End Of Year Signals Opportunities For Investors
As we roll into the winter season, most people’s thoughts turn to the holidays. For the savvy investor in Hawaii, however, winter signals a time to evaluate the real estate market and review your portfolio.
The end of the year can present special opportunities for investors, explains Toan Doran, a partner and REALTOR at Prudential Locations who specializes in investment properties.
“This time of year, the market usually has a bit of a lull,” he says. “It’s difficult to sell at this time of the year because buyers get distracted with holiday events. Sellers are more anxious than ever with the holidays approaching. So, this is a great time for investors to come in and snap up some properties that have been sitting around for a few months.”
As an example, Doran describes the factors influencing one of his clients. “They are selling and moving to the mainland, and they want to be with family on the mainland by the time Christmas rolls around. That’s an influencing factor that will make investors with cash or a high downpayment more attractive.”
In addition to seasonal market trends, Doran sees growing renter demand as a factor of interest to residential real estate investors:
“Given the economic conditions of the past few years, a lot of young people moved back in with their parents or have been living with friends. These people are now starting to get better jobs, and they’re starting to rent. These young people are coming into the job market and not being able to buy but wanting to rent – they are important to investors, especially in the metro area.”
The 1031 exchange provides an opportunity to reposition your portfolio while deferring any taxes on gains from the sale of existing investments.
“The great thing with 1031 exchanges is that you can improve your real estate portfolio without one penny coming out of your pocket,” says Doran. “You can swap out properties that aren’t producing enough income for those that are.”
Doran has seen investors in areas like Ewa and the Leeward coast exchanging for properties that are in higher demand in town. Another common scenario is to swap undeveloped land for income-producing property, such as vacation rentals.
Depending on the properties being exchanged and purchased, there may be financing options that can improve the investor’s position, making the exchange even more attractive.
While many investors are refinancing to take advantage of low interest rates, selling a property in order to acquire one with lower-interest financing can kill two birds with one stone by repositioning your investment at the lower interest rates.
While the 1031 exchange is a great vehicle for deferring taxes, it is not the only option for investors. Capturing profits at low capital gains tax in speculation that taxes may rise over time, and then purchasing a new investment, may fit some investors’ goals depending on their tax situation.
Your financial or tax advisor can help you evaluate your individual situation.
Using Current Assets to Acquire More
Some investors choose to leverage their assets by using the equity that has appreciated in one property to acquire additional property.
“If you have a sizable amount of equity in one property, that’s like money sitting in a bank account. With the recent rise in prices and home values, investors are taking out equity from one property and using it as a down payment for another property,” says Doran.
According to Doran, condos are popular with investors due to their low maintenance, easy rentability and appeal to off-shore buyers. Both local and mainland investors gravitate toward Waikiki.
“Many people like to own real estate where they like to travel, so that they can write off travel expenses,” he says. “Kaka’ako is also a hot neighborhood. It’s a different type of investment, and a great place for second-home owners and investors.”
WHAT’S YOUR BEST STRATEGY?
UPGRADE YOUR VALUE: Take advantage of low interest rates to “move up” to a more valuable property for a better long-term investment
INCREASE YOUR RETURNS: Exchange a property where rentals or income have slowed for one where rentals are in-demand and command a higher price
LEVERAGE YOUR ASSETS: Use the equity that has appreciated in one property to acquire additional property
PLAN YOUR ESTATE: Swap a single unit for multiple units to leave to children or grandchildren