Low prices lure investors to Waikiki

By Lisa Scontras
Custom Publishing Group
It might just be the best kept secret in the real estate industry. Waikiki. Possibly the world's most famous beach, the Diamond Head setting, upscale shops, restaurants and hotels ... also has some of the lowest condo prices on the island. That's right, lowest.

 

It's an investor's paradise, says Shannon Smith, Realtor at Prudential Locations. The median sales price of a Waikiki condo is approximately $300,000, which means half of the 280 units sold this year closed for less than that — some for under $200,000 and all within a couple blocks of the beach.

"Views of Diamond Head or the ocean and proximity to the beach is what makes owning in Waikiki valuable," says Smith, who owns the condo she lives in as well as an investment rental — both in Waikiki. "From my condo, I can walk to concerts at the Shell, to great restaurants or to the beach to watch the sunset. I believe it's the proximity to everything and the potential for income that make it appealing to residents and investors."
Investors can rent long term or short term, to visiting tourists, to students, hotel workers, military, retirees or use the unit as a second home. Renters make up 62 percent of the Waikiki's residents.

"You basically have every rental segment concentrated in one area," says Smith, who has even sold to longtime renters making them first-time homeowners. "Since Waikiki has the largest concentration of hotels, it provides so many job opportunities so you have a large mix of tourists as well as residents. And if you work in Waikiki, it makes sense to look into buying there to save commute time and gas money."

The variety of buyers is just as varied as the renters with first-time investors, seasoned investors as well as those looking to retire. Prices are up 7.9 percent from the first quarter of 2007 when the median priced condo closed at $286,000 to the first quarter of 2008 when the median was up to $308,500. But if you know what you're doing, or have a Realtor who does, there are still excellent investment opportunities for those who are looking to start small.

Condo hotels can be purchased for just over $100,000 — but these may require larger down payments. Smith explains that if there is an operating hotel desk downstairs, an investor will need 30 to 35 percent down. If the unit doesn't have a kitchen — some of the converted hotel rooms don't — lenders will call that a "lodging unit" and may require 50 percent down.

Marie Imanaka, Hawaii area sales manager at Wells Fargo Home Mortgage says a condominium might be ineligible for conforming (95-percent down) financing based on the percentage of owner occupants in the building, whether participation in a rental pool is mandatory, whether daily maid service is available, whether units can legally be rented out on a daily basis and specific rules outlined in the condo documents.

The upside to owning one of these hotel room-like units, according to Smith, is the phenomenal potential for income — $150 to $200 per night in some cases. The majority of these, she says, are managed through a hotel pool, but some are individually managed.

"If you're going to go this route, you really want to find a real estate agent who is familiar with the nuances with the different types of condos in Waikiki and the lending guidelines," she adds. "If you are looking to put the minimum 5 percent down, ask your Realtor which buildings are more likely to be conforming."

Of the more conventional types of condos, perhaps the lowest priced in Waikiki might be at Ainahau Gardens or Namahana Terrace, which have fee simple units currently listed for $169,000 and $172,000, respectively.
Smith says the recently renovated units at Ainahau Gardens is "a good buying opportunity — the building cleaned up really nicely."

Oceanfront condos on Oahu's Gold Coast can range into the millions, but Smith says a less expensive option for beach lovers is the Waikiki Shore — across the street oceanside of Trump Tower — where walking downstairs to the sand can be priced as low as $700,000.

Whether you're shopping at the low end or the high end, rental income in the 137 different Waikiki condo buildings typically is higher than in surrounding areas.
"If your unit appreciates more than other areas, and the rents are higher, long term that adds up to a better value," says Smith.