Distress Call

Hawaii's booming real estate market has made finding distressed properties much more difficult

March, 2003

Paul Xavier had tried just about everything. The retired U.S. Navy chief petty officer has published a recipe book, purchased gumball and vending machines and invested in half of the infomercials on television. He always had an entrepreneurial spirit, but nothing seemed to work for him. Then one day, he saw an infomercial on ways to invest in real estate with very little money. Xavier was hooked. Many seminars (costing many thousands of dollars) later, Xavier now owns eight properties in Wahiawa and Waianae. The gross income from his real estate holdings equals the salary he was earning while in the Navy.

“I always thought there was something better out there than working in an office all day,” says Xavier, 39, who retired last summer. “I’m not rich or anything. My wife still works, and if she stopped, we’d probably be in trouble. But I do think that we are right on the edge and ready to take off.”

Last year, Xavier, along with several partners, formed the Hawaii Real Estate Investors, a non-profit investment group. At HREI’s monthly meetings, members learn the ins and outs of locating, buying and financing distressed properties. Guest speakers also cover a broad range of topics that include renting, managing and selling properties. Currently, HREI (http://www.hirei.org/) has 20 paying members.

“I would go to all these conferences on the Mainland, and they would tell me to join the local investment group. But we didn’t have one in Hawaii,” Xavier says. “So I started one. Like any business, it’s essential for networking. We get to hear about what’s going on in the market.”

This year, Xavier, along with HREI’s treasurer and secretary, Randy Fujinaka, will produce a pair of commercials. The first will be an invitation to viewers to invest with the pair. Xavier and Fujinaka will promise an 8 percent return on investment. The second commercial will be a call for information on distressed properties throughout the state. Xavier hopes to air the commercials in the latter half of 2003.

Xavier says that Hawaii’s booming real estate market has made finding distressed properties much more difficult than when he started in 1999. However, he believes that with the right knowledge, investors can make money in any market. “As a real estate investor, you are a problem solver. You’re always going to find real estate deals for different reasons, whether it is financial or due to death or taxes,” Xavier says. “People just don’t want to deal with a lot of the headaches and they’re willing to unload their property below market.”

Xavier is quick to point out that investing in distressed real estate is not a get-rich-quick scheme. It’s time-consuming and takes a lot of work, which includes renovating structures and evicting uncooperative tenants.

“It’s like any other business,” Fujinaka says. “You have the problems of fixing things up or landlording or basic maintenance issues. You deal with the problems that the seller didn’t want to deal with.”

When Fujinaka bought his first property last year, he did much of the renovation work himself. The time and effort has paid off already. His $6,000 renovation and the surging real estate market have nearly doubled the value of his property, which he purchased for $42,000.

However, Fujinaka, a 30-year-old physical therapist assistant, isn’t about to give up his day job. He says that he needs to acquire about six or seven more properties before he can even contemplate “retiring.” He is planning on purchasing three more income properties this year. Still living with his parents, he says that he probably won’t purchase a home for himself until he gets married.

“It probably won’t be a distressed property,” Fujinaka says. “But it would definitely be something that I could fix up and improve while I’m living in it.”

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David K. Choo