The Hawaiian word for "bubble" is "Open House".
This weekend we made our usual round of Central Oahu home sales. Spouse only looks at open houses of at least $500K (formerly $350K, soon to be $700K), preferably with comparable 4BR/2.5BA layouts for home improvement & decorating ideas. We've visited a half-dozen homes a month for decades; it's how we discovered our current humble abode and how we'll cherry-pick our next foreclosure.
The first thing that a bubble brings out is all the hopeless homes & marginal real-estate agents. This particular pair included a 10-year-old second-story addition (with a separate staircase entrance) that had installed interior doors at the exterior entrances. The carpenter was replacing them during the open house so that you couldn't help note the rotten frames & carpenter ants running all over. The REA (on her very first open of her very first listing) even had the gall to point out the second-story fridge hole & plumbed sink, claiming that all we had to do was add an electric cooktop and a microwave to have a renter-ready (yet illegally zoned) apartment. She had no idea whether the addition even had a permit ("Good question!"). The side yard was unlandscaped, the walls had been well-dented by four teenagers, and it was built right to the back of the lot (maybe too far, we'd have to check with the surveyor). Original kitchen downstairs, filthy neglected dirt everywhere, everything needed new carpet, sheet vinyl, & paint. $650K, "Please don't waste our time with offers below that".
The second thing the bubble brings out is the speculators, and this other house had a whopper. It's in an upscale newer neighborhood having a reputation for overpriced country-club homes on small lots with unfinished landscaping (red dirt everywhere) and expensive upgrades (like $20K for a dining room). The 4BR/2.5BA 2400 sq ft house was built in '93 on an odd-size lot of 14,000 sq ft (we don't have enough space on Oahu to do acres). Two-story with cathedral ceilings, luxury master bedroom & bath, backing up on the ravine of a municipal park and an ocean view peeking over the horizon. Later I learned that it had last sold in '98 for $500K. It was listed yesterday for $845K, "Please add your offers to the pile by the door on your way out".
The FSBO was on his first open. He sure didn't know much about the place and he finally admitted that he'd only owned it for two years and had never personally lived there. ("But I fell in love with it the moment I saw it and I had to have it!") I asked about renters and he said that it had been VACANT for "A COUPLE YEARS". I asked how his neighbors felt about that ('cuz my next step was to ask them if the house had really been vacant!) and he said that he'd paid a retired police officer next door to keep an eye on it. The house was stripped bare with a neglected stale smell about it and only a couple structural problems so I'm inclined to believe him. He claimed he was selling to raise cash for "other projects"; he was liquidating all four (!) of his homes.
I chased this one all over the internet tax records and I couldn't figure the guy out. No sale was recorded since 1998 so I think he'd bought the home in Jan 2003 (when he'd incorporated his LLC) on an installment sale for the deed (which was why the transfer hadn't been recorded yet). He was probably paying the former owner installments on $600K while leaving it vacant! I guess he was going to bundle his four homes into a 1031 exchange (on an apartment block?) so I can only speculate how much he was paying lawyers & title companies.
I can't imagine a $600K installment sale on the assumption that the market would keep rising, especially with Hawaii's previous real estate bubbles. I can't imagine leaving a home VACANT for TWO YEARS. And I can't imagine doing that with one home, let alone four. But most of all, I can't imagine having that much capital wrapped up in that much real estate. Clearly I fail the "Warren Buffett diversification test". For having the chutzpah (or idiocy) to build this real estate empire, I hope the seller clears seven figures on the liquidation.
BTW the house assessed in Oct 2003 at $540K for $1890 annual property taxes. He'll probably get at least $850K for it, and that's with no commission.
