Oahu, Hawaii: How real estate buyers can use leverage to earn outsized profits

Jul 21, 2022 3:00 AM ET

They say that borrowing is bad – but not if you plan on investing in Hawaii luxury real estate! Investors know from experience how a little leverage can take you a long way when investing in real estate deals. And Hawaii’s largest island, Oahu, offers outsized opportunities for those who leverage the power of borrowing, especially in cities like Honolulu, and Oahu’s beachfront communities like Lanikai and Kailua. With a loan that’s just a fraction of the face value of the property, these cities and towns have huge potential for exceptional ROI on your real estate investments.

The Alluring Effect of Oahu’s Real Estate

Location, location, location: It’s what realtors often advise their clients – and for good reason. Property located anywhere on Hawaii’s largest island – Oahu – for instance, makes a great location for real estate investments. Investment in Oahu luxury real estate offers great opportunity for a broad range of buyers, including:

– Investors with a keen eye for property deals

– People looking to buy rental property, so they can rent out the homes and earn a steady stream of rental income

– Frequent vacationers, looking for a vacation property away from their primary home

– Homeowners living elsewhere (away from North America) who just want a second home close to all the business, financial, tech, and industrial hubs in North America

– Retirees looking for a peaceful, calm, place to move to, and spend their Golden years surrounded by nature’s beauty

 

And there’s one location, in particular, that may interest prospective buyers.

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On the east coast of Hawaii’s Oahu island, is a town called Kailua. Why here? People love the long stretches of sandy beaches that Kailua Bay offers, including the world-famous water sporting hub called Kailua Beach Park. They’re also enthralled by the gentle waves of Kalama Beach Park. And, of course, the sun rises, sunsets, starry nights, and beautiful scenery all around – what’s not to love?

 

The Leverage Effect of Profiting from Kailua Real Estate

Regardless of what your intent is to buy a home, Oahu’s Kailua is the perfect place in Hawaii to invest. If you don’t have a large investment pool to start off – you won’t need it – leverage is your perfect strategy! That’s because a little leverage (borrowed finances) can go a long way in Kailua. Let’s see how leverage plays a role in profiting from real estate deals in Hawaii, and generally too. We’ll use a hypothetical example to make our case for investing in Kailua Homes.

There are some investments, where you must pay the full face value of the investment – such as high-end paintings, or rare artifacts – and then sell them for a premium to make money. So $1,500,000 up-front may provide you an opportunity to earn $375,000, if your investments earn a 25% premium by the time you sell.

Well, some homebuyers in Kailua own their homes (say, worth $1,500,000) by borrowing, and paying a down payment of just 20% of the face value of the property – that’s just $300,000. Now, with that seed money, they own property that’s more in value than their leveraged capital. And, given luxury properties, such as Oahu Beachfront homes are in high demand, these buyers are set to reap some huge rewards.

Recent real estate values, across Oahu, have seen record gains. For example, a single-family home, valued at $980,000 in May 2021, now has a price tag of $1,155,000 – that’s a nearly 18% return on investment (ROI) in just one year! Few other safe investments can deliver such profits. Leverage lets you earn more money by borrowing less. So, by borrowing $231,000 (20% of $1,155,000), if the buyer nets $1,155,000, that’s a phenomenal deal – thanks to leverage!

 

Opportunity for Gains Elsewhere in Oahu

As an Oahu investor, you’re not restricted to just a handful of locations either – you have many other opportunities to tap into. Nearby (to Kailua) is another town where beachfront properties are in great demand. In fact, Lanikai Homes have been in a heated state, with a recent beachfront single-family home sale ($24 million) topping a 15-year record for luxury homes in Oahu!

 

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Once again, imagine the potential for gains by leveraging just 20% (less than $5-million) for that $24-million payoff! 

And Honolulu, Hawaii’s largest city, and the State’s capital, is also located on Oahu Island, and offers significant opportunity. Median 1-year price gains for Honolulu luxury homes are almost nearing the 20% rate (18.8%), with 1-year appreciation forecasts predicting another 12.4% increase.  And if you wanted to rent your home in Honolulu, you’re in luck there too. 

Median rent in Honolulu has seen a nearly 9% (8.8%) increase year-over-year. With tight rental home supply, and ever-increasing home prices, many individuals and families prefer renting – at least for now – to buying their homes. And that’s where a little leverage can provide you with a steady stream of passive income too.

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