Hawaii Condo Investment decision

9 Replies

Hello BiggerPockets community! I joined about a month ago after I purchased my first investment while stationed here in Oahu. It's a 3 bed 3 bath condo in Ewa Beach, HI that I'm living in while renting out a room to a young military couple (all utilities included). 

My question is whether or not to hold onto this property after I leave here in May 2021.... I'm tracking on trying to get cash flow every month (after putting money aside for repairs, big projects, etc) with rental properties but I don't think it will be possible with my condo after I leave, especially with the hefty condo association fees and paying a property manager. Should I be okay with paying a mini car payment (approx $100-300/month) once I leave, which would be the leftover expenses from the new incoming tenants' rent, paying a property manager, covering the mortgage, and still covering HOA fees?

These condos have been going up 5-6% every year, so I was wondering if either 

1. hang on to it, pay the $100-300/month when I leave and use the income from my current tenants as a down payment on my next investment wherever I'm stationed next. Possibly sell it in 6 years rather than 3. 

2. Sell once I leave, use the 1031 exchange and buy a bigger 3-5 unit complex at my next location and put 50-75k into renovations, while living in one of the units. (Wouldn't know where I'm going til 2020, but would most likely buy).

I know it's a lot of information, but I'm thinking ahead for the next 3 years. I appreciate any and all feedback from the community. Thanks again!

Welcome to BP @Ryan O'Leary  

It seems like the condo is your primary residence, so if you sell, you would not need to use a 1031 exchange as the gains can be tax-free (there are limits, so check with an accountant). 

To me, if the property doesn't cash flow, I will not hold on to it. I don't want to lose money every month hoping that the property keeps appreciating. A small pullback in the market could wipe out several years of appreciation. 

If it was me, I would keep the extra rooms rented to lower my living costs and keep saving as much money as I could. Then if the property doesn't cash flow when I moved, I would sell. Then I would take the proceeds to buy a small multifamily (2-4 units) at my next location. I would make sure the property would cashflow with all the units rented. But then I would live in one unit and rent the other. This would let me keep my costs low and let me save money. Then if I got moved again, I would keep the property (as I know it cash flows), rent out all the units, turn it over to a property manager, and start the process all over again at my new base. 

My thoughts are: one it's too early to make a decision regarding holding versus selling as we don't know where the market will be in 2021. 2. I would forgo the property manager. Find tenants yourself before you leave and keep that 20%.

I don't follow the part where you're using your tenants income as a down payment when you're saying the property doesn't cash flow??

Originally posted by @Loren Clive :

My thoughts are: one it's too early to make a decision regarding holding versus selling as we don't know where the market will be in 2021. 2. I would forgo the property manager. Find tenants yourself before you leave and keep that 20%.

I don't follow the part where you're using your tenants income as a down payment when you're saying the property doesn't cash flow??

Originally posted by @Ryan O'Leary:
Originally posted by @Loren Clive:

My thoughts are: one it's too early to make a decision regarding holding versus selling as we don't know where the market will be in 2021. 2. I would forgo the property manager. Find tenants yourself before you leave and keep that 20%.

I don't follow the part where you're using your tenants income as a down payment when you're saying the property doesn't cash flow??

 Loren, if I'm able to forego the property manager, I would love to do that. In regards to the tenant income, I am living with another military member that is paying me rent. With their rent, I save approximately $1100-1400/month. Right now, most of that excess is going to paying off my car, but that will be paid off in 2 years. My last year in Hawaii, I'll use that $1400/month extra (plus whatever I was paying out of my own paycheck for the car) and build another down payment for when I move in 2021.

That is when I'll buy a multi-family home using an FHA loan, since I wouldn't be able to use my VA loan/no-money down until I pay it off (to my knowledge...unless the next duty station has a VA cap over 570k, then I could use the VA again).

Hope that clears some information up and I appreciate all the feedback!

- Ryan

@Ryan O'Leary Since it's your primary residence, I would recommend selling when you relocate.  As long as your capital gains is within the limit, you should be able to avoid paying taxes on it, which avoids the 1031.  The appreciation is great here, but cashflow on long term rentals like this would not be favorable.  Of course, it's hard to predict what would happen in 2021.  Let me know if I can help any way!

5-6% appreciation is nothing to brag about. West Coast -it has been 15-25% per year since 2012. Vegas has been double digits also.  More in Seattle. Suggest you talk to your CPA.