CATHERINE M. MATTHEWS (R), GRI
Broker-In Charge, Callahan Realty, Ltd.
Past President, Oahu Chapter
National Association of Residential Property Managers
Q. I recently moved to Hawaii and am considering buying a “fixer-upper” as an investment property to rent out and possibly move in years down the road. Can you tell me what things to look for and if it is worth doing?
A. This is a pretty tough question and I certainly cannot give you a definitive answer. I can give you some things to think about but ultimately you will need to make that decision, hopefully with the advice of a good Realtor and Home Inspector. You should carefully evaluate the renovation costs. Include materials and labor, include your labor too if you plan on doing any of the work yourself. I would also suggest adding in a percentage (10%-20% or whatever numbers you deem appropriate) for unforeseen problems.
No matter how carefully an evaluation is prepared it has been my experience with renovation work that the unexpected does occur.
Have a realistic expectation of what you are getting into; keep in mind being on an island in the middle of the Pacific brings in some unique challenges. Everything you want may not be available locally. Many times cabinets and flooring need to be ordered unless you choose what is in stock; delivery often takes 6-12 weeks. We have a few excellent local companies that fabricate cabinets, windows; bath surrounds etc., they are often quite busy and fabrication can take weeks as well.
You should get a thorough Home Inspection in your purchasing process. Carefully review the inspection to help you with your decision. Is the electrical grounding modern, are their GFCI outlets installed? It is my understanding that cast iron and galvanized plumbing has a life of approx. 50 years at best and often it is difficult to connect old plumbing with new. Doors and windows cost more than you may think. Get a careful evaluation of the roof, check the attic space for leaks. What about landscaping and sprinklers? Are any of the trees too close to the house where the root system may have compromised the foundation? If the property was built before 1978, you may need to use specially licensed contractors to do the work if the home has lead based paint or asbestos which will add significantly to the renovation cost.
If you are planning to move in down the road, look at these expenses vs. buying something that may have been renovated 10-15 years prior. Perhaps you could find a property at a good price with some life left in it for the rental period and then renovate when you move into it. Or perhaps you prefer the tax advantage you may receive if you renovate while the property is an investment.
As you can see, there are a lot of considerations and no simple answer. It depends on the specific property and the conditions of the home itself, also the home values in the neighborhood in addition to all of the above. Factor in your vacancy time as money spent. If it takes 4 months to complete the project, that is a full quarter of the year with no income. If you do decide to renovate, surround yourself with professionals and ask every question you can think of and then ask the professionals if they can think of anything you did not ask! Good Luck!