By LISA SCONTRAS
Custom Publishing Group

Think the real estate investment boom is over? Not so fast.

The National Association of Realtors reports that nearly one in four houses were sold to investors last year. Recent NAR surveys show that second-home purchases — made largely by baby boomers — have become so popular that many real estate agents are specializing in this niche.

Locally, demand in the rental market remains high, creating opportunities for investors looking to supplement their retirement with rental income, according to John Hayama, partner at Prudential Locations, LLC.

“I think people need to take more responsibility than they used to for their retirement future,” says Hayama, who cites dissolving pensions and changing times as motivators to becoming more financially self reliant.“Real estate is a real good way to do it. It has outperformed stocks, and as rents rise, the property can provide you with cash flow down the road.”

Investors are considering real estate as an investment option for multiple reasons and are not limited to the quick buy and sell. According to the NAR, while the most frequently cited motivation for purchasing a second home is to diversify portfolio investments, one out of five second-home purchases will become primary residences after retirement, 28 percent of buyers seek cash flow from rental income and overall, 92 percent of these buyers see their property as being a good investment.

And while the pace of residential sales in general seems to be slowing, Oahu’s strong economy and interest rates that remain low may make conditions ripe for investing in a rental.

Hayama also points out that real estate has not only outperformed the stock market in recent years, but it also requires less cash initially.

“Let’s say you want to buy $100,000 in stocks,” says Hayama. “On a margin account, you might be able to borrow 50 percent, but if the value goes down, you are required to make up the difference. You can buy $100,000 of real estate with maybe $10,000 down— so your leverage is much better. And it’s a great way to diversify.”

Hayama doesn’t see the influx of units expected from the new construction in the Kapiolani corridor as affecting supply dramatically.

“First of all, those units are being delivered over time,” he says. “And since these buildings are more upscale, luxury condos, it will add to supply only in that niche. But in other price ranges the demand will be unaffected.”

Myrna Matsumoto runs the property management division at Prudential and says that as people move into these new condos under construction now, they’ll likely rent out their home. She has even noticed an increase in out-of-state investors buying rental properties in Hawaii, indicating the market’s universal appeal. But still, she cautions would-be investors to plan for slower rents in the future, and says it’s not realistic to expect the rent to cover all of the operating costs right away.

Matsumoto stresses the importance of working with professionals — including a property manager. She says in addition to helping to avoid legal problems associated with fair housing laws, the Hawaii Residential Landlord-Tenant code and disclosures, using a property manager can save you money by taking advantage of the team of professional they call on for repairs and they can properly screen applicants, avoiding costly scenarios like this one:

“In a booming market, there are many applicants who may coerce the average landlord into renting the property to them, often by offering more than the listed rent,” warns Matsumoto. “The inexperienced landlord will probably jump at that opportunity only to learn a bitter lesson within a month or two when the tenant falls behind in their rent and becomes a problem. The landlord will eventually hire an attorney to evict this tenant.”

A copy of the Landlord Tenant Code can be obtained from the State Department of Commerce and Consumer Affairs by going to this link: http://www.hawaii.gov/dcca/areas/ocp/landlord_tenant/

As far as trends go, experts say the baby boomers will keep the market going in 2006.

David Lereah, NAR’s chief economist, says their studies show that baby boomers, who have just started to have an impact on the investment market, will continue buying real estate. “Because the typical second-home buyer is a baby boomer, it is likely over the next decade that second-home sales will remain historically high.”

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