Honolulu ranks toughest to flip homes in U.S., report says

The TV shows make it look easy, but Honolulu is a tough city for home flippers, who like intended owner-occupants face high housing prices and other associated costs.

Honolulu’s median housing prices — the point at which half the sales were for more and half were for less— rose in June from a year earlier, according to a monthly report released Saturday by the Honolulu Board of Realtors.

The median price for previously owned single-family homes rose 6.7% in June to $1.12 million from $1.05 million, while sales gained 4% to 258 from 248, according to the HBR data. The condominium median price increased 3.9% to $530,000 from $510,000, while sales plunged 24.5% to 355 from 470 for their largest year-over-year decline of 2024.

That is why it is not surprising to active home flippers that Honolulu had the smallest home-flipping rate among metro areas analyzed in the first quarter and posted one of the weakest returns, according to a first-quarter U.S. Home Flipping Report released by ATTOM, a curator of land, property and real estate data.

ATTOM defines flipping as “an arms-length transaction occurring within a quarter following a prior arms-length transaction within the past 12 months.” Generally, the public’s understanding is that flippers will buy a property in disrepair, fix it up and sell it for a profit.

ATTOM reported in June that the nation’s flipping rate — a portion of all home sales — increased for the second quarter in a row, while profits rebounded. ATTOM reported that investment returns for flipping reached 30% nationwide for the first time in over a year, and raw flipping profits hit the highest point since 2022.

Rob Barber, CEO for ATTOM, said in a statement, “The latest numbers show that investors still face an uphill climb to clear significant profits after expenses. They, like others, also face tenuous times amid a housing market boom that’s cooled down over the past year. But we now have a year’s worth of a trend showing that things have started to turn around for the flipping industry, with clear signs of increasing interest flowing into the market.”

That wasn’t true for Honolulu, which had a first- quarter flipping rate of 3.7%, the nation’s lowest percentage share of all home sales. Returns on investment for Honolulu flips were the second lowest at 1.7%.

Honolulu wasn’t in the top five lowest for rate or returns in ATTOM’s first- quarter 2023 flipping report.

“I don’t have current flippers. The challenge right now in flipping is home prices are expensive and there’s no product,” said Shannon Severance, a real estate agent for RE/MAX Honolulu, who works with clients who are looking to buy, sell or invest in Hawaii real estate.

Flippers generally want to buy homes priced well under the median value. But HBR reported that single-family homes under $899,999 comprised only 19% of new listings in June, compared with 30% in June 2023 — a 35% decrease to 63 from 97 listings.

For the first half of this year, HBR reported that single-family home prices rose 3.3% to $1,085,000 from $1,050,000, while sales increased 6.7% to 1,362 from 1,277. During the same period, condo prices gained 2% to $510,000 from $500,000, while sales fell 5.8% to 2,234 from 2,372.

Other costs could pose a challenge for flippers, too.

Honolulu Board of Realtors President Fran Gendran, said, “While Oahu’s residential real estate market has remained relatively stable through the first half of the year, we saw a significant drop in condo sales last month, which the threat of rising insurance costs may have influenced.”

Severance said she last worked with clients who were flipping between 2016 and 2019, when interest rates and other costs were much lower. She said she also saw flips in 2009, 2010 and 2011 when short sales rose.

“Homes were a little bit more neglected then, so investors would come put the work into the property and turn it around and make a profit,” Severance said. “Right now I have investors that either want to rent — they may make minor improvements to the property — or have a long-term plan to hold properties for higher appreciation several years down the road.”

Flipping in the Honolulu market may be more challenging during this cycle, but it still captures interest. HGTV has announced that it plans to bring back a second season in 2025 of its show “Renovation Aloha,” which according to promos features “husband-and-wife team Kamohai and Tristyn Kalama as they take on house-flipping projects across the island of Oahu, Hawaii, the most restrictive and difficult flipping location in the country.”

The Honolulu Star-Advertiser could not reach the Kalamas, but found other active Honolulu flippers, including Indar Lange, founder of White Sands Capital, who has spent about a decade flipping homes in Hawaii.

Lange, who was born and raised on the Big Island and has family in construction, said he agrees with national rankings that say Honolulu has lower flipping rates and that returns are harder to get. But he said the lack of new or turnkey home inventory in Honolulu provides an opportunity for flippers, especially those like him with strong lender, real estate, construction and supply networks.

Lange said an advantage for Honolulu flippers is that the vast majority of available housing stock is old. The University of Hawaii Economic Research Organization reported in June in its Hawaii Housing Factbook that the median age of housing units for Honolulu County was 48 years — the oldest median age of the four main counties in the state.

Lange said another data point in a flipper’s favor is that Honolulu has homes that absentee owners have left vacant. UHERO noted in its housing report that Honolulu’s share of owner-occupied housing stock is at 58.9%, the lowest share of the four main counties.

Lange estimates that in the past decade he has flipped about 130 homes, and of those, there were “only three where I lost money or broke even.”

He said he now flips about 20 homes a year. Some homes are luxury, but the majority are at or below the $1 million median value. Some were acquired as distressed bank-owned properties bought at auction; however, Lange said others are bought directly from owners, who are in distress over unpaid taxes or payments, or have properties in disrepair or other problems.

“I bought a house with squatter issues where they couldn’t get the squatters out. It took me a year and a ton of crap later, but I was able to get these squatters out. That was a bad house — gunshots and selling drugs, needles I found on the ground,” he said. “Like, who wants to buy that? Not your average person wants to deal with that. That’s why they need people like me.”

Lange said flipping makes sense if homes are purchased at low-enough prices. He shoots for 70% of the home’s value, minus the anticipated costs to flip it, which in addition to renovation fees often include high-interest-rate loans. He also has to anticipate carrying costs, especially when permitting and real estate sales are slow.

UHERO has noted that the time required to process a housing permit remains extremely high across the state, where typical permit delays “are three times as long as they are in the average U.S. jurisdiction.”

Permit delays aren’t good for flippers when it comes to the properties that they are renovating.

Tony Kawaguchi, who has a team of about 20 at EXP Realty, said he began flipping in Honolulu in 2009, and noted, “It’s way, way harder now. For one thing, rates are higher, but also, the permit department is much slower. It’s probably three times slower than it used to be. I know they are trying their best to catch up, but the last that I heard, they were 1,500 permits behind and getting more behind every month.”

UHERO, however, noted that a slow permit process does act as “an important barrier to building more housing.”

Lange said less new housing means that buyers have to turn to old inventory, and in Honolulu that sometimes means plantation-style, single-wall-construction homes.

Kawaguchi said most buyers, especially at the current price point, prefer homes that already have been renovated.

“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. He said the interest rate climate isn’t friendly for investors, and inflation and permit delays can drive up renovation costs.

Kawaguchi said he uses the skills that he has acquired through flipping to help his real estate clients determine whether renovating their own properties before listing will bring higher returns.

“We’re tearing out walls and completely gutting everything. We are redoing electrical, plumbing and roofing. Those three things alone are $50,000, and that’s before anything nice happens,” he said. “You also just assume that there are horrible things you are going to discover. If you budget $200,000 (for renovations), you just assume it’s going to be $250,000.”

Kawaguchi said flipping is not for the risk-averse or those unfamiliar with the Hawaii real estate market.

“There’s a lot of social media people that make a big deal out of house flipping — a lot of young guys, especially. Over the last two years, since COVID, I saw a lot of guys come on to the house-flipping scene, and most of them are gone now. They can’t do it now.

“There are a couple of guys, who were kind of famous on social media, who were actually losing money on flipping,” Kawaguchi said. “They were honest about that, and then they got out of it because it is a very, very tricky, risky market.”

The high-risk, high-reward climate has in some cases given flippers a fly-by-night reputation. In markets where there are many flippers, people sometimes fear that competition could drive up pricing or that turnover might unravel the fabric of a community. Some are watching to see whether that happens in fire-devastated Lahaina, where a lot of variables are still unfolding.

Lange said he is selling flips at market value, and he gets satisfaction from knowing that he is returning inventory to the market.

He estimates that 75% to 80% of the homes that he flips are purchased by local buyers.

Lange added that each flip also provides jobs, which feed many families.

“When we inject $300,000 into a house, that’s injecting money that goes back to our community,” he said.

HOME-FLIPPING RATES

Percentage of all home sales

Largest

>> Warner Robins, Ga.: 18.7%

>> Macon, Ga.: 17.1%

>> Fayetteville, N.C.: 15.8%

>> Atlanta: 14.7%

>> Memphis, Tenn.: 14.6%

Smallest

>> Honolulu: 3.7%

>> Oxnard, Calif.: 5.3%

>> Naples, Fla.: 5.4%

>> Des Moines, Iowa: 5.5%

>> Seattle: 5.5%

Source: ATTOM’s Q1 2024 U.S. Home Flipping Report

OAHU HOME SALES

The number of homes sold in June with the median price and percentage change from the same month in 2023:

HOMES

SALES MEDIAN PRICE

June 2024 258 $1,120,000

June 2023 248 $1,050,000

Change 4.0% 6.7%

CONDOS

SALES MEDIAN PRICE

June 2024 355 $530,000

June 2023 470 $510,000

Change -24.5% 3.9%

Source: Honolulu Board of Realtors