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Observations in Hawaii Real Estate - Part 1

Updated: Jul 26, 2022

Influencers are not subject matter experts.

In the age of social media, it is not uncommon that many experts are diversifying.

You see these on YouTube all the time. Content creators give the public a glimpse of their life.

“What I do in a day as a doctor/dancer/engineer.”

“How much I make as a doctor/dancer/engineer.”

Realtors are no exceptions. Especially when you have a small business, and are an entrepreneur, the number one rule is to get your name out there.

When you’re young and green, you don’t have an impeccable history record and recommendations to speak for you so you have to turn to social media, which is a new form of marketing.

You can be an influencer realtor, posting photos that get hundreds of likes, but the most important thing to realize is that hundreds of likes do not translate to hundreds of sales.

Take for example, this young influencer realtor in my area.

I’ve seen a few of his Youtube videos where he “teaches” others how to invest in real estate. He hosts real estate investing meetups and seminars in our city, and built an Instagram/YouTube following (10.5k followers and 5.78k subscribers respectively).

He currently has one active listing.

When he first posted the listing, he was asking for $1.3m on March 25, 2022.

In a current hot sellers market, his listing has been active for almost 100 days. This is in a market where the median number of days active is 53 days for single family homes. His price has dropped 6 times in 93 days.

He has dropped the price twice every month. His current price is now 10% less than his original asking price.

Here is my opinion along with some facts:

He bought it for $960,000 in February 2022. It was listed a month later for $1,300,000 after attempting renovations. T

he renovations are not worth $340,000 ($1.3m asking price - $960k sold price). Some design choices look like a cheap facelift. The black hardware (currently trendy) with the baby blue paint just screams... like a nursery? Tacky? Maybe he should've opted for a beige or classic white paint and hired an interior designer.

He also replaced the light fixtures with some cheapo flat LED panel. If I were him, I would spend the money on a nicer light fixture as that could have really elevated the space.

Also. Cheap shaker cabinets.

The laminate in the living room looks well done and was a good choice.

However, the floor plan looks weird as the kitchen is super small and seems to be on the first level, but the main living space in on the 2nd level. A weird floor plan can also limit the number of interested buyers.

I assume windows are original as well. Which means old and inefficient in insulating from heat or noise.

Take a look at some of the before/after photos below. Before photos are from a sale listing two owners prior.

After renovation

Before renovation

After renovation

Before renovation

After renovation

Before renovation

After renovation

Before renovation

Here are the numbers, and I'll let you decide if this is a deal or no deal:

Without touring the property, and by just looking through the photos alone, I would guess his renovation costed around $25K-45K.

Prices for construction materials have significantly gone up in the 2020-2021 period due to pandemic-related supply chain bottlenecks and port logistics nightmares. Of course, being in Hawaii means everything in our stores has to come shipped to us.

People will put a high price tag on a "well done" renovation, but it it's a "half-assed" renovation, people will actually put a lower price tag on it since they would have to factor ripping it out and re-doing it themselves anyway.

For a price tag of $1.3m and "newly renovated," the future buyers would expect to have to do a very limited amount of repairs, which does not look like the case.

There’s new exterior and interior paint. But he didn't bother to replace the rusty ass screen doors.

The biggest expense in a construction project is labor. Labor is expensive, so if he did this himself, there could be some cost-savings.

He would not need to get a permit since it does not look like he did any major MEP or structural changes. His renovation was a quick and dirty band-aid on a below-average - but not distressed - property.

He is the Owner Listor, and is also his own broker, so he would not have to pay any seller or broker fees. He would just need to pay 3% to the buyer’s agent. So -$35k. Gross earnings $174,000. Minus renovation costs (~$40K) = Net earnings $134,000 not including any interest he has the pay on the loan, lending, closing fees when he bought the property.

However, since it's already been on the market for about 100 days, each day it stays on the market would make it another day harder to sell.

Honolulu is a hot sellers market which the median time on the market is around 1-3 months. So for a property to sit that long on the market, and whose price already dropped SIX times in three months translates to what I can only assume to be a desperate seller.

Tip: The deal is made on the purchase, not necessarily the sale.

Unfortunately he bought the duplex for $960K.

Average rents in Honolulu would have only generated about $1,500/month for a 2 bedroom apartment in below-average condition and depending on the parking situation. Higher asking rents need a favorable parking situation, not a 1-parking or no-parking situation.

This is a small property in metro Honolulu, so I assume the property also had a tight off-street parking situation.

Without renovating the property, he could have perhaps only gotten $3,000/month for both units on a $4,300/month mortgage.

Of course, he could have paid cash, but cash doesn't automatically turn a bad deal into a good deal.

It would be easier to sell a property that’s priced fairly - or even underpriced by a little - and have lots of offers, even a bidding war, than to overprice the property and not have a desirable or even reasonable offers.

The longer that the home sits on the market, the more desperate the seller will become.

It becomes harder to sell the home as many buyers will think “what is wrong?” with the property and “why isn’t anyone interested?”

Interest rates are going up, making homes more unaffordable for majority of the buyers who need financing.

You would need an all-cash buyer looking into capital preservation rather than cashflow as Hawaii is an appreciation market, like most major Coastal cities.

So, this begs the question - is he making more money doing real estate or is he making more money teaching people how to do real estate?

Soooo... would you buy this home for $1.17m or even $1.15m?

My guess is that he would drop the price of the home 2 more times in July: once at the beginning or the month, and once towards the end. If he is willing to drop the price of the home to $1m, it might sell. However, he will significantly eat into his profits. Depending on how much he spent on: construction costs, loan fees, and interest, he might just walk away breaking even. ($1,000,000 - $960,000) = $40,000, which is what I estimated his construction costs to be if he hired a contractor.

The purpose of this post is to:

  1. Show how IG/YouTube gurus are not the masters of their trade.

  2. An influencer is a content creator first and foremost.

  3. Work with someone who is actually a professional in their profession.

  4. It’s not easy to be a “real estate investor” or “fix and flipper” - if it were easy, everyone would do it.

  5. Construction is not as cheap as people think it is. HGTV makes flipping homes and construction seem like there are a lot of easy profits to be made, but IF IT WERE EASY, EVERYONE WOULD DO IT!

  6. I admire his hustle. He is still young, and will have lots of opportunities to learn, just like all of us.

  7. The most important thing is getting started, which he is doing!

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