Sakamoto Properties

Checking in with Maui Real Estate Statistics
November 5th, 2013

Betty Sakamoto: Aloha and welcome to Betty's Real Estate Corner brought to you by Sakamoto Properties where "Prestige is our business, Reputation our foundation." Welcome! It's a great day here. I've got Dean Otto with me.

Dean Otto: Hi, Betty.

B: We're trying to come up with what we think is going to be important. I've got Dean on statistics and some interesting ideas. You can reach us with any questions at our office 808-669-0070, you can check out our website which is SakamotoProperties.com, you can find us on Twitter at MauiSakamoto and on Twitter connect with us using #BettyMauiRadio. So there's a lot of ways to track us down. So I'm thinking, Dean, why don't we start, we talked a lot about Troy when you took him off to college. What is going on? This is Dean Otto's son, number one kid at Maui Prep and really, an amazing, amazing young man and in college now, so what's going on?

D:Thanks, Betty. Yeah, he's absolutely doing great. He's learning a lot in college. He's in his first quarter at the University of Oregon and seemingly pretty well settled, pretty well adjusted and having a ball. B: That is great.

D: I got a text from him last week after the big football game at University of Oregon and his report back was that it was "absolutely awesome, he can die a happy man now."

B: Now, Dean and his wife Michelle met in college, at the same college, they happen to be ducks. So I think that really is exciting and it has to be really fun for you because you were there. You know, you've done it.

D: Exactly, it is exciting for my wife and I as we both go back to visit. It's always fun, we have a lot of friends there and we always have a great time. And, you know, I think it's just a phenomenal place to go to college. The campus is amazing, there's been a huge investment into the university, and not just the football program but the university, every school, every department has new buildings, it's just absolutely an amazing place to go to college and I wish I was 18 in my freshman year as well.

B: I'll bet. You know, we've told this story before but I still kind of love it. Dean played rugby in South Africa and after being in the military came to the United States trying to decide, you know, college and what he was going to do next, what was out there on the college campus on the football field just kicking a ball around when, kind of like a classic, I think we need to make the movie one of these years, that someone walks up to him and says "Can you kick that through there?" and looks through the up rights. And Dean looks and "Yeah, I could kick it through there." And the rest is history, but they gave him a full ride scholarship and he played in this first American football game like 10 days later. He had never seen an American football game, so there were a few shocks, including somebody splattering him to the ground after he kicked the ball.

D: Yeah, that was a phenomenal experience and, you know, as you say I was actually just on vacation, passing through town when I ended up getting the scholarship, so really lucky, and I tried of course, those were probably the two best kicks I've ever had in my life and they signed me up immediately and the rest is history. But I had a phenomenal time, I love the University of Oregon, and I love Oregon and anything better than that is Maui.

B: And he met his wife Michelle there and Michelle was born and raised here on Maui, so the good news is we all ended up having Dean in our lives when they came back to Maui and decided that they would stay here, raise their family, and fortunately at Sakamoto we're happy they're selling real estate with us. And we know their family, so it's pretty amazing. Anyway, you kind of want to throw out a few statistics? I know we're all saying everything is doing great, we're all excited about the market. There's a variety of things, you know, inventory is going down, which is good and is going to make things go up. But why don't you give us a few--

D: Highlights?

B: Yeah, highlights.

D: Yeah, absolutely. I do this every time I come on the radio show and it's something that I follow very religiously is the statistics and it's certainly a great way to anticipate the market and a great way to kind of get a good read about what's happening out there and it's pretty good information out there right now and as Betty mentioned. The market is actually doing very well on Maui and sometimes it's a little hard to feel it but it is actually making good progress. This is probably the first time that I've reported statistics where we're having double digit improvements in every one of the categories we look at. That is very unusual, we've come a long way. It's clearly the best statistical information we've seen in 5 years and they're really progressing quite rapidly if as you look at statistics. Single family home sales, this year versus last year, is up 11%, the average sale price is up 11%, and the total volume is up 24%. Those are significant numbers when you consider were we've come from. And just as good for condominiums which sales are up 11%, average sale price is up 19%, which is a huge jump, and we have a total volume increase of 32%. Which, again, is really incredible. Land sales have really picked up too. And of course, land sales have been lagging with the market, but a real good indication for the market when you see land sales pick up. We're up 30% over last year in the number of sales, pricing up 14%, and that's a 48% improvement in volumes. Contractors are happy, architects are happy, we're getting people back to work here and that's really important. It's just a great time to be in the business in Maui, and you know, things are certainly progressing.

B: I agree, Dean. You know, people back to work is a huge thing nationwide. So getting everybody back to work in the construction business really helps a lot. And I think, and it's also exciting for any developments that were around. Like Pineapple Hill has people building again. Plantation, pretty much everywhere don't they?

D: Absolutely. You see a lot of homes being designed and built right now. What we don't see a lot of is new developments in the sense of subdivisions or new projects. There's a couple out there but something that's been so glaringly missing from our market over the last few years and we've seen the results of it. Inventory is way down and we don't have a lot of inventory right now. So when I say it's sometimes difficult to feel the progress of the market that's probably due to the fact that there's limited inventory. And if you look at absorption rates, which is always a good indicator of the future of the market, you'll see that we only have about 5 and a half months of residential inventory on the market. We only have about 5.2 months of condominium inventory right now. That's extremely low, that was over 12 months, you know a couple years ago. The other thing that's changed dramatically is the amount of distressed sales. You know, 2 years ago we had about 42% of our sales in the residential market being either a bank owned or short sale. Right now, we're down to 21% for residential and 10% for condominiums, which is a dramatic reduction and what it tells us is a lot of the distressed is being removed from the market and we're moving forward into a more normal market.

B: That really does help a lot, because I think to a certain extent people were a little fooled by the idea of buying a short sale, or a bank owned property, or something in the middle of a foreclosure. And they would get wrapped up in the idea of it, but especially someone buying the second home, it really wasn't working for them. It was going to take too much to get into it, you know, not buying it but once they were in and they pull it back into shape and all the things that needed to be done on the typical foreclosed home, so it kept people, in a way, from buying, and they lost out on some properties that were really fabulous values and way better than a lot of the foreclosure sales. So, I think it's nice that they're kind of getting away and that the people now that are looking to really sell, I think they're still great values. Interest rates went down again, over the last couple of days, Dean.

D: Yeah, they did drop a little bit.

B: Yeah.

D: They've been hovering around the historical lows. Loans are really attractive right now and certainly is helping our market to progress. The inventory is down, sales are up, pricing is up, and rates are low. I don't think you could get a better combination for buying a property right now.

B: No, historically that never happens. You know, when you get?I remember one time that the interest rates went up to like 20%. Now, Dean is way too young to really remember that except for the stories of it. But it was crazy and people did still buy real estate and eventually they did refinanced. And you're almost at the point again where people are talking refinancing, that refinanced 3 years ago or 2 years ago, because you know they hit a great rate, it still helps them especially if they're going to stay in their home for a long time.

D: Yeah, people often forget about how important the rate is on a purchase like this because I see people negotiating on a price you know, $5,000 here and sort of nickel and diming to get these deals done but not paying close attention to the interest rate and the opportunities that are out there for a mortgage. You know, 1% over 30 years is a significant amount of money and low rates, clearly, is a major factor right now.

B: I think that, again, it's worth, you know, when you check with us. You know, a couple of things that I still think we should chat about today is reasons that you should hire a realtor to represent you when you're buying. And one of the biggest ones is that you're going to find a wealth of knowledge in each member of the board of realtors. So, that you talk to us and we're going to help you and walk you through everything. And not only going to help you find a home, we're going to discuss your needs, and, you know, what really works for you, maybe you don't need quite as much as you think. We're going to go through interest rates, we're going to talk to you about some lenders and refer you to some people and we're also going to say, you know, you may have a bank but you really want to work with a local credit union and you get to them and you sit down and spend some time. But home ownership is so amazing and there's so many things that your realtor will do for you. They'll help you with everything.

D: Yeah, it's not just the transaction, we have a code of ethics, we have standard operating procedures, we have laws that we're held to and so there's a certain amount of professionalism that comes with hiring a realtor that's expected from a realtor. That's an important aspect as well. I think that's important to understand that you get a lot of protection from your realtor. If, for whatever reason, your realtor did not perform or made a mistake, you know, you have insurance to cover you. So, that's a sort important consideration when you get into complicated transactions. The realtor does come with a lot of protection and insulation, that if there is a problem or if they do inadvertently make a mistake, there is coverage you'd be able to collect on.

B: Absolutely. I mean, that really is a key, is a key piece of information. And also, there's all the little things that they're going to help you with whether it's figuring out how you get moved, or the littlest things, changing your electric, doing this, doing that. You know, we do have a wealth of information in each of our offices. You know, call Sakamoto Properties, you may have a neighbor who's a realtor, I'm not saying you've got to come to us, there are some amazing real estate brokers around and use us and let us help you get through the process. So, I think again, Dean, that is a big one. Use a realtor. We're going to be there for you, and we're going to be there for you after the deal. I think we do much and more after the deal than we do during the deal, because it's important. We want you to come back to us again and we want you to refer your family and friends. And every realtor is the same in that. Referrals are golden.

D: We're in the relationship business, so that's really important for us. You know, one of the things I've noticed recently in working with a couple of my younger, sort of entry level buyers is that since we've been through such a rough period in the market people have sort of forgotten about some of the benefits of owning a home. And the one that I'm particularly a proponent of whenever I talk to prospective buyers is the fact that we have such a great opportunity with the capital gains exemption if you own your home, you live in your home, for 2 of the proceeding 5 years, you have a great opportunity to buy your property in today's market and live in it for the next 2 to 5 years and preferably if the market continues to progress, there's a potential that you can have a nice profit at the end of the day. What most people aren't realizing, or have forgotten, or have just never really learned, is the fact that this incentive exists. You know, it's an unbelievable incentive if you can go buy a property, live in it for 2 years, sell it for $230,000 profit, and have that profit be tax free. The only requirement, really, is that you have to live as a primary resident in the home. So, I think that people have forgotten about that as a part of the fact that we've been through such a difficult market where people haven't talked much about profit. But ultimately, it's becoming a major factor again and I think it's one of the main reasons why people should consider buying a property. It's the primary way to accumulate wealth. And $250,000 for an individual is a lot of money to have that tax free.

B: $500,000?

D: $500,000 if you're a couple. We've been the beneficiary in my family of one of those exemptions. To buy a home and enjoy the home, raise a family in the home for 2 to 5 years and be able to sell it with $500,000 tax free is just?there's nothing like it. And it truly is, I think, the way that we accumulate wealth. And this opportunity has been given to us because it'd be really difficult for a couple living on Maui earning a salary over and above the regular income and expenses to be able to save $500,000 which is tax free, which means it's like $800,000. And I don't know about you, but I don't see too many people making surplus $800,000 a year these days.

B: I agree, in their lifetime.

D: In their lifetime potentially and this is the way that we accumulate wealth. If you talk to a lot of successful people, they'll tell you that a lot of their wealth was created in real estate. And it's through tax incentives like this that you can really benefit from owning real estate. To me it's a no brainer and anyone's who's sort of on the fence should consider the fact that when you're looking for a home, you don't have to look at it from as the rates go up, you can look at it as a 2 year play and the ability to come out of that with some profit which will be tax free is, right now, I think the way to go.

B: I think that Dean has some great statements on that. You know, the only thing, I think, as the older person here, is that you also want to be careful. If it is your family home, and you've got to, then, again work with your realtor to be sure of what you're doing. Because you're still going to want a home for your family, so you're going to be trading into something else, not actually "trade" but you're going to be finding another property. In a lot of cases you're going to be making more money so you can still qualify for the mortgage. The ability to pull that cash out, which you might be able to use to even upgrade your new home. So there's so many different things. I think, again, it's critical that you pay attention when you're doing that. You know, where your family's going to live next. You know, over the years we've watched a lot of people that was always a little sad for Maui, but had a great investment property, loved it, lived there, I mean it was their home, and they were able to sell it, and then they ended up moving back to Oshkosh or somewhere, and when they moved back, they were able to take with them, all of the profit, tax free and they ended up buying homes back there. Which?

D: Buying mansions.

B: Buying mansions back there. But again, there's so many things, even just the fact that you're writing off interest, you're writing off taxes, you just need to learn the process, and that the realtor will help you with that?we can give you so much information.

D: And of course, you'll note that the capital gains tax payout this year to 20% and if you make over $20,000 it's an additional 3.8% which is to cover the Obamacare cost. The taxes are going up and I think what's going to happen is the tax consideration becomes more important as taxes go up and just the ability to not have to pay taxes on an investment is huge because that's a 20-40% consideration depending on capital gains or regular income tax. It'd be hard to look for investments that generate 50% returns, but tax-free is clearly something I'm a big fan of.

B: We've got to hope that this doesn't go away, too.

D: This is something that's clearly on the table, and I think, I'm encouraging people to get in and take advantage, and we see that as one of the tax benefits that might be disappearing in the new term.

B: Well, hopefully it doesn't, but it is, you know, another one of those that is frightening because, I think, it has been a great thing for people owning their own home and having a place that they can live. And that even if it's a later time, when they're retiring, and they're maybe able to sell when they need to downsize but still not pay taxes on that $500,000 as a couple, that would make a huge difference. Even if it was $100,000, I mean, most people are not saving $100,000 in their life. You know, so to have $100,000 at the end of living in a place or hopefully $500,000 tax-free, it really is?everything that you put into that house, now totally makes sense, and will ensure that you have a great retirement and that you do have a place for your kids to keep coming home to on Maui, you know, where ever that is. And you may move on to something else, but it'll be a great?it'll be a great purchase. Real estate is amazing.

D: Real estate is amazing, and one of the reasons it's so amazing is because of these tax benefits which are really hard to get in other investments. If you had an investment property, we're talking about a $500,000 exemption for homeowners. If you had an investment property, you also have the opportunity to defer any profit due on the sale into subsequent property if you purchase one of equal or greater value. Taxes are a big factor that's going to become more of a factor as we move forward. But there are ways to benefit through real estate. You know, benefit in a sense of deferring or getting tax credits for these transactions. There's certainly investment opportunities through the 10-31 tax deferred exchange, which is a deferral, but it's still a benefit if your appreciation is growing tax free, it's always going to be a benefit to you.

B: And I think that makes a huge difference, too, Dean. I think, when someone's exchanging, they don't have to even go from with that one property, it was an investment property, they can actually exchange into 2 or 3 or 4 investment properties. You know, so that you can really work it so that you made the exchanging from one that you held for a reason that made a lot of sense to you when you were fairly young, but now all of a sudden you could be 50 and you'd want to have more income coming in. So that you might do an exchange in order to buy properties that are going to be better for you, that work better for you. So, I think it really is, again, you're right. You know, all the exchange possibilities are amazing. You can find great properties.

D: And of course it's not just about the tax benefits, but real estate is something that I think everyone should be able to enjoy. As I said earlier, it's really the primary way that we accumulate wealth. It's the greatest, the biggest investment that anyone will make. And, you know, there's obvious advantages if you're raising families and living in neighborhoods and that as well too, so it's not just all about the taxes.

B: You know, and there's nothing better than anytime, you know and , we've done fortunately, and we're happy, we've been able to represent a lot of amazing people that come to Maui. We've met and worked with some great celebrities and extremely wealthy people. But nothing in anything we've done, Dean, is any greater than when you walk in and you're handing the keys to someone for their first home. They may be having a baby coming up, or they've just had a baby, or they've got another one and they're looking and they just can't wait to put some curtains on the windows and make it theirs.

D: Definitely the most rewarding sales, as you say. We've had, we've been really lucky in dealing with some really incredible people. Kelsey Grammer, Carlos Santana, but to get, generally, people who don't rely on us for advice, you know, the have multiple attorneys and advisors, and you're sort of facilitating a transaction with them, but there's nothing more rewarding than selling a property to a first time home buyer and just seeing the look on their face and they enjoyment that comes out of, you know, that process.

B: And years later, I met some people that was one of my first sales on Maui that bought a Maui Eldorado unit and they were Maui residents, they, at the time the prices were fairly low. They had a small business that they were running. She had just moved here from the Mainland, just really great couple. And then they moved on from that and they did some other things and I didn't see them for a long time. And then I ran into them somewhere, maybe 20 years later, and as I talked to them, they were saying to me, "You have no idea how you changed our life. You know, at the time we never thought we would buy something, then all of the sudden we found ourselves living at this really sweet, wonderful resort. And it worked for us." And then when they started having kids, they bought a small house in Lahaina, and they moved up and a lot of things changed. But they just said to me that when I helped them and spent time with them, it totally changed their lives.

D: I agree, and as the President of the Maui Prep, President of the Board of Trustees, being able to be lucky enough to help several of the teachers acquiring their first homes, covering closing costs out of their commissions, and doing a kinds of fun, creative things to get these people into deals, where they couldn't normally afford it and I think, I've really gotten great pleasure out of working with those people and the feedback is just amazing.

B: Dean has done amazing things for the Maui Preparatory Academy. Which is in West Maui, right in Napili, Napili right toward Kapalua. Really an amazing thing that he's done and how it's been working. You know, we happen to be winding down already, Dean. I think we're definitely past the 2 minute warning. So I think we've got to kind of close it up here, but call us. 808-669-0070, find us on twitter: MauiSakamoto, connect with us using #BettyMauiRadio, and SakamotoProperties.com or DeanOtto.com.

D: Thank you.

B: Isn't it? Yeah, you can find us, but Dean's in the office a good deal of the time. You'll find us, you'll find us, just call and our office manager will track us down if we happen to be, hopefully, out selling real estate.

D: Hopefully! And thanks for having be Betty, it's always great to be here, the time always goes so quickly.

B: It does.

D: I always enjoy it and look forward to it again.

B: Danny Couch, I Love Hawaii!

D: Aloha!

B: Everybody had better buy "I Love Hawaii" by Danny Couch. Aloha!

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Office Address:
Sakamoto Properties
Napili Plaza
5095 Napilihau Street #203
Lahaina, Maui, HI 96761
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