Equity Matters: Financial Strategies for Real Estate Investors (Part 1)

Judy Meredith
“The Mortgage Professor”
Hawaii Area Manager
Direct: (808) 222-7903
NMLS ID: 716323

As home prices continue to soar, real estate property investment and investment groups seem to be all the buzz and everybody is trying to get into the game. With high buyer demand, decreased supply, and low mortgage interest rates, the housing market looks good in 2021. Investing in real estate can be less risky than other investments (like the stock market or opening a new business post pandemic) and since it is a readily available resource; real property investment provides flexibility, stability and diversification for a solid foundation for your financial portfolio.

When does a Homeowner become a Real Estate Investor? The first home? The second home? The tenth? The answer is that you become a real estate investor when you purchase your very first property. It is your first investment into your future and into real property. In fact, most real estate investor portfolios began with the First Time Homebuyer’s purchase of their primary residence. By learning to leverage the first asset and grow it into many; this is the where the strategies come into play.

So, the question is: What are some real estate property investment strategies that we can apply to maximize our efforts and profits? Because this query can span many educational opportunities, I will present this as a 3 part lesson.

The First Strategy is to follow what I refer to as my Five Tenets of real estate investment:

1. Know the Market and the Rules – It is impossible to know everything surrounding each facet of real estate investment and its many moving parts. If you do not know, then surround yourself with someone that does! You can do this by building your investment team of advisors.

2. Understand the Risks – Real estate negotiations & legal implications are systemic to real property investment. Thus, understanding the risks in the forms of general market risk, asset risk, idiosyncratic risk (risk to the particular property itself), and credit risk are paramount.

3. Invest in a great CPA & Accountant – Real estate investment can bring profit, tax shelters and more. A tax professional can help you leverage and navigate the various arenas.

4. Build an Investment Team – Real Estate Agent, Loan Officer, Escrow Officer, Contractor, CPA, Attorney – by surrounding yourselves with trusted allies, you can always have information at your fingertips to assist with decision making and execution.

5. Exit Strategy – The two basic goals of investing are (1) to make sure what you already have is not lost and (2) to grow wealth. Thus, setting goals for your investment and recognizing the importance of an efficient business model is key.

The Second Strategy is to understand the difference between a long -term and short-term investment.

1. Buy & Rent – For the most part, real estate investment tends to be a long term game since equity is generally built over time. You can acquire real estate for a long-term investment, in which you purchase the real estate with the intention of renting the property to tenants. Currently across the nation and in Hawaii, there is an eviction moratorium in place that is stopping landlords from evicting tenants for not paying rent during the pandemic. The moratorium will end Wednesday, June 30, unless it is extended. Across America it is estimated that 11+ million Americans are behind on their rent and could face eviction. Last month, state lawmakers gave final approval to House Bill 1376, which will put all tenants on a reasonable payment plan and avoid eviction. This bill forces the Landlord to solve for the mortgage delinquencies caused by the tenants’ nonpayment of rent during the pandemic; as well as going forward until the past due rent is received in full. Landlords may want to make sure they are fully vetting their tenants prior to delivering keys. If you are a novice Landlord, working with a knowledgeable property manager will help you navigate unknown waters.

2. Buy & Flip – There are many quicker paced options that can lead to gains if you’ve got the cash and wherewithal for buying and selling aggressively. You can make a shortterm investment, in which you purchase the property, fix it up, and sell it at a higher value. But, this tends to be a lot harder than what the media presents thru reality shows like HGTV’s “Flip or Flop”. In 2019, WalletHub.com ranked Honolulu as one of the worst places in the nation to flip houses. Their data examined 29 key metrics including median home price and the cost for the renovation for 170 cities across the United States. Honolulu ranked #146 and Pearl City ranked #155 due to our high median home sales price currently at $920,000 as of May 2021, coupled with the expensive renovation and material costs associated with property rehabilitation and upgrades. A profitable strategy in Hawaii is to buy property with non-permitted dwelling square footage and work with a licensed contractor and the Dept of Permitting and Planning to gain permits for the additions to increase the legal sq ft and in turn, the home value.

3. Buy & Build – Although it sometimes takes a few years, real estate development via subdivision or CPR is a great strategy for investment profit. Land subdivision results in separate parcel numbers for each new parcel, whereas CPR allows the underlying property to remain a single parcel and the new dwellings are units. CPR stands for the Condominium Property Regime (CPR), also known as the Horizontal Property Regime (HPR) which came about in the early 1960s. Where condominium projects were depicted as high-rise building or townhomes, this new CPR guidance allowed for the creation of horizontal condo projects to make property more affordable in areas where land is expensive – like Hawaii. In this case, an Investor could purchase a parcel with a larger lot and potentially CPR for profit and sell off individual units.

Would you like to attend a free educational real estate investment seminar featuring The Mortgage Professor?

PRMG Honolulu is offering free real estate investor seminars in July and August. Please email to jmeredith@prmg.net or text to (808) 222 -7903 to RSVP for our next session!

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