Though it looks easy on TV, Honolulu is a tough city for home flippers, who face the same rising home prices and other related costs as those hoping to stay at home.
Honolulu's median home price – the price above which half of sales are higher and half are lower – rose year-over-year in June, according to a monthly report released Saturday by the Honolulu Board of Realtors.
According to HBR data, the median price of an existing single-family home rose 6.7% to $1.12 million in June from $1.05 million, while sales rose 4% to 258 from 248. The median price of a condominium rose 3.9% to $530,000 from $510,000, but sales fell 24.5% to 355 from 470, the biggest year-over-year drop in 2024.
So it's no surprise to active home flippers that Honolulu had the lowest home flip rate and lowest returns among metro areas analyzed in the first quarter, according to the First Quarter U.S. Home Flip Report from land and real estate data management company ATTOM.
ATTOM defines property flipping as “an arm's length transaction that occurs within a quarter following an arm's length transaction that occurred within the previous 12 months.”The general understanding is that flippers purchase rundown properties, renovate them, and sell them at a profit.
In June, ATTOM reported that home flipping as a percentage of total home sales rose for the second consecutive quarter, signaling a rebound in profits. ATTOM reported that investment gains on home flipping reached 30% nationwide for the first time in more than a year, with net profits reaching their highest point since 2022.
“The latest figures show that investors are still struggling to make a significant profit after expenses,” ATTOM CEO Rob Barber said in a statement. “Like everyone else, they are facing volatile times as the housing market has cooled off over the past year. However, looking at trends over the past year, there are clear signs that the property resale industry is beginning to turn around and interest in the market is increasing.”
However, Honolulu's first-quarter resale rate was 3.7%, the lowest in the nation as a percentage of total home sales. Honolulu's return on investment from resales was 1.7%, the second lowest.
In ATTOM's Q1 2023 property resale report, Honolulu was not in the top five lowest in terms of yields or returns.
“There are no flippers out there right now. The challenge right now in flipping is that home prices are going up and there's no product,” said Shannon Severance, a real estate agent with RE/MAX Honolulu who works with clients looking to buy, sell or invest in Hawaii real estate.
Flippers are generally looking to buy homes well below the median price, but HBR reports that single-family homes priced under $899,999 made up just 19% of new listings in June, compared with 30% in June 2023. That's a 35% drop in listings, from 97 to 63.
HBR reported that in the first half of the year, single-family home prices rose 3.3% to $1.085 million from $1.05 million, while sales increased 6.7% to 1,362 from 1,277. During the same period, condo prices rose 2% to $510,000 from $500,000, while sales fell 5.8% to 2,234 from 2,372.
Other costs can also pose challenges for resellers.
“Oahu's residential real estate market has been relatively stable through the first half of the year, but condo sales fell sharply last month, likely due to the threat of rising insurance premiums,” said Fran Gendran, president of the Honolulu Board of Realtors.
Severns said he worked with clients who last flipped properties when interest rates and other costs were much lower between 2016 and 2019. He said he also saw property flips in 2009, 2010 and 2011, when short sales were on the rise.
“Back then, homes were a little more neglected than they are now, so investors would come in and do things, rebuild and make a profit,” Severance says. “Today, I have investors who either want to rent (and may do a little work on the property) or who plan to hold the property long-term, hoping that values will increase in a few years.”
Flipping homes in the Honolulu market may be more challenging this cycle, but it's still garnering interest. HGTV has announced plans to return for a second season of the show “Renovating Aloha” in 2025. According to the ad, the show will “follow married couple Kamohai and Tristin Kalama as they tackle a home flip project in Oahu, Hawaii, one of the most regulated and difficult places to flip in the United States.”
The Honolulu Star-Advertiser was unable to interview the Kalama family, but did track down other real estate flippers operating in Honolulu, including Inder Lange, founder of White Sands Capital, who has been flipping homes in Hawaii for about a decade.
Lange, who was born and raised on the Big Island and whose family is in the construction business, said he agrees with Honolulu's national rankings that its resale rates are low and it's hard to make a profit. But he said the city's low inventory of new and turnkey homes presents an opportunity, especially for resellers like himself who have strong lending, real estate, construction and supply networks.
Lange said the advantage for flippers in Honolulu is that most of the available housing is older. The University of Hawaii Economic Research Institute reported in its Hawaii Housing Factbook in June that the average age of housing units in Honolulu County is 48 years old, the oldest of the state's four major counties.
Lange said another data point in favor of flippers is that Honolulu has homes left vacant by absentee owners. UHERO noted in its housing report that Honolulu has the lowest percentage of owner-occupied homes among the four major counties, at 58.9 percent.
Lange estimates he has flipped about 130 homes in the past 10 years, and of those, “only three were at a loss or broke even.”
Lange says he now flips about 20 homes a year. Some are high-end, but most have an average price of less than $1 million. Some are distressed bank-owned properties purchased at auction, but he also buys directly from owners who are struggling with taxes or unpaid debts, whose properties have fallen into disrepair or have other issues.
“I bought a house that had squatter problems and they couldn't get rid of it. It took a year and a lot of struggle, but I finally got the squatters out. It was a horrible house — shootings, drug dealing, needles on the ground,” he said. “Who wants to buy a house like that? Normal people don't want to deal with that kind of stuff. That's why they need people like me.”
Lange said flipping a home can make sense if it's purchased cheaply enough. He aims for 70% of the home's price minus expected flipping costs, which often include renovation costs and high-interest loans. You also need to factor in maintenance costs, especially if permits and property sales are slow.
UHERO noted that the time it takes to process housing permits remains extremely long across the state, with typical permit delays being “three times longer than the average U.S. jurisdiction.”
Delays in permitting are bad for contractors renovating properties.
Tony Kawaguchi, who heads a team of about 20 people at EXP Realty, started flipping properties in Honolulu in 2009, said, “It's much harder now. For one, interest rates have gone up, and the permitting department is much slower, probably three times slower than it used to be. I know they're trying their best to catch up, but the last I heard, 1,500 permits are late, and getting more late every month.”
But UHERO said slow permitting processes were a “major obstacle to homebuilding.”
Fewer new homes being built means buyers are being forced to turn to older inventory, and in Honolulu, that can mean plantation-style, single-wall construction, Lange said.
Kawaguchi said most buyers would prefer a home that has already been renovated, especially at the current price range.
“They don't want to do the work themselves,” he said.
Kawaguchi said some homes are so badly damaged that buyers can't get traditional loans or mortgages. The interest rate environment is not favorable for investors, and inflation and permitting delays could make renovation costs more expensive, he said.
Kawaguchi said he uses the skills he has gained from flipping properties to help his real estate clients determine whether renovating their properties could bring them a higher return before putting them on the market.
“We're going to knock down walls and gut everything. We're going to redo the electrical, the plumbing and the roof. Those three things alone are going to cost $50,000, and that's before we get to the good stuff,” he says. “And you have to be prepared to find some nasty stuff. If you budget $200,000[for a renovation]you have to be prepared to spend $250,000.”
Kawaguchi said flipping properties isn't for the risk-averse or those unfamiliar with Hawaii's real estate market.
“There are a lot of people on social media who are hyping up house flipping, especially young people. Over the last two years since COVID hit, a lot of people have come into the house flipping industry, and most of them are gone now. They can't do it anymore.”
“A couple of guys who are famous on social media actually lost money flipping real estate,” Kawaguchi says. “They were very honest about it, but then they got out of it because it's a very difficult, high-risk market.”
The high-risk, high-reward environment has given flippers a bad reputation as an overnight phenomenon. Some worry that in a market filled with flippers, competition will drive up prices and that flipping will destroy the fabric of the community. Some are watching to see if that happens in fire-ravaged Lahaina, where many variables are still changing.
Lange said he sells resale properties at market rate and gets satisfaction from knowing he is putting inventory back on the market.
He estimates that 75% to 80% of the homes he resells are purchased by local buyers.
Lange added that resale also creates jobs that support many families.
“When you put $300,000 into a home, that money goes back into the community,” he said.
Home resale rate
Percentage of total home sales
maximum
>> Warner Robins, Georgia: 18.7%
>> Macon, Georgia: 17.1%
>> Fayetteville, North Carolina: 15.8%
>> Atlanta: 14.7%
>> Memphis, Tennessee: 14.6%
minimum
>> Honolulu: 3.7%
>> Oxnard, California: 5.3%
>> Naples, Florida: 5.4%
>> Des Moines, Iowa: 5.5%
>> Seattle: 5.5%
Source: ATTOM Q1 2024 U.S. Home Resale Report
Oahu Homes for Sale
The number of homes sold in June, their median price, and the percentage change from the same month in 2023:
home
Median sales price
June 2024 258 $1,120,000
June 2023 248 $1,050,000
Change 4.0% 6.7%
Condominium
Median sales price
June 2024 355 $530,000
June 2023 $470,510,000
Change -24.5% 3.9%
Source: Honolulu Board of Realtors