At Thursday’s Hawaii Real Estate Investors‘ monthly meeting, Peter Savio of Hawaiian Island Homes, Ltd. gave an educational talk about building wealth with real estate. Peter has been in the business of real estate for 48 years. He is Hawaii’s expert when it comes to understanding leasehold properties, and has been successful in a number of complicated and near impossible transactions because of his expertise and ability to think creatively, as well as always giving back with good deals.
Peter’s talk was about the 9 wealth creators in real estate. They are:
#1 – leverage – other people’s money, such as the bank. The bank is giving you the money so you can afford what you normally cannot afford.
#2 – mortgage (?), yes, mortgage. He looks upon mortgage as a forced savings account, something you HAVE to put money into. Mortgages are great, and NOT to be feared
#3 – tax advantages of ownership such being able to deduct on the loan, property taxes, depreciation, other expenses
#4 – the ability to pre-pay principal. It may take some discipline, but if you use your extra money or refunds, etc. to pay down your principal, it is as if you were receiving interest tax free – you will not be paying any interest on the amount you paid down, the interest you are not paying is like a savings to you.
#5 – appreciation. Historically, real estate appreciates. However, Peter cautioned, that is not always the case anymore.
#6 – constant monthly payments (your mortgage) is a blessing. Your wages and earnings may go up, but your mortgage payment will not. Compare this to someone who rents for 30 years. As time passes, their rental payment will increase, your mortgage will not.
#7 – good management. Amen to that, which ties into…
#8 – have a good team. Your accountant, lawyer, advisor, mentor, banker, insurance agent, property manager, etc.
Peter actually said he had 9 rules of wealth, but Aunty only wrote down 8. Maybe you have the missing piece, and if so, please send it in the comments section below (I like hearing from you!)
The Q & A period was quite interesting, with Peter speaking about his past, current, and future deals in Hawaii, most of them dealing with complex leasehold issues, of which he really is the king. (Please put out good vibrations in the next few days towards the awarding of sale to Peter for an Iroquois Point deal.)
For investors, Peter said to buy smart and watch the cash flow. If the mortgage interest rates are high, prices go down. He predicts relatively stable real estate prices in Hawaii. He does not foresee the bump up in values even if the Chinese (who now have the money) buy our real estate. The reason he gave? Because they are not like the Japanese (in the 90’s) who overpaid and drove prices higher and higher. The Chinese never pay full price and always look to buy at a discount. (You ask for hundred thousand dollars, and they come back and say, “I give you 50 thousan dollah…”)
If real estate values remain steady (no big ups or downs), this is a wealth building opportunity, because if we can count on stability, we can format our investment planning on a stable base of pricing and what we expect the market to do.
He has always believed in buying real estate as the foundation of wealth. (So does Aunty.)
He bought his first property at age 15, after saving his nickels and dimes and any income he received from delivering newspapers, doing odd jobs, etc., and never looked back.
His analogy of money in the bank versus money in real estate was someone who had $1,000 in the bank earning 5% interest. Every year, that person receives $50 in interest on which taxes are due. If the $1000 were invested as a down payment, and mortgage the balance, the property could generate a $100 net profit, and even with a very moderate rate of appreciation on the property, return much more value than cash sitting in the bank.
Even though he puts every dime and nickel into his real estate deals, he doesn’t recommend that everyone do the same.
He spoke of a wannabe investor who had $300,000 sitting in his bank account and wanted to buy a $300,000 condo, all cash, and rent it out. He asked the man if it felt good to sleep at night knowing that he had $300,000 in his bank account, to which the man said “yes.” So Peter asked him to think about it overnight, and imagine if he had $0 in the bank and all his money tied up in property.
The next day, the man came back and said he couldn’t sleep well. Peter’s suggestion was to put half of his savings ($150,000) into the property, and finance the other half. After a year or so, if he was comfortable with that and wanted to invest again, then use half of the remaining savings ($75,000) as a down payment, and finance the rest. If that is good and he wants to invest again, then use the remaining $75,000 to purchase another property.
The end result would be 3 properties with financing utilizing $300,000 with a happy investor who can sleep at night.
Aunty asked about the banks’ limit of 4 mortgages in today’s market. Peter never heard of that – which was later clarified by Paul Xavier of HiREI that it only applied to residential loans, not commercial loans.
Commercial loans are another animal – the basis of which is the value of the property, which is based on the income it can generate. Peter’s suggestions if bank loans do not work out were to get the seller to finance the deal, do a lease option, agreements of sale, amortize payments, and/or find other lenders such as stock brokerage firms to deal with.
This was the second time that Aunty heard Peter Savio speak at HiREI. Uncle came along and was also very impressed with the knowledge and creative approaches that Peter utilized. Add to that Peter’s very kolohe (rascal) points of view – sometimes very politically incorrect as we locals can sometimes be – and it is an evening to think back upon with pleasure, appreciation, and a chuckle. Peter’s philosophy of taking care of Hawaii, its people, and making a just little profit (not a killing) is admirable, and rare, in business today.
If Peter does get the Iroquois Point deal, he will offer the houses and apartments to the public at below market prices – a once in a lifetime opportunity to own beach front Oahu property. The notices will go out via postcards to those on his mailing list before it hits the news. If you are not on his mailing list, call his Hawaiian Island Homes, Ltd. office at (808) 955-6672, or email danac@hihltd.com and asked to be put on his mailing list.
Aunty is already there, and putting out support for Peter and Hawaii to get Iroquois Point. Beachfront fishing grounds, low to zero lease rent, way below market – Imua!