrician on speed dial? Have you figured out how to write a lease that protects you, especially in this overly consumer-protective state? Do you have someone who will do property showings for vacancies and are your rent collection procedures in place? Are you a whiz with difficult people, diffusing high-stake emotional issues at the speed of light? Do you know your market so that your rents are reflective of your product quality? Poor location can also hurt you, especially with external obsolescence (A.K.A. over-improving to make a pretty building in an ugly neighborhood).
After self-managing a number of buildings and a range of personalities, I can tell you from experience that it isn’t easy, and you may want to hire someone to take some of the burden. Management services usually range from between 6-10% of your monthly gross income, which is an incentive for companies to fill vacancies fast, but remember that you aren’t their only belle at the ball. I have been asked multiple times by clients whether I offer management services, and have always said “no” up to this point. However, since I just opened up my own shop earlier this year, I may be willing to take on a few management contracts, but not so many that I can’t do sales. Keep asking, I may just say “yes.”
Last, the MF sector is strong because there is no inventory. Anything that gets listed at market values sells days after it’s put on the market, and that’s because a few investors have figured it out: that this sector is not going anywhere. In fact, it’s probably only going to become stronger. Plus, a lot of owners are putting their properties into trusts and the like so that their heirs can benefit from the relatively “passive” income. This is where things fall apart. I can’t even begin to tell you the amount of times I’ve seen families fight over such assets. See for more about how families disagree. When the benefactors are gone, heirs almost always expect to go their separate ways.
The upshot is that Hawaii’s apartment buildings are a fantastic investment, and one that continues to show strong growth potential. There are a few new work-force housing developments slated for Kaka`ako, which will be coming up in the next couple of years, but the effect of those on the walk-up apartment shouldn’t make a huge dent in its attractiveness and marketability. There are also something like 7,000 Marines relocating to Kaneohe Marine Base in the next 12 months, which the Windward side will not be able to handle.
But just because there is no inventory doesn’t mean that you can’t invest in MF. Because I specialize in apartment building sales, I have an inventory of off-market properties, which you can access simply by filling out the non-disclosure form, accessible from this page: . Just print it out and email it to email@example.com along with your telephone number (I’m still trying to get the ‘submit’ button to work). I look forward to helping you determine if this investment type is right for you!