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Real Estate Investing in Hawaii

Investment Properties in Hawaii

It’s not just a new year, but a new decade. If one of your New Year’s resolutions involves becoming more financially successful, real estate investment is the way to go. For the past 35 years, Oahu real estate has proven one of the best such investments in the nation. It is not that the real estate market never declines, as there are always hot and cold markets, but historically such dips are not extreme and the market revitalizes within a reasonable amount of time. That’s not necessarily the case with  Mainland real estate investing.

Prequalification

Just as with a home you intend to live in, obtaining prequalification prior to searching for a Hawaiian investment property is critical. The lender will go through your financials and you’ll know just how much money you’ll have to invest in a property. You will also know the interest rate for which you qualify. One caveat: When buying a condo, expect to pay a higher interest rate if more than 49 percent of the residents are renters.

Getting Started

If you are new to real estate investing, consider starting out by purchasing a small condo. Your real estate agent can advise you on the most promising locations. Keep in mind that the goal is creating a positive cash flow for the property, so your investment readily pays for itself and puts you on track to selling it at a profit down the line.

Along with the real estate mantra of “location, location, location,” consider the condition of the condo and the building overall, the current rent, local vacancy rates, and the monthly maintenance fees. Perform your due diligence regarding the condo association to ensure it is well-run and that applicable fees are not too high. Once you calculate all of the costs, including necessary repairs and upgrades, you can determine whether to move forward with this particular unit.

Short Sales

You may find a bargain investment property by going the short sale route. Short sales occur when the homeowner owes more on the mortgage than the property is worth. The lender must approve the sale.

While not as plentiful as they were during the financial crisis, short sales are still available and, if you find the right one, can make excellent investment properties. Many of these homes are not in great condition and require considerable repairs, but if in the right neighborhood you should make a profit after refurbishment and sale.

Vacation Rentals

Most visitors prefer staying in a home rather than a hotel during their Hawaiian stay, but purchasing a vacation rental as an investment property is trickier than it once was due to recent legislation. While homes in resort areas are not affected by the new vacation rental laws, that is not the case with properties in other locales. The number of legal vacation rentals has been capped in these places. A real estate agent can help you find a vacation rental investment opportunity conforming to the new regulations.

Contact Us

If you’re looking to buy an investment property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

December 26, 2019

Staging Your Home During the Holidays

5 Holiday Home Staging Ideas

The holidays aren’t usually the ideal time to sell a home, but there are people looking for the right Hawaiian residence year-round. Staging a home for sale is a bit different during this time of year, and these ideas can increase your odds of a sale and a happy new year in a different location.

  1. Minimize Holiday Décor

For many people, holiday decorating is a highlight of the season. If you are trying to sell your home, keep your decorations to a minimum, especially outside. No matter the time of year, curb appeal is critical. A wreath on the front door is welcoming, but excessive lighting, Santa and reindeer displays, Snowmen and the like are distracting. If you must have holiday lighting, choose simple white lights set around the front door frame or a similar look.

Indoors, keep your decorations simple. If you celebrate Christmas, choose a smaller tree and again, go with white rather than colored lighting. Keep in mind that not all potential homebuyers celebrate Christmas, and vivid holiday decorations make it harder for them to imagine the house as theirs. Any seasonal décor used should emphasize the holiday per se, not religion.

There is an exception to the décor minimization rule. If there is a feature in your home you want people to notice, tie a red garland or a color appropriate to your décor in that area. The garland won’t look out of place, and visitors’ eyes are drawn to that item.

  1. Greenery

While you should cut back on the decorations, feel free to brighten up your home with greenery, traditional or otherwise. Fresh flowers in the kitchen or holiday greens are a simple, elegant way to make the home more attractive, without clutter.

  1. Let the Light In

When a real estate agent brings clients over in the evening, make sure your house is well-lit. Not only does good lighting allow the visitors to get a better look at the interior and exterior of the house, but a well-lit home is inviting in the dark.

During the day, keep the curtains or blinds open to let in as much natural light as possible. At any time, light a few candles to enhance mood or provide scent, but don’t overdo it and make sure candles are placed where small children –or even adults –can’t knock them over.

 

  1. Holiday Baking

You want your house to smell warm and inviting, so go ahead and indulge with holiday baking. Offer freshly baked holiday cookies to those touring the home – along with their real estate agents. Keep some bottled water on hand, and serve the snacks in your spotless kitchen or dining room.

  1. Set the Table

With home staging, decluttering and depersonalizing is essential. As noted, buyers should imagine themselves living in your home, and clutter and too many family photos and objects take that focus away. One way to show off the entertainment aspects of your home is by setting the dining room table tastefully, letting buyers think about much their own family and friends would like to create memories there.

 

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

What Does a Real Estate Agent Cost?

Real Estate Agents and Costs

There’s definitely a learning curve when it comes to buying your first home. Most first-time homebuyers focus on saving for a down payment and the other initial costs of home ownership. Unfortunately, some new buyers hesitate to hire a realtor to help them find the right home, because they don’t understand the cost structure. They may think they can do most of the work themselves, simply by searching online real estate sites. That is usually a mistake.

Real Estate Agent Fees

Generally, real estate agents receive a commission when the property sells. It’s the seller who usually pays the commission, not the buyer. Normally, the amount of the commission is split between the seller’s agent and the buyer’s agent, but the buyer makes no direct payment.

The typical commission in the Honolulu area is 6 percent of the sale price, so the seller’s and the buyer’s agent each receive 3 percent. Keep in mind that unless the real estate agent is also a broker/owner –i.e., owns their real estate brokerage company –that 3 percent commission is also split with the real estate brokerage.

It is possible to pay less in commission, via so-called competitive commissions, which range between 5 and 5.5 percent. There are also “very competitive commissions,” which run between 4.5 and 4.99 percent. Commissions are negotiable, and the seller can discuss the issue with potential agents.

While a seller may decide to save some money with competitive commissions, it is key to remember that you get what you pay for. In a hot market, competitive commissions may make sense, since your home is likely to sell quickly. In an average or slow market for sellers, a full-service agent puts in the time and effort necessary to market homes and close a deal. For sellers, a lower commission means the agent has less motivation to sell that particular home and attract buyers’ agents, and also does not have as much money to spend on advertising and other marketing necessities.

Real Estate Agent Value

A real estate agent is a licensed professional, bound by the National Association of Realtors’ code of ethics. The agent represents and protects your interests. Because the agent knows your budget and the type of property you seek, you waste less time visiting unsuitable houses, and time is money. The agent knows the area, and its pros and cons, in a way an unfamiliar buyer cannot. Agents know the current temperature of the market and whether buyers or sellers are benefiting.

Once you find the right home, your agent can help negotiate the price with the seller’s agent. Your agent knows of possible issues that might demand a lower price, saving the buyer a significant sum.

Because home buyers require other professionals, such as appraisers, attorneys, mortgage brokers and more, your agent can provide recommendations. This helps speed the entire purchase process along.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with every aspect of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

November 27, 2019

To Stage or Not to Stage?

The Ins and Outs of Staging Your Home

Right now, your home reflects your taste and preferences. If you’re thinking about selling your home, however, you have to decide whether a more neutral look might attract more interest. Staging a home helps it appeal to more potential buyers and usually generates a faster sale. While you have to spend more money on home staging, you will likely get a higher price for the dwelling than if it isn’t staged.

The Pros of Home Staging

You only get one chance to make a first impression. A home stager wants to ensure that the first impression is the best possible, so staging showcases the home. While you must pay for the service, you literally have someone else do all the heavy lifting. If your furniture sports some wear-and-tear, there is no need to buy new furniture to improve a room’s appearance. The stager has access to all sorts of furniture and artworks, and can also mix and match these items with your own. They know the tricks of the trade to play down or hide difficult spaces. The end result is harmonious and attractive.

A professional stager tours your property, and then comes up with ideas best suited for your home’s particular marketing needs.  The stager will send you a proposal, which you can discuss to nail down all specifics. Once an agreement is made, the company stages the property. That includes removing superfluous pieces and putting them in storage, and bringing in new furniture and decorative items and arranging them. While the process varies by the home, this is usually completed with two or three days. Once the house sells, the stager removes the furnishings brought in.

Home Staging Cons

Home staging isn’t cheap. While it can increase the sales price, from a practical standpoint it makes more sense for upscale and luxury properties. When the market is hot, and your type of home is in demand, staging may prove an unnecessary expense.

You also have to make sure staging isn’t overdone. Buyers have different expectations of older homes than they do for newer ones. Trying to make an older home look more up-to-date than it actually is might prove a red flag.

Do It Yourself Staging

For many homeowners, it doesn’t make financial sense to hire a home stager. That doesn’t mean you can’t stage your home on your own. Cleaning and decluttering are home staging basics, as are making necessary repairs. If you don’t use something regularly, prepare for your eventual move by boxing it up.

Put personal items, such as family photos and mementos, into storage when preparing your home for resale. You want those viewing your home to imagine themselves in it, which is harder to do with other people’s cherished articles around.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with every aspect of the Hawaiian real estate market. We also work with professional stagers. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

The Advantages of Hiring a Management Company for Your Rental Property

Purchasing Hawaiian real estate for investment purposes is usually a wise decision, as the demand for such rental properties is strong and is expected to remain so. For all the financial advantages of investing in rental real estate, there is also one disadvantage, and that is property management.

If you do not live in the area or are not particularly handy, taking care of the property becomes a difficult, if not impossible, task. Fortunately, a property management company can take care of your rental for a reasonable fee, so that you can enjoy both the income generated by the rental and its appreciating value.

Hawaiian Law Requiring Property Managers

If a landlord does not reside in Hawaii, or lives on a different island from the one on which the rental property is located, state law requires that the landlord hire a property manager based on the same island as the rental property.

The Role of the Property Manager

A property management company can take care of all the rental unit’s needs from beginning to end, including the screening of potential tenants. Property manager duties may include:

  • Rent collection
  • Routine inspections to ascertain the condition of the rental
  • Maintenance and repair services
  • Financial reporting, so owners can keep track of their investment.

If problems arise, such as the need to evict a tenant, the property management company will also pursue the matter in court on behalf of the owner. Once the tenant is evicted and gone, the property manager will make any necessary repairs and renovations and work to rent the property again as soon as possible.

What to Look For in a Property Management Company

There are certain essentials required for a good property management company, and you should conduct your research as thoroughly as you did when buying your rental home. First, you want a company deeply familiar with the Hawaiian real estate market. Second, you want a company with a strong property management track record.

When deciding upon property managers, ask the following questions to figure out the best fit for your situation:

  • Are you a licensed realtor? In Hawaii, all property managers must hold a real estate broker’s license. Without such a license, a company cannot engage in the process of renting out properties owned by another entity. Check with the Hawaii Department of Commerce and Consumer Affairs to verify such licensing.
  • How many properties does the company manage, and how long has it been in business?
  • How often does the company report to the landlord?
  • What are the record and account-keeping methods used?
  • What is the property management company’s liability?
  • What are the fees?

In addition, make sure you receive a list of all duties the management company performs, in writing. It is often possible to negotiate certain duties if they are not part of the standard property management agreement.

 

Contact Us

If you’re looking to buy or sell a home, find a rental property or rental property manager, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

October 28, 2019

Earnest Money: What Buyers Need to Know!

What First-time Buyers Need to Know About Earnest Money

If you’re in the market for your first home, you’re paying a lot of attention to your budget and what you can afford. After taking into account the down payment, closing costs, moving expenses, home inspection fees, and home insurance, you might think you have a pretty firm grasp on your homebuying costs. However, if you’re leaving out earnest money, you’re in for an unpleasant financial surprise.

What is Earnest Money?

Earnest money is known by several different terms, including good faith money and escrow funds. The earnest money is paid after the property owner accepts your offer on the dwelling. This good faith money shows you are serious about completing the transaction. The downsides to earnest money is that you could lose the escrow funds if the loan doesn’t close, depending on the conditions in the sales contract. When the closing does occur, the earnest money is credited toward your down payment and closing costs. However, if you simply change your mind and decide the house isn’t for you, the earnest money is forfeited.

You’ll need cash for earnest money, which can run as much as 3 percent of the purchase price. If the housing market is very hot, the earnest money is often a higher percentage. In some cases, earnest money is a fixed amount.

Protecting Your Earnest Money

One of the best ways to protect your earnest money is by obtaining financing before you start house-hunting. No one wants to find out they do not qualify for a mortgage after paying earnest money to a seller, or that the amount for which they qualify is much less than they thought.

Make sure the real estate contract contains a contingency clause stating that are you are able to obtain financing. With such a clause, failure to get a mortgage means at least you should receive a refund of your earnest money. Without this clause, the seller probably can keep the funds.

Additional Contingencies

Failure to obtain a mortgage is not the only contingency the homebuyer should have included in the contract to get their earnest money back. All financed homes require an inspection and appraisal. Properties that may appear in good condition to the layperson may turn out to have serious deficiencies once a professional inspection takes place. While you might renegotiate the sale price with the homeowner if repairs are costly, you may also decide the extra expense is not worth it. A contingency clause regarding such issues should allow you to get your earnest money returned.

A lower than the agreed-upon selling price in an appraisal is a different story. Lenders are not going to finance a property for more than it is worth. Since a low appraisal is going to prove an ongoing problem for the seller, most will lower the price for the buyer. If the seller won’t budge, a contingency clause regarding appraisal price should permit the refund of your earnest money.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

Hawaiian Holiday Rentals

Renting Out Your Home During the Holidays

The holidays are fast approaching, and perhaps you are heading to the mainland or elsewhere to celebrate with family and friends. There are plenty of people heading to Hawaii to celebrate or enjoy a vacation, and many of them would prefer renting a home rather than staying in a hotel. There’s no question the demand is there, but whether you can rent out your home for the holidays legally depends on where you live.

Where Vacation Rentals are Permitted

On Oahu, vacation rentals are allowed in resort areas. They are also permitted in apartment medium density districts as long as the dwelling is located within 3,500 feet of a resort district. Vacation rentals are also allowed in apartment and resort districts rezoned as part of a master-planned resort community, according to Hawaii Business.

Rentals and Taxes

Keep in mind that if you rent your home out, you are subject to Hawaiian income tax, the Transient Accommodations Tax (TAT) –also called the “hotel room tax” – and the General Excise Tax (GET). By law, any rental to a transient person – such as a tourist –for less than 180 days is subject to these taxes, and that holds true even if you just rent out your home for a weekend.

Currently, the GET rate on gross rental income is 4 percent, although it rises to 4.5 percent if a country surcharge applies. The TAT rate on gross rental proceeds 10.25 percent.

Pricing a Rental

While high taxes may damper your enthusiasm when it comes to renting out your home for the holidays, you can still make a considerable profit at the going rates. Peak season for rentals is December through March, with vacation home occupancy rates nearing 80 percent, and the winter holidays fall neatly into this timeframe.

Of course, how much you can charge for your home depends on various factors, such as size, location and amenities. For a two-bedroom condo near the ocean, you might fetch $300 per night. A larger home able to accommodate parties of eight or more might reach $1,000 per night, with a true luxury home bringing in weekly rates in the tens of thousands of dollars. Even with taxes, a two-week holiday rental can provide you with substantial extra income.

Renting Out Legally

There is no question the number of illegal vacation home rentals on Oahu is quite high, and no new permits for transient vacation units (TVUs) have been issued in years. A new law passed in June, 2019, toughens enforcement of Oahu vacation rental laws. If you are not legally permitted to rent out your home, avoid the temptation to break the law. Getting caught advertising an illegal vacation rental can subject you to a $10,000 fine.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

September 25, 2019

Rental Laws: What You Need to Know

Changes in Vacation Rental Laws

There are plenty of people heading to Hawaii on vacation, and many of them would prefer renting a home rather than staying in a hotel. However, new regulations regarding Short Term Rentals (STR) may affect your ability to rent out your abode. If you are considering joining Airbnb or a similar organization,  whether or not you can rent out your property legally depends on where it is located.

New Legislation

In June, Honolulu Mayor Kirk Caldwell signed a bill imposing tough new restrictions on vacation rentals. Under the law, bed and breakfast rentals are limited to just 1,715 in all of Honolulu. However, if your home is located in a resort area, such as Waikiki or Turtle Bay, it is exempt from the new regulations.

Potential Penalties

It is no secret that there are lots of illegal rentals already in existence. Under the new law, visitors will not receive punishment if they book an illegal rental, but that’s not the case for the property owner. If an illegal rental is discovered, the property owner faces a $1,000 fine for the first offense, and up to $5,000 for second and subsequent violations.

Short-Term Rental Registration

Under the new law, property owners must register their short-term rental homes by September 28, 2019, and pay a $500 registration fee. If you already have an STR, your registration is grandfathered.

However, if your STR was registered prior to April 1, 2019, you must apply for an annual $250 Non-conforming Use certificate. Only homeowners may apply for STRs, not companies or legal entities.

New Stipulations

The legislation is the result of complaints by residents finding their neighborhoods changing because of so many STRs and the resultant problems. The new law includes various stipulations to protect the quality of life for residents. These include:

  • Quiet hours from 9 p.m. to 8 a.m. –All rental agreements must include this proviso, and the homeowner must post this notice in the dwelling.
  • Guests must park vehicles in designated parking areas onsite.
  • All STR ads must include either the registration or non-conforming use number.

Transient Vacation Units

Bed and breakfasts are considered those homes where the owner is present during the guests’ stay. Many homeowners are more interested in renting out their properties as Transient Vacation Units (TVU), and will not stay there when guests are present. Registration for TVUs by homeowners starts October 1, 2020, as the Honolulu Department of Planning and Permitting requires more time to put these new rules into operation. The initial registration fee for a TVU is $1,000, with the annual renewal set at $2,000. Illegally renting out a TVU can bring a fine as high as $10,000.

Other rules involving TVUs include providing neighbors within 250 feet of the home with a 24-hour number to contact the homeowner regarding complaints.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

Loan Approval for First Time Buyers

What First-Time Buyers Need to Know About the Loan Approval Process

Your introduction to home buying is likely also your introduction to the world of mortgage loans, and the process is often intimidating. Do your research beforehand, becoming familiar with terms like points, fixed vs. adjustable-rate mortgages, mortgage insurance and other intricacies of home buying before starting your loan approval journey.

Preparing for Loan Approval

Get your finances in order well in advance of loan shopping. Avoid taking out new credit cards or other loans in the months before seeking mortgage loan approval. If you have existing credit card balances, try to pay them down so they are less than 30 percent of your credit limit. Make sure all of your bills, including rent and utilities, are paid on time.

Decide on how much of a down payment you can make on a property. Putting down more 20 percent or more of the purchase price means you do not have to pay costly mortgage insurance, but high home prices in Hawaii can result in substantial down payments. If putting down 20 percent on a home leaves you with little or no financial cushion, paying mortgage insurance is probably a better idea.

Pre-approval

First-time homebuyers should start by receiving pre-approval from a mortgage lender. Obtaining pre-approval requires submitting substantial documentation, including pay stubs, banks statements and pay stubs. You’ll also have to disclose any outstanding loans, such as automobile or student loan debt. When the lender pre-approves your mortgage for a specific amount, you can start your home search, since you know how much you can borrow.

Pre-approval is not the same as pre-qualified. The latter simply means the lender has done a fast estimate based on your income, assets and debts, based on the information provided with little or no verification. The bottom line is that a prequalification gives you an estimate of how much you might borrow. With a preapproval, you know how much you can borrow, and make a more informed decision during the home buying process.

Shop Around

Just as you would comparison shop for any other major purchase, it’s critical to do the same with a mortgage lender. For best results, consult at least three lenders, comparing interest rates, loan terms, and lender fees. You might also find that one lender is more efficient and responsive to your needs than others, and that can play a role in your decision when choosing a lender.

Consider Government Loans

For qualifying first-time buyers, government insured loan programs such as Federal Housing Administration (FHA), US Department of Veterans Affairs (VA), and US Department of Agriculture (USDA) loans may make more sense than conventional loans, especially for those with less than stellar credit. FHA loans require just a 3.5 percent minimum down payment, while there is no down payment required for active duty and veteran military members with a VA loan.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. If you’re a first-time buyer, we can help you navigate the process. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

August 23, 2019

Underwriting: What to Expect

What to Expect During Underwriting

Unless you are purchasing a property for cash, the mortgage underwriting process is part of the home-buying experience. In basic terms, underwriting is the process used by the lender for risk assessment, ensuring the borrower meets all loan requirements. How the underwriting process unfolds for individual borrowers may depend on their lender and the type of mortgage for which they are applying.

Document, Document, Document

The underwriting process requires lots of documentation. An underwriter is interested in the following information:

  • Credit score
  • Credit report
  • Income
  • Debts
  • Debt to income ratio
  • Financial assets

The property you intend to purchase is also part of the equation. An appraisal is necessary, because the underwriter must ensure it provides the lender with adequate collateral for the loan.

Keep in mind it is the underwriter’s job to ensure a loan is as risk-free as possible.  All that documentation protects both the underwriter and the bank or mortgage company.

Automatic vs. Manual Underwriting

In most cases, the mortgage application is fed through an automated system, which either approves or declines the application, or more often, refers it to a manual underwriter, also known as a human being. When a manual underwriter gets involved, expect further financial scrutiny, but also the opportunity to explain any discrepancies or issues the automated system flagged.

Underwriter Conditions

If you loan doesn’t pass the underwriting process the first time around, don’t despair. That’s not uncommon, but once you satisfy the conditions set out by the underwriter, it’s more likely you’ll receive loan approval. Conditions generally consist of more documents, including additional bank statements. An underwriter may also request that you pay off certain debts prior to conditional loan approval, or clarify why you missed or were late paying particular bills.

Self-Employed Borrowers

If you or your spouse are self-employed, expect to provide even more intensive documentation during the underwriting process. There are special underwriting guidelines for the self-employed, far more stringent than for salaried workers. In most situations, a borrower must be self-employed for at least two years before qualifying for a mortgage, but there are exceptions. If you have been self-employed for at least one year, but have prior experience in the field and make as much as a self-employed person as you did when working for another entity, you may qualify for a mortgage.

Lenders look for “stable and consistent” income. Business incomes often fluctuate for a variety of reasons, and if your self-employment income does experience significant ups and downs, you may need to supply the lender with several years of tax returns to prove there is a reason for this fluctuation.

The Turnaround Time

Turnaround time for mortgage underwriting also varies, but in most cases borrowers receive an initial decision within 72 hours to one week of submitting the application and all necessary documentation. If you must fulfill conditions, the turnaround time may depend on how quickly you can meet these conditions.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.