Dalton Elliott


Episode 32.

Dalton Elliott, Director of Sales, Lima One Capital

00:00:00 – 00:02:00

… great idea a solo episode focusing on Hawaiian Real Estate. It is such a unique market and I think he would struggle to find a state that is more beautiful than Hawaii. By no means am I had expert on in the islands, but I went down a few fun and engaging rabbit holes. Do you wonder what options you have to cover yourself from volcanic activity as a real estate investor in Hawaii? Stay tuned and I will fill you in. Thanks for listening. You’re listening to the real estate of things podcast. Aloha and welcome to the real estate of things podcast. I’m your host, Dalton Elliott. I just got back from Hawaii. Shout out to Mary and Zach for inviting my wife and I either their beautiful wedding. While I was in Hawaii, I popped open zillo bunch of times and Geez, what a real estate market. You are in paradise, though, so that trip really kicked off the…

00:01:00 – 00:02:06

…idea for a solo podcast to really share some market insights with you. Courtesy of LEMO and capital, the nation’s Premier Lander for real estate investors. So, though I was on the Big Island for my trip, we’re going to focus on O Wahu and Honolulu. I think the best place to start is just really high level, where you usually start with real estate. Let’s look at prices in the market. First lesson I learned out there is paradise ain’t cheap. The median single family home price is one point one five million dollars. That’s on the high end, right, the highest end this in terms of comparatively across the country. Right. This is up from nine hundred and Fiftyzero a year ago. Right. So, just like every other part of the country, Hawaii has experienced incredible growth. That’s over a twenty one percent increase year over year. So that pushed it over the million dollar mark. That’s for single family right. CONDOS in the market, they have followed a similar trajectory. They’re up just over fourteen percent year over year and the current…

00:02:06 – 00:02:59

…medium price sits around five hundred and fifteen thousand dollars. Right. And again, that growth also par for the course from national real estate landscape, just up into the right. Like all real estate, mainland or not, properties are moving fast. Right, nine days. That’s the median days on March days on market metric for properties in the Honolulu area and with numbers like these you would expect a strong investment market. One thing that really stood out as an interesting metric is that only point six percent of sales are flips. Point six percent of sales or flips. The national average is six point eight, so it tracks well below that national average. Nonetheless, if you are doing a flip in that area, the profit is frothy. Average profit for a…

00:03:00 – 00:04:01

…flip in Honolulu is a hundred and FIFTYZERO dollars. Then national average is sixty five thousand. So you’re talking more than two x the national average for Roi. It’s massive and from my standpoint this is a admittedly a very small sample size observation, but from driving all over the big island you can see opportunity everywhere. There’s a significant amount of aged housing stock. So it’s not that it’s without opportunity. But a little bit later I want to talk about, you know, permitting right, so any downward trends, they are very interesting in our current red hot real estate market. One metric related to permitting down thirty two percent year over year. Right overall permits, Hawaii has some of the toughest building regulations in the country, no questions asked, and the average permit timeline. That’s three times the national average. Right to get a permit. I think it’s fair to say it probably takes nerves of steel to push…

00:04:01 – 00:05:00

…ahead. But again, the fruits are plentiful for those investors who do develop and flip in Hawaii. Again, the dollars are there, but the tradeoff is, you know, you have a bunch of volcanoes. Talk about that in a minute. And then the the timeline on it. Right. Housing regulation is very tough out. There a lot of good reason behind it. A report by the University of Hawaii Economic Research Organization and noted that by raising the cost of housing production and regulation reduces the supply of new homes leads to higher prices. Right, that’s a no brainer. They went on to say that regulation could be counterproductive if it places a large burden on developers. While we might prefer developers to provide large units with generous amenities at low prices, requiring developers to meet overly rigid guidelines is going to result in mini projects failing to go forward at all. Right, I think that’s part of the slowdown and permitting that, you see regulation base. But then you throw in global…

00:05:00 – 00:06:02

…supply chain and labor shortages and the fact that the islands are five or six hour flight from the west coast of the mainland. This year over year, downward trend really starts to make sense. But certainly not to be doom and gloom. Looking at the overall economy of Hawaii, pre pandemic unemployment was only one point six percent. Absolutely wild. You know that. That’s that’s below what economists generally peg as healthy unemployment. So that’s, you know, that’s an about positive range. Pretty Wow. As of February two thousand and twenty two, it was sitting at three point six percent. All right, that’s more than double what it was pre pandemic, but it’s still incredibly low, and I think you can rationalize that, given the fact that a substantial part of the Hawaiian economy is driven by tourism. I’d say that that shift kind of pre pandemic to today, it’s expected and really explainable. All right, this is something that was on my mind and this made for some interesting Uber driver conversation. To what volcanoes. I checked one thing off the bucket list.

00:06:02 – 00:07:00

While I was on the trips. Like seeing lava would have crazy thing to see in person, just this lava spewing out of the middle of the earth. It’s wild. So volcanoes. You can go to the volcano park on the east side of the island and you can see an active volcano, kilauea. My wife and I did that and I one hundred percent right recommend making the visit if you’re on the big island. Pro Tip dress for cold and rainy weather. Right it takes an hour and fifty minutes to go from the west side of the island all the way over to the east side where the volcano park is. And if you’re on the west side, eighty degrees every day, clear as a whistle, beautiful resort weather, right. And then you start driving east and about an hour in you see the temperature start to drop and by the time we got over to the volcano park it’s like high F S, rainy, wet. Suffice it to say I didn’t pack a bunch of cold weather gear for the Hawaii trip. So lesson learned there.

00:07:00 – 00:08:00

But kilaweya back the volcano piece right that they have an active shield volcano right there and historically. I read it’s one of the most active of the five volcanoes that together form the big island of Hawaii, our lava. Fun fact for the day on the PODCAST. What in the world is a shield volcano? And, courtesy of Wikipedia, the source of all knowledge, it’s a type of volcano named for its low profile, like resembling a shield that’s lying on the ground. It’s that makes sense. And another interesting piece about that type of volcano. It’s formed by the eruption of highly fluid, like low viscous lava, which travels farther and forms thinner flows than more viscous lava that forms from a strato volcano. No clue with that. Is probably less shield, more up, but travels farther. That’s the scary wording in the definition there for sure. So bringing this full circle back to real estate, how does this play in real estate? On one side, Hawaii is an…

00:08:00 – 00:09:03

…expanding state. Right I live in South Carolina. We are not producing any more land for South Carolina and it’s just not a thing Hawaii. Opposite Story. Right, volcano is create land and a lot of instances, so that’s how the chain of islands exists in the first place. Right, just volcano er options. However, what a concern that is. I grew up on the coast of South Carolina. Right, hurricanes were the threat, but you learned to live with them and you can often predict with a relatively reasonable degree of certainty the trajectory of a hurricane, the strength of a hurricane. Tougher to do that with a volcano. So how does this play with insurance? Right? And again a quick disclaimer. This is all anecdotal information, especially this insurance part, shouldn’t be taken as any type of legal or insurance advice, not remotely. This is purely observational. Go talk with the licensed insurance professional for ironclad details. But back to it. One thing, you have a volcanic eruptions a lot of times triggers a ton of earthquakes, right,…

00:09:03 – 00:10:01

…like the other way around, right. So that also throws a curveball into it. Right, you have to worry about earthquake insurance. But getting far off the scope here. Let’s set that aside and just focus on the eruption. Piece of lava. I did some digging and I landed on property. Casualty three hundred and sixty during the last round of life and property threatening volcanic activity Hawaii is insurance. Commissioner made it clear that in Hawaii if a home catches fire and it’s destroyed due to exposure to Malten Rock, it’s considered fire damage. Right. So think of lava coming close to your house and just the heat off of it triggers a fire. That’s a fire right. Almost every standard homeowners insurance policy is going to cover fire. So you’re good to go if that particular corner case is what ends up happening. But again, recent past shows that the devil is in the details and a slew of lawsuits…

00:10:01 – 00:11:01

…pop off every time notable destructive volcanic activity occurs because you really have to dig into the policy and what actually trigger this destruction. So most policies have explicit exclusions, especially in Hawaii, around volcano or lava specific occurrences. If you want to get a volcano like lava specific insurance policy, it is going to be very expensive, very, very very expensive. Again there’s the tradeoff. Generally, have a homeowner can prove that the heat from the lava flow that’s what triggered the fire, you’re covered and good to go. But again, most insurance policies on the island exclude it. So it’s tough. Most of the island is in a tough spot when it comes to insurance. Pune up, pony up pretty wild rates and cover a big if scenario or ride it out and take your chances. I mean that’s the that’s the cornerstone of insurance period. But the big difference here is that volcano matures is really expensive.

00:11:01 – 00:12:03

Like, I don’t live in a floods on I have flood insurance on my house just out of an abundance of caution, and it costs four hundred bucks a here. Volcano insurance very different story. If you’re in Hawaii. That’s a risk that you live with, so that’s something to consider as well. Neither option is terribly enticing, but it’s impossible to predict whether related events, and especially volcanic activity, over any decent length of time. So something to weigh there, whether you’re an investor or a homeowner there. So that’s all I have. It is a trek, but Hawaii is an incredible part of this country. The Ocean, the mountains, the forest, volcanoes, spectacular food and absolutely incredible people. It really has everything. So invest, visit, don’t be a stranger. Thank you so much for listening. Take care. Are you a real estate investor looking for the right lender that can findance all your deals and help you scale? Lima one capital has the best suite…

00:12:03 – 00:12:58

…of loan products in the industry, Barnet, whether that’s fix and flips, fix and holds, building new construction or buying rental properties. They have incredible financing solutions for it all. A reliable common since Linder is one of the most important parts of your investment team, and that’s exactly what you get with Lima one. Let Lima one capital show you how they’ve helped thousands of real estate investor scale and increase their wealth. Check out Lima onecom or call eight hundred two five, nine, Zero Five, N Ninety five to speak with the consultant and preparation for your next project. Thank you for joining us today on the real estate of things podcast. Subscribe and tune in weekly for new content from the industry’s best while we continue to unpack the nuances of this dynamic market. Follow US across social media for additional insights and analysis on the topics covered in each episode, and remember to rate, review and share the show.

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