Considering buying first rental in HI (Oahu)

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Considering buying first rental in HI (Oahu)

Kenneth Burdick
Rental Property Investor · Rancho Cucamonga, CA · Member since 2020 · 58 posts · 23 votes

Hello BP community! Newbie here, so go easy on me :) I live in Southern CA and own a home in which we have over 50% equity. At some point, me and my family would like to relocate to Hawaii ... most likely Oahu, for the weather/beaches/lifestyle, etc. I know this is a difficult market from a LTR perspective, but I continue to be drawn to the idea of buying a duplex/triplex and renting it out for a few years until circumstances allow for us to wisely relocate there (want to let a child graduate from high school and then figure out what the employment situation will be). I'm thinking of putting 20% down on a home (will likely need to leverage some of the equity we have in our current home, either through a HELOC, cash-out REFI, or just selling the house altogether...) that would provide modest positive cash flow out of the gate while allowing us to get our foot in the door of the Hawaii market at current prices rather than higher purchase prices that I assume will exist a few years from now. Eventually, we would move into one of the units there and I would hope to add on and do more real estate investing locally there.

A couple things give me pause:

- COVID fallout. Is this an overly risky time to be buying in Hawaii? I know timing the market is impossible, but I wonder if prices could actually decline over the next year and I might be wise to wait and save a little more.

- Being so new to all of this, is it unwise to start with a million dollar home in a market like this? I don't want to stay on the sidelines unnecessarily because I want to "get in the game" and get some momentum, but I also want to make sure I'm not overextending myself right out of the gate.

Any thoughts you all would like to share would be very welcome. Loving the site so far. Thank you!

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Isi NauPro Member
Real Estate Broker · Mililani, HI · Member since 2016 · 217 posts · 253 votes
5y

Aloha @Kenneth Burdick

You bring up a good point of being financially left behind in this market.  With appreciation as it is here, it's hard for most people to save enough each year to keep up with market prices.  I have met very few people who say they are glad they didn't buy earlier, and a ton who wish they would have bought earlier.

We are in a unprecedented time right now as far as the economy in Hawaii and the residential real estate market.

First, the current economy is effected by a non-financial issue; COVID.  Whereas previous downward pressure on the economy has been financially related; sub-prime mortgages, Japanese boom, etc.  So, hopefully once COVID is resolved (whatever that means) things can turn around.

Second, the September stats were just released and several new records were made. SFH sale price and SFH days on market.

Third, the market here has followed a pretty predictable cycle over the past 70 years.  From 2008-2018 we were in a predictable cyclical pattern, but 2019 and 2020 bucked the trend.  We should have seen several years of low single digit depreciation, but we haven't.  2019 was a slow year, relatively speaking, then early to mid 2020 things were obviously slow.  Now we are in a significant upswing.  An untimely and arguably unfounded upswing.

Fourth, there are no positive economic indicators right now.  They are all very bleak.  Every reputable local economist has painted concerning pictures of the future.  The sky isn't falling, but it's definitely not rainbows.

If we truly are in a natural, non-artificially inflated upswing in the market, that will be very unfortunate.  A few mild depreciation years gives people time to catch their financial breathe and get ready for the next appreciation cycle.  I don't think people are ready.  The gap between the haves and have-nots will widen.

I am not sure what the future holds for the residential market here.  But to provide some context, during the last recession (2008) prices in most neighborhoods dropped a total of 10-15%, which is very good compared to other major cities in the US.  The Hawaii market is pretty well buffered and resilient.  I would anticipate a leveling off or increase in prices once a vaccine is out, or the election is over, or whatever.  Until then, everything could change tomorrow.  The surest hedge against this is finding a home you can build sweat equity in.

If I understand correctly, you are thinking of purchasing a property on
Oahu soon, renting it out for a few years, and then moving into that
property when you move to Hawaii?  One of the trickiest parts to this strategy is finding a home that makes a good rental, but is also a home (and neighborhood) you'd want to live in.  Also, a million dollar home is not over-extending in this market, if done right.

It's possible to make this plan work, but will require more discussion than is appropriate for a forum post (mine is too long already).  Please feel free to reach out to discuss a more in-depth plan.

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  • Jennifer A Barry
    Member since 2020 · 31 posts · 3 votes
    5y

    Hi Kenneth! I’m in Oahu and currently in the process of buying. Happy to share info! We just got here in February and have been renting so we can get our bearings first. 

    Universal advice is to buy a SFH rather than condo or townhome. The HOA fees here are insane and they are way lower for houses than attached units. As far as bang for your buck, houses are the way to go.

    The market is crazy right now. Offers are accepted within hours of listings being posted. Everybody is getting over asking price. Cash buyers and foreign investors scoop up houses faster than you can blink. It’s frustrating for many families looking for a home. 

    As far as investing goes, this is a very high appreciation area. You will absolutely make a lot of money if you buy and hold, even with whatever the market will do next year. Cash flow, however? Not unless you buy a fixer upper... and good luck scooping one up before somebody here:-/ If you're putting down a healthy down payment, you could potentially break even and cover your mortgage. For those of us using zero down VA loans, rent probably won't cover the mortgage payments. If you can swing floating the mortgage payments it'll be worth it on the back end w/ all that appreciation... Just depends what you can afford in the interim.

    -Jenn

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  • Jennifer A Barry
    Member since 2020 · 31 posts · 3 votes
    5y

    Also, I just read your post to my husband and he goes “is this you?!” Lol We share many of the same concerns. I’m actually looking at a quadplex that is very strategically situated and could have incredible potential but we need a lot more info. 

    BTW this would be my first house purchase ever so I share your hesitance!

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  • Isi NauPro Member
    Real Estate Broker · Mililani, HI · Member since 2016 · 217 posts · 253 votes
    5y

    Aloha @Kenneth Burdick

    You bring up a good point of being financially left behind in this market.  With appreciation as it is here, it's hard for most people to save enough each year to keep up with market prices.  I have met very few people who say they are glad they didn't buy earlier, and a ton who wish they would have bought earlier.

    We are in a unprecedented time right now as far as the economy in Hawaii and the residential real estate market.

    First, the current economy is effected by a non-financial issue; COVID.  Whereas previous downward pressure on the economy has been financially related; sub-prime mortgages, Japanese boom, etc.  So, hopefully once COVID is resolved (whatever that means) things can turn around.

    Second, the September stats were just released and several new records were made. SFH sale price and SFH days on market.

    Third, the market here has followed a pretty predictable cycle over the past 70 years.  From 2008-2018 we were in a predictable cyclical pattern, but 2019 and 2020 bucked the trend.  We should have seen several years of low single digit depreciation, but we haven't.  2019 was a slow year, relatively speaking, then early to mid 2020 things were obviously slow.  Now we are in a significant upswing.  An untimely and arguably unfounded upswing.

    Fourth, there are no positive economic indicators right now.  They are all very bleak.  Every reputable local economist has painted concerning pictures of the future.  The sky isn't falling, but it's definitely not rainbows.

    If we truly are in a natural, non-artificially inflated upswing in the market, that will be very unfortunate.  A few mild depreciation years gives people time to catch their financial breathe and get ready for the next appreciation cycle.  I don't think people are ready.  The gap between the haves and have-nots will widen.

    I am not sure what the future holds for the residential market here.  But to provide some context, during the last recession (2008) prices in most neighborhoods dropped a total of 10-15%, which is very good compared to other major cities in the US.  The Hawaii market is pretty well buffered and resilient.  I would anticipate a leveling off or increase in prices once a vaccine is out, or the election is over, or whatever.  Until then, everything could change tomorrow.  The surest hedge against this is finding a home you can build sweat equity in.

    If I understand correctly, you are thinking of purchasing a property on
    Oahu soon, renting it out for a few years, and then moving into that
    property when you move to Hawaii?  One of the trickiest parts to this strategy is finding a home that makes a good rental, but is also a home (and neighborhood) you'd want to live in.  Also, a million dollar home is not over-extending in this market, if done right.

    It's possible to make this plan work, but will require more discussion than is appropriate for a forum post (mine is too long already).  Please feel free to reach out to discuss a more in-depth plan.

    2Reply
  • Kenneth Burdick
    OP
    Rental Property Investor · Rancho Cucamonga, CA · Member since 2020 · 58 posts · 23 votes
    5y

    @Jennifer A Barry Jennifer, great to hear from someone working through the same "first timer" process. Interesting to hear your of your experience with the real estate market in Oahu right now. Would love to hear more about your strategy and the part of the island you are looking at.

    @Isi Nau Thanks you for the thorough and insightful response. I do agree that in the long-term, the Hawaii real estate market seems likely to continue to have strong appreciation, I just think about the old saying that "money in real estate is made when you buy, not when you sell," so I want to be thoughtful about my entry point. Would love to connect sometime.

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