Owner Occupied or Investment Property in Maui

9 Replies

Aloha BP! My name is Zasha and interested in flipping a couple homes to build more capital to buy homes outright (refi in 6 months) then buy-and-hold properties but also wondering if I should buy an owner occupied home first. I know this is a common question, I've searched BP/google/etc, listened to podcasts, webinars for the past 10 months and see the pro's/con's for either way but wanted to get advice based on my particular situation. 

I'm 30 years old, married (both working full-time, combined income $100,000/yr) with 2 young kids and live in Maui, Hawaii where we rent an average 3bd/2bth SFH for $2,200 plus utilities/mth (avg comp rentals are $2600+). Our current savings is about $140,000 cash.

I've been working with a real estate agent to buy a house and decent homes on the MLS are $550,000-650,000 even when they are being bought back by the bank! I started exploring foreclosure auctions for the past year, found a rare opportunity for a house similar to what I'm renting now that needs minimal work, and am in the process of financing for purchase price of $413,000 (mortgage would be less than rent at $1800/month but could flip for $625,000).

Because our market is so high and these come by once or twice a year (so many investors here eating up the foreclosures), would you 1. flip right away 2. rent 6 months then refinance and keep 3. rent 1 year rental then sell or 4. live-in flip 2 years? 

*Tax incentives for 2 year live-in flip sound the most appeasing however that'd only leave us with financing a $200,000 investment property which is rare in our market (unless its a condo which rarely cash flows).


There are deals to be done... I'm doing an 'as is' deal right now for a 6-figure paycheck on the slopes of Haleakala. Don't focus on the MLS -- do your own off-MLS direct marketing. Easier said than done, I know, but that's where the real deals are -- not when they're known to the general public or investor community.

@Michael Borger Driving for dollars? Mailers? We've just been putting it out there to whoever we come across that we're serious about investing. Planning to attend the next BP meet-up in our area as well. Given my scenario above, would you flip right away as the market is so high right now?

@Isi Nau Any thoughts on my situation above? FYI we've moved almost every year because each of our rentals got sold so my husband said the same thing, we're getting movers from now on haha

Hey @Zasha S.

Good job saving up $140k!

Sounds like a great buy. If that house is still available I would get it under contract as soon as possible as a primary residence and then figure out the details in the coming weeks/months. I would put the the smallest downpayment allowed. If the home is in a USDA area even better, which would allow $0 down and your monthly payment would be $2000.

Here's some quick input on the scenarios you presented.  Let's run each scenario for 12 months.

1.  Flip right away.  The biggest factor is the cost of the remodel.  All other costs will be pretty set.  Let's assume you could make $80k (pre-tax).  In the mean time still paying rent of $2200, over 12 months that's $26,500 (rounded).  Giving you a net gain of $53,500 (pre-tax).

2. BRRRR. Again the biggest factor is the remodel cost, also taking into consideration all closings costs for the purchase and refi. Let's assume you'd be all in at $510k. With an ARV of $625k, you could refi 75% LTV, or $470k, which is less than the $510k you have into it. If you could refi at 80% LTV that would get you pretty close to pulling all your money out of the home. But you would then be cash flow negative by about $200 a month. Including your own rent of $2200 ($26,500 a year) that would be close to a combined $30k loss for the year.

3. Rent for a year then sell.  Assuming similar numbers provided in Option 1 and 2, as well as 3% appreciation for the year; rental income would be positive $2500 for the year, equity of $130k (assuming $0 downpayment and considering remodel costs), all closing costs of $45k, and your rent of $26,500.  Your net gain would be $61k.  Slightly better than Option 1.

4. Live-in fip.  The final outcome be very similar to Option 3.

I don't think Option 2 is much of an option.

Options 1, 3, and 4 are all similar.  The big difference is taxes.  I don't know your tax liability, but some generic assumptions are Option 1 would be 50%, Option 3 would be 15%, and Option 4 would be 0%.

Some of my numbers might be a little off.  I kind of jammed through it.  But they are probably pretty close.  Let me know if you have any questions.

I got it from my website. They just found me and reached out. // Isi Nau's assessment is a good -- it's up to you, the lifestyle you're willing to do and your tax situation. I don't know if there's a wrong decision..... it's just a matter of picking one and going with it. Such is real estate.

Hi @Zasha S. ,

I was just talking to someone in a similar situation as you here on Maui. If you run the numbers and have the time and desire to do it, why not consider getting a vacation rental property that cash flows? There’s some work involved, but it’s certainly less risky than doing flips on Maui in my opinion. There are opportunities available. If you’re interested in that idea, DM me and I’ll share some of what works for my wife and I and some of our friends. 

@Zasha S.

The first question is that do you want to be passive or an active investor which is dictated by how much capital do you have to work with. Unfortunately, there is no cashflow in HI and you will have to go to mainland. But if you want to be active Hawaii is great for flips but I don't do that.

Aloha @Zasha S.

Your folks situation sounds identical to ours.  My wife and I ended up buying land Pukalani and doing new construction.  We were paying 2k a month rent for a 2bd 1ba.  

We ended up moving in with family for almost a year, began construction end of last year and moved in this past April.

A ton of lessons learned along the way.  As others mentioned the rehab costs/ cost to build is a huge factor in your numbers. 

The other huge factor is financing.  Met with 12 different lenders to find one that would fit our situation best.

Plan is to live-in and hold for now. PITI is $2800. We have 325k in equity.

Deciding if should prepay mortgage with it but will probably wait and keep eye on Market.

If can be of any help feel free to connect.  Haven’t been on BP in a while but it’s good to see more of us from Hawaii on.


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