The Role of Private Lending in Hawaii's Real Estate Boom

Hawaii’s real estate market is unlike any other in the world. It is a landscape defined by breathtaking beauty, high demand, and notoriously limited inventory. For investors and developers, the opportunities here are lucrative, but the competition is fierce. Properties in prime locations like Honolulu or Kailua often receive multiple offers within days of hitting the market.

In this high-stakes environment, the traditional banking system often acts as a bottleneck rather than a bridge. Rigid underwriting guidelines and slow approval processes can cause investors to miss out on profitable deals. This is where private lending steps in. Private money has become the lifeblood of the current real estate boom, filling the critical gaps left by institutional lenders.

This article explores why savvy investors are turning to private capital to secure properties, how speed and flexibility change the game, and the specific ways non-traditional financing is reshaping development across the islands.

The "Time Kills Deals" Reality in Hawaii

If you have spent any time in the Oahu real estate market, you know that speed is everything. A distressed property priced below market value will not sit and wait for a 60-day bank approval process.

Traditional banks operate on linear, bureaucratic timelines. They require weeks of document collection, committee reviews, and rigid appraisal processes. By the time a traditional lender issues a commitment letter, a cash buyer or a private money borrower has likely already closed the deal.

The Speed Advantage

Private lenders operate differently. They are asset-based lenders, meaning they focus primarily on the value of the real estate rather than just the borrower's personal credit history or tax returns. This shift in focus allows for drastically reduced timelines.

For example, imagine a fix-and-flip investor identifies a single-family home in Ewa Beach that needs significant renovation. The seller wants a quick exit and prefers cash offers. A bank might take 45 to 60 days to close. A private lender, however, can often fund the deal in under two weeks. This speed allows the investor to present an offer that is as good as cash, often securing the property at a lower price because they can guarantee a quick closing.

Flexibility Where Banks Offer Rigidity

Hawaii has unique property types and zoning laws that often confuse mainland underwriters or trigger automatic rejections from big box banks. Properties with non-conforming use permits, unpermitted additions (common in older island homes), or those in need of major repairs usually do not qualify for conventional financing.

Traditional banks sell their mortgages on the secondary market to entities like Fannie Mae or Freddie Mac. If a property doesn't fit into a perfect "sellable" box, the bank cannot lend on it.

Tailored Solutions for Unique Projects

Private lenders hold their loans in their own portfolios. They have the autonomy to make common-sense decisions based on the potential of the deal.

Consider a local developer looking to subdivide a large lot in Kaneohe. A traditional bank might view the project as too risky because the land entitlement process is incomplete. A private lender looks at the equity in the land and the developer’s track record. They can structure a bridge loan that provides the necessary capital to complete the subdivision and infrastructure work. Once the project is "de-risked" and ready for construction or sale, the developer can then refinance into cheaper, long-term bank debt or sell the lots for profit.

This flexibility also extends to:

• Renovation Financing: Loans that cover both the purchase price and 100% of the renovation costs.

• Bridge Loans: Short-term capital to bridge the gap between selling one asset and buying another.

• Cross-Collateralization: Using equity in one property to fund the purchase of another without putting cash down.

Leveraging the "After Repair Value" (ARV)

One of the most significant limitations of traditional bank loans for investors is how they value a property. Banks typically lend based on the "as-is" value—what the property is worth in its current, often dilapidated, condition.

Private lenders, however, lend on the After Repair Value (ARV). They look at the vision. They calculate what the property will be worth once the renovations are complete.

A Practical Example

Let’s say an investor finds a fixer-upper in Pearl City for $600,000. The property needs $100,000 in work, but once finished, it will be worth $900,000.

• The Bank approach: A bank might lend 75% of the purchase price ($450,000). The investor needs to come up with a $150,000 down payment plus the $100,000 for repairs out of pocket. Total cash required: $250,000.

• The Private Lender approach: A private lender might lend 70% of the ARV ($630,000). This loan amount covers the entire purchase price and potentially some renovation costs. The investor brings significantly less cash to the closing table.

By leveraging the future value of the asset, investors can stretch their capital further, potentially taking on two projects at once instead of sinking all their liquidity into a single deal.

Empowering Local Developers to Solve Inventory Issues

Hawaii faces a chronic housing shortage. We simply do not have enough homes for our residents. While large-scale developers handle massive master-planned communities, small to mid-sized local developers play a crucial role in infill development. They renovate existing stock, add Accessory Dwelling Units (ADUs), and build small multi-family projects.

These local entrepreneurs often struggle to find capital. They are too small for commercial bank construction loans but too complex for residential mortgages. Private lending fills this "missing middle."

By providing access to capital for these projects, private lenders are doing more than just funding loans; they are facilitating the creation of housing inventory. When a lender funds a dilapidated home renovation, that home returns to the market as a safe, livable space for a local family. When they fund a small condominium project, they add much-needed density to urban areas.

Navigating Competitive Bidding Wars

In a market as hot as Hawaii’s, the terms of your offer matter as much as the price. Sellers are wary of financing contingencies. They have been burned by buyers who promise to close but get denied by their bank at the 11th hour due to a strict appraisal or a change in interest rates.

Private money offers certainty of execution. When you submit an offer backed by a reputable private lender, you are signaling to the seller that the funds are available and the deal will close.

This certainty provides leverage. In a multiple-offer situation, a seller might accept a slightly lower offer from an investor backed by private funds over a higher offer from a buyer using an FHA loan with strict inspection requirements. The seller values the peace of mind that comes with a guaranteed close.

Conclusion

The real estate boom in Hawaii shows no signs of slowing down. As prices rise and inventory remains tight, the ability to move quickly and creatively is the defining characteristic of successful investors. Traditional banks play a vital role in the economy, but they are not built for the speed and agility required in modern real estate investing.

Private lending has evolved from a niche alternative into a primary strategy for wealth creation in the islands. It allows developers to break ground faster, helps flippers maximize their leverage, and ensures that unique island properties can find the financing they need.

For those looking to capitalize on Hawaii’s market, understanding and utilizing private capital isn't just an option—it is a strategic necessity.

About JVB Capital Solutions

JVB Capital Solutions is a private lender providing short-term, real estate-backed financing to investors, developers, and business owners throughout Oahu.

We understand that in Hawaii, opportunity waits for no one. Our mission is to empower Hawaii's real estate investors and entrepreneurs by providing fast, flexible, and reliable funding solutions that traditional banks simply cannot offer. whether you are looking to flip a property, bridge a financing gap, or develop a new project, we are dedicated to helping you succeed.

Our vision is to become the leading private money lender in the Hawaiian Islands, known for integrity, speed, and tailored financial solutions. If you have a deal in mind, let's discuss how we can help you close it.