Sakamoto Properties

First Time Maui Home Buyer Financing
May 1st, 2012

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”. As always we start the day with Danny Couch, love Danny Couch, love that song, I love Hawaii. Today here in the studio Dean Otto who is, I think you all know about Dean Otto, so I'm not going to give you the whole story about Dean. But kind of an interesting thing right now is Dean is, I believe, the chairman of the board of Maui Preparatory Academy which is turning out to be a really phenomenal school for West Maui. When I think about a few years back our only option was Lahainaluna which I fully support, love Lahainaluna, love everything that was going on there, great school. But there were that element of people that really chose private schools and were sending their kids to Seabury Hall which basically is a three hour round trip. Well enter Dean Otto, a variety of other real estate brokers, including ourselves, and people that really tried and have made the school happen there at Maui Preparatory Academy. But you know, Dean you were telling me about a young man who is looking to go into real estate and he is in school and Dean, I would say, is somewhat mentoring him. And it became a great conversation for us today so I think it’s a way for us to get started. You know, tell us what you’ve been saying to him and how he can make it really happen, I think it’s great.

Dean Otto: Thanks Betty, thanks for having me on the show today, and thank you for bringing up Maui Prep. Yes, it is a phenomenal school and it’s going exceptionally well and I'm happy to say, so I appreciate you bringing it up. We’re thrilled about everything that’s going on over there, it’s been a huge success, and it’s been a great year so far, and we look forward to planning our next five years as we enter into our strategic plan here. But, you referenced to one of the kids at Maui Prep. I love dealing with the kids at Maui Prep for two reasons, one is they call me Mr. Otto, and secondly they always come up with really interesting questions that we don’t typically see, very generic, very general questions and it’s interesting. And it’s been an interesting experience for me because it requires that I sort of step back and look at the fundamentals of the market and try to provide justification for some of the opinions that we are so quick to throw out. And this particular guy, his name is Lyndon Wilfur, and he’s a junior at Maui Prep and he’s also studying real estate in one of his classes and he keeps firing some pretty interesting questions at me and the question that he came to me with recently was: Can you explain to me how or why house prices move up or down in value? So it’s such a basic question and so general that I think it requires us stepping back to the fundamentals and as I explained to him, obviously the pricing is driven by supply and demand. And it’s a pretty simple process really with “demand” being the number of recorded sales and sales activity and “supply” obviously being the number available listings. So in summary it’s pretty simple: As sales activities increases and inventory declines and prices will ultimately increase. So essentially what I did for him was I took a step back in time and I tried to track the trend in the market and I found some fairly interesting statistics and I think it will make some sense for some of you out there as you assess the market. But if you go back to 2005, it appears that 2005 clearly was the peak of the market. And at that time, at the yearend 2005, we had sales activity increasing 7% over the previous year and the average sale price increasing a whopping 27%. And obviously it increasing 27% in the year was probably not a sustainable growth rate and result was the market turned at the end of 2005 and in 2006 you’ll see that the sales activity was down 17%. So let’s see, there was a turn there at the end of 2005, 17% less sales in 2006, and then we went through a difficult period between 2007 and April of 2009. The inventory, or the number of listings, increased every month for that period of time and peaked as they say in 2009 with a whole bunch of inventory on the market. So what happened after 2009 being the bottom of the market we started to see the market stabilize and we started to see sales activity picking up again in 2011 which is really our first stable year in a long time. We saw sales activity up 10% and the average sales price up 5%. So they can kind of see a clear trend if you look at 1990 as the previous peak in our market that would be 1990. The next peak came at 2005 and that was a 15 year cycle which I would say is unusually long and that would probably be a reflection of some of the trials and tribulations we went through with the economy, the mortgage meltdown, and all the rest of it.

B: Also Dean, 9/11

D: 9/11 was a major factor

B: I think it dragged that through.

D: What we had seen in the past was a typical 10-year cycle and we saw that change in this last cycle to 15 years and you know we took a real beating in the 1990s and then a real boost from 2001-2006. But you kind of see the trend, you see the peak, a very clear peak in 2005, and you see a very clear bottom of the market in 2009 and then a stabilizing of the market. And if you look at the statistics for the first quarter of this year you'll see the trend is continuing with 3% up in number of sales over the first quarter of last year and you'll continue to see an increase in the average sale price, over 8% increase over the prior year. So there's a definite trend developing where clearly, as far as the statistics show, clearly beyond the bottom of the market and I think this is a great time and really a good sign for our market. And for any of you that have been in the market looking to buy a property, I think this would be a phenomenal time to buy. As Betty and I were just talking about you don't really want to try and predict the very bottom of the market because that's impossible to do. You want to see a little progress so that you can identify that we're past the bottom of the market and we're clearly at that point right now so if there's anyone that understands that then this would be a perfect time to buy.

B: You know one of those things that are interesting going through those statistics is that there have already been 800 properties that have sold this year in Maui. That’s a lot of property in a relatively small island. Currently under contract there’s pushing 600 - 5 something - so I think it is, it’s a big number so again if you’re looking to buy we’ve been pushing this thing “a recession is a terrible thing to waste”. True, it is so true, and I think that no matter what your category is you know this is a time that you should be stepping up. There is every indicator why you should be getting into a property today starting with the statistics that Dean has been saying. We’re in it, I mean we’re in the changing market and there is no way to be sure what the bottom was. So we’re just kind of thinking it is time. If you started with, I think Dean, if we kind of thought out the food chain idea. You know, at some point whether you started out at the top of the food chain and you need to sell a property because you’re retiring again or you aren’t staying in Maui anymore that’s one direction. But in a lot of cases the whole market can be changed by just the possibility that the first guy knows he wants, even Dean, the Maui Dream. You know, the whole Maui Dream thing. For a while there there was no Maui Dream or you know homeownership dream. People were beginning to feel like they would only be able to rent, well I think the Maui Dream, the dream of household ownership, it’s alive and well.

D: I think it's coming back and you know that's a good point. I was looking at statistics earlier and one of the interesting statistics is that 54% of the people on Maui own their property. And that's probably the lowest it's been as far as I guess we've been keeping track of these statistics, that's a significant drop. And ultimately as Betty said, we've sort of lost a little bit of the dream but I think that everything is back on track and ultimately that dream is going to be still alive and as far as the chain, the food chain as you said, I think it's the first time that homebuyers are really a critical part of the market and we see a lot of focus of government efforts to get first time homebuyers into the market because it does trigger a chain reaction. When a first time homebuyer buys that means that someone selling has the potential to upgrade and of course it just causes a chain reaction.

B: You know most people want to upgrade. I mean if they're selling what may be was their first home the odds are pretty good that what they want to do is go up the food chain. They want to get something a little bit bigger or a little bit better or they want to move to a different neighborhood you know maybe they want to go upcountry now or they had wanted for a long time to come to West Maui and they weren't able to. Well now I think we have some pricing in West Maui that between some great valued properties and interest rates that are, that I think would have been unheard of at some point are so great that there's every reason that you can step into the market and have home ownership be your dream again.

D: Right, and I think one of the important statistics that I so briefly touched on which I think is very important if you're a buyer in the market right now would be the fact that our inventory has changed so dramatically. Since the peak in the inventory in April of 2009 we're down over 50% in our inventory and down 20% in the last 12-months. So the choices are dwindling, the market is changing, and it's clearly in my opinion the time to get into the market if you're on the fence. And I've been working with quite a few first time homebuyers and what I'm finding is that you can actually get into properties and have a mortgage less than what they're paying in rent and although rent is still pretty high the prices are super low right now so it gives people the ability to pay the same amount of money on rent towards the mortgage and build equity.

B: We've seen some actual, some great sales recently that are the first time homebuyer. We had a really great couple that bought a home in Napili, again first time homebuyers, one child, and you could see the dream, you could see the happiness that was coming down as they were getting through the mortgage process working through this, working through that, and the excitement. That is a pretty amazing thing Dean, the first time homebuyer getting into their home.

D: Yeah, it's the really fun part about real estate and I'm also working with the first time homebuyer now and it's really fun to see the excitement as the deal is winding down. But, you know again, this is a person that was paying more in rent than they're going to be paying in the mortgage, they were able to get 100% financing through the USDA, and you know what a great deal. 100% financing and a super low rate, can't beat that, cheaper than rent. So, it's really exciting when there are those opportunities and you know as they say they aren't going to be there I don't think much longer because you can see the market changing.

B: Dean, what was the USDA rate? Or how did that happen?

D: I'm not sure what the rate's going to be yet because the deal -

B: But, how did they get the whole loan? Then how did they make that happen with the 100% loan?

D: Yeah, they were referred to the USDA through the school actually, this is a teacher at Maui Prep and the USDA was actually very instrumental in refinancing our existing debt. So we just went through a major restructuring of our financing at the Maui Prep and the USDA because of the rural nature of the Napili area we qualified for rural USDA financing and we ended up getting a 30-year loan guaranteed by the USDA. But as a result of that relationship we realized that there were significant opportunities out there and the USDA is a great place that most people don't even think about but it does work on Maui because of the rural nature of the island.

B: So are you saying that, let's say, somebody is listening to us today and they have this dream of home ownership and they're kind of stuck in a rental because that's all they believe they can do that it's possible that if they go to the USDA website or something and try to check it out that there may be an option for them depending on where there buying, what they're doing, to do a 100% loan?

D: Correct, yeah, as with any of these types of programs there's certain standards and qualifications you have to meet and they vary from program to program. In addition to the USDA there are also other government sponsored programs. I think Lokahi is another one which offers some really interactive financing options for the people that qualify. And I think probably the best thing to do would be to contact a mortgage broker to find out what the best option would be for your particular situation. But there are definitely some great options available. I'm also working on another deal which actually is the first mortgage that will include not only the purchase of the property but will actually include the remodel amount as well. So that program is also available for people that qualify. So, not just the first position loan for the purchase of the property but it includes a rehab cost as well. That's kind of an unusual program. Most people sort of have this opinion that financing is just this big black hole that everyone's a little afraid of whether or not they'll qualify based on what they hear on the media. But we found that there is definitely money available in these great programs and exceptional money, and incredible rates available. And I think that I wouldn't be afraid of what you hear in the media, I think you would be surprised and you're never quite sure of how you're going to fit into the box but there are some great options available and many more than we realize.

B: I think it can be critical. And again, just addressing right now the first time homebuyer, the whole idea that people have brought properties that maybe at one point were foreclosed on and have sat empty but you're buying it and yet you need to fix it up. I mean, you don't want to step in there and use whatever funds you have available to just make the purchase and then not be able to do anything. So that type of a loan, Dean, I think is amazing. If you have any questions about that give us a call at Dean, (808) 870-7736, you can call our office (808) 669-0070 and let us help you in any way to direct you. David Freedman can be a great source (808)385-8558 and there's a number of other people but call us and we'll give you a list of possible lenders to talk to. You know Dean, for the Lokahi plan do the mortgage brokers actually work on that or do you have to go through the Lokahi website, do you know?

D:I'm not completely sure how that works but I know that Lokahi is a part of the program and I think that you'll be working with a mortgage broker but Lokahi would be something that we packaged into the deal. But the tricky part with Lokahi is that if you sell within a certain period of time you owe that money back so it encourages you to keep the property longer, but if you are planning on keeping the property for 10 years plus that might be a good program for you. It's not the program if you want to get in and out within a couple of years.

B:Yeah, at one point what they were doing is you needed to have some amount of money down and let's say it was $12,000, so if you had $12,000 down they would match that with another $12,000 and if you sold the property, you ended up having to pay that $12,000 back plus some sort of interest which was not prohibited but it really was a thing that was getting people into properties and I kind of had lost sight of the Lokahi plan so I think it really is worth our taking a look at it and several agents in the office I think are really paying a lot of attention to that. So again, give us a call and ask for Dean or myself (808) 669-0070 and we'll direct you to one of our agents that are trying to stay abreast on everything that is going on particularly for the first time homebuyer. There have been some great homes there at Napili Hau, you know, again for first time. And again, people working in West Maui, it becomes more and more critical that they have the ability to live in West Maui so I think that really is, we need to work with people so that you are finding lenders, you're finding homes, and you're making your home somewhere on the West Side of Maui.

D: Right, and I think that is a good point. As I mentioned before, the first time homebuyer is such a critical part of the market and I think it’s going to be important to see that segment of the market pick up a little speed. And I think there are going to be some great opportunities coming up too because what’s happening is there’s a lot of pressure on the banks right now to release some of the inventory that they’re holding. And the banks hold on to the inventory apparently, you know there’s a variety of reasons I guess, but a lot of it is how it’s shown in the books and when they have to write off the loan and there’s a lot of complicated considerations for the bank but one of the strategies has been to take the property back from the owner and sit on it and not put it back on the market. And the timing of that is under some scrutiny from the federal government so there’s some pressure for these banks to release the “shadow inventory” as they call it. So what we do expect to see is some really great opportunities coming into the market, owned by banks, and I think those are going to be some great opportunities for the first time homebuyer. And I think that the bank-owned REO is a much simpler process as far as going through an escrow than the short sale process. A short sale process can take six months and you still don’t know whether you’re going to get the deal or not but the bank-owned REO, especially cause I think there’s going to be some inventory coming into the market pretty soon, is going to be clearly something to look out for. So get in touch with us if you’re interested in staying abreast of any new REOs coming onto the market.

B: And still, actually an interesting thing, I don’t quite understand why with these bank owned properties that they didn’t figure out a way to work with the initial home owner that if they had negotiated the loan with them, worked with them on the interest rate, gave them “x” number of years, you know and they would stay in their home which makes them still an excellent consumer, people that are going to the school, shopping in the neighborhood, and it’s their home. But instead there have been foreclosures and I don’t think that ever should have happened so that a bank can then own a bunch of properties and keep them in a shadow inventory. But I guess that’s a whole other question and they say that the banks are trying to work on this so that they will eventually help the person that’s in their home trying to make it work and I sure would like to see that happen Dean.

D: I know, I've had this conversation with Betty at least on ten occasions now, she's pretty upset about this.

B: Yes, I am.

D: But I think that I understand, you can see what she's saying. There's many cases here where an existing owner of a property would have agreed to a modification of their loan for a much greater price than what the bank ends up selling it as a foreclosure for. So I think Betty's reasoning is perfectly understandable. You know the problem becomes, and I'm not a banker, but the problem becomes banks operate completely differently, and independently of the real estate market. And I think they have different considerations which are shareholders and financials to consider and it's pretty complicated obviously.

B: I guess, it just still seems to me that there are shareholders and there are accountants and this and that but the whole thing still should be that we take a long hard look as a community at what we're doing and we take care of the people. We take care of the person who's in the home and eventually he becomes a better investor whether it's in the banks or in his community or sends his kids to the schools or I just don?t see how it helps to throw people out of their home when they're really trying, I can see if they're not trying at all. But Dean's right, I get on this and I've got to drop it so why don't we sell some real estate here.

D: Let's get to some real estate.

B: Let's get to something.

D: Any listing picks for the week?

B: Yeah we have a great Napili house listed at $750,000, the people are getting ready to move. It's that subdivision that was created, Dean remember the one that was a Maui land Kapalua company subdivision, that was put together primarily for employees and there was a deal in that that you couldn't sell but they've gotten past that. But this home backs up into a ravine so it really gives it a huge spacious feeling. The land is about 11,000, almost 12,000 square feet. The house is about 2,600 and it is set up so that you can have a family member staying downstairs or two family members kind of as a little bit detached from the house you know so that they're in the house but it's a great thing for older kids, etcetera. But at $750,000 there's 5-bedrooms, 3-baths, fabulous house, it's going to be really easy to show, tropical type setting, fruit trees. And Dean, we have already talked to much, we are already down to 2-minutes, oh my God.

D: Oh my gosh, well I have to pop in here real quickly with my favorite listing right now which is a listing at Pineapple Hill and it's actually Carlos Santana's house and it's the most amazing property ever. And we just reduced the price from $7.5 million to $6,950,000 and that would be a phenomenal value for an exceptional quality 7,800 square foot mansion in Kapalua.

B: It?s amazing, it?s phenomenal. The little separate area that I think he was doing for music etcetera?

D: Yeah, as a music studio.

B: Yeah, it really is a one-of-a-kind property. So I guess as we wind down again, I don't know we talked pretty fast to get a half hour in but I think we did it. So we're coming to the end, we'll have Danny Couch hopping back on here in a minute, so is there anything else? I mean, Maui Prep, as long as we're talking about Maui Prep today, as long as everybody knows it is a, they are looking for contributions, when you see that they've got some sort of a fundraiser the kids are out there doing everything. And you know something you said a minute ago and this is a little rambling maybe, Dean, but you know that the kids call you Mr. Otto it is nice again when you see kids and there are in our community now, I think we're getting back to a time of politeness but love to see it through Maui Prep, it's great.

D: Thank you, we appreciate it.

B: Aloha

D: Aloha

B: See you next time.

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