Hawaii Hard Money: Insights from a Local Lender - KECO Capital

February 05, 2024

Cory Nemoto from KECO Capital shares some insights about real estate investing and hard money lending in Hawaii.

Video Transcript

Speaker: Cory Nemoto, Co-Founder & Principal, KÉCŌ Capital

What are the dynamics which are driving real estate investment activity and hard money lending in Hawaii?

Cory Nemoto: Hello, my name is Cory Nemoto and I'm the co-founder and principal of KECO Capital. And we're a private lending company based out of Honolulu, Hawaii. And I have personally been investing in the Hawaii market for over 13 years. I'm also born and raised here. So I know this market very well and the dynamics behind the Hawaii market can boil down to supply and demand where we have very limited supply, we live on an island. So there's not much supply being made around here. And we have extraordinary demand from all over the world. We have buyers from China, from Japan, Korea, Australia, Canada. So everyone wants a little piece of Hawaii, right, which causes our prices to go up. So Hawaii's market is very much a high equity, high appreciation market which attracts a lot of investment activity from house flippers and developers. But we are a very poor cash flow market. So if you're looking for cash flow, Hawaii is probably not the place for you. But it doesn't mean you can't find deals, there are deals out there, but it's very hard. And the margins are a lot thinner So most of the deals and the loans that we do out in the Hawaii market are fix and flip or ground up construction of single family homes.

Are there any particular cities or neighborhoods in Hawaii where you've seen a lot of activity?

Cory Nemoto: When it comes to single family real estate here in Hawaii, we're seeing a lot of activity on the big island of Hawaii, which is more in the northeast side of the island where it's typically more rural. But there's a lot of investors out there that are doing ground up construction of single family homes. So we're seeing a lot of ground up construction activity more towards the hilo side of the big island of Hawaii. Now, in the higher density areas like Oahu, we're seeing, we're still seeing a lot of activity with fix and flip and ground up construction on the west side of Oahu as well where you have Makaha and Waianae, where the prices are a little bit more affordable. There's a lot of development and redevelopment going on out there right now.

What is the hard money lending landscape like in Hawaii?

Cory Nemoto: So the private lending landscape here in Hawaii is very competitive, especially amongst bridge fix and flip and ground up construction loans. Since we are a high equity, high appreciation market attracts a lot of house slippers and single family home, ground up construction developers. A lot of the loans that we do are very high dollar, which makes it attractive for private lenders as well. And the our average loan size here is about $990,000 which most of the time it pushes over a million dollars per deal. The land alone is very expensive. So and the cost of construction is is high as well. Lead times are longer here in Hawaii as well. So investors have to be very wary of permitting and also lead times on materials.

How do you differentiate yourself from the competition in Hawaii?

Cory Nemoto: So our model is funding for investors by investors because we are investors. And since I have been investing in the Hawaii market for over 13 years, I've learned that not only do we need high leverage loans, but we also need that leverage allocated properly. So we alongside our partners have crafted a product that is designed for real estate investors because it's not just about the the amount of leverage that you get, it's how the leverage is allocated. So we're able to go to the highest leverage of purchase price. We're also able to provide the renovation budget in advance instead of arrears and we wrap interest payments into the loan. So the investor doesn't have to have the capital to service the debt every month, which can add up since these are high dollar loans. And they also don't have to have the funds to front the construction and paid in arrears. So really, they're coming down, they're coming with the down payment closing costs and the ability to execute. And so that way they can save their capital to hopefully go place on another deal to help them scale in a high dollar market. So our product is designed for high leverage, but it's not just about high leverage. How is that leverage allocated?

What types of hard money loans do you typically fund in Hawaii?

Cory Nemoto: Here in Hawaii, the most of the loans that we do are fix and flip and ground up construction. We don't do any DSCR loans out here unless they are against a, short term vacation rental. But even that it is hard to find since the Airbnb's and the Vrbo properties, they're all heavily regulated here. So it's very rare even for, for those numbers to work out. But most of the loans that we do here are for fix and flip and ground construction.

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