Cash flow on Oahu?! In escrow on my first property!

38 Replies

Hi everybody, I just bought my first property in Aiea, HI (on the outskirts of Honolulu) and am set to close the first week of October! 

I've been on BP for a looong time, but my real estate investing dreams were put on hold by 1) lack of funds as a new grad and 2) a now ex-boyfriend who wasn't very interested in real estate investing. But I'm back and so pumped about it!

It's a 1BR/1BA condo in Aiea; super close to a military base, which means higher rents. I lucked out, as the sellers are an older Filipino couple who preferred working with me over a cash buyer. When I walked the property with my inspector, the wife gave me a couple packages of frozen homemade lumpia to take home! 

Asking price was $218K, I put an offer in for $208K and they countered at $215K, which I accepted. However, due to some complications with the financing appraisal, the sellers agreed to give me a $3K credit, effectively making the purchase price $212K.

212K purchase price 

PITI: $873

Maintenance fees: $395 (includes property management! And nearly all utilities)

Total monthly payments: $1268

This unit should rent out for $1550 as is, but I'd like to make some upgrades to hopefully boost the income potential. 

I know a lot of people on BP do not like investing in condo's, as they are subject to condo fees that can increase at any time, which cuts into profitability. But as an out-of-state owner, I don't want the upkeep that comes with Hawaii houses. Plus, the fee just increased a couple of months ago, and there are no plans for any increases in the future. It just shows that if you're patient enough, it's still possible to find cash flow in an appreciation market! :) 

Aloha Sarah.  Congrats and great job keeping with your dream.  Persistence and a goal will continue to make you a success.  

Congratulations Sarah! on your first deal. How did you find the property, MLS? Condos absolutely cash flow here in Oahu, they cash flow better than most SFHs on the mainland, if bought properly.

Thank you @Andrey Y. ! Yes, I found it on the MLS after a few months of looking. As soon as I saw it listed, I immediately asked my agent to look into it, and within a week we had signed the contract!

I originally thought I wouldn't want to buy a condo, but so much more upkeep on properties is needed in Hawaii than on the mainland. Living in San Francisco, it just made sense to go the condo route. 

@Sarah Lam First off congrats on getting started with your first purchase what made you choose Hawaii if you live in SF?  Secondly Condos can be a great buy in Hawaii as they are cheaper entry point and less maint, if they are concrete.  If they are townhomes then they are not such a great deal and you should stay away.  Concrete condos have less to worry about because the Association takes car of the structure and everything in the walls everything in your unit is your responsibility to maintain.  Which leads to my next point I think you misunderstand what a condo property manager does based on you listing it with an ! .  They are there to manage the grounds and building maint.  Not dealing with finding you tenants, collecting rent, or broken fixtures.  If its a over flowing toilet they might check it out because it might be a clog in the pipes in the walls if not it is your responsibility.  

Since you listed your purchase price and other info do you mind filling us in on what rate you got and how much you put as a down?

I searched the MLS and I think I know which condo you are buying from the pics it looks in good shape. I'm assuming you are looking to rent to military, keep in mind the types of upgrades you are doing and how much their housing allowance is.

Hi @Royce Talbo ! Thanks for sharing your thoughts. :) 

I chose Hawaii because I spent a summer there in college, and I still have a lot of friends that I keep up with there. I go back at least once a year, so it's nice that I can now write off my airfare! 

Yes, my condo is in a concrete building! Makes my insurance really cheap. TBH, I'm still waiting on the CCR's to see exactly what the property management entails. I expect to be able to self-manage, as it is a small property, and ask my agent to take care of finding tenants. I do intend to target military folks as tenants! I would like to change up the countertops in the kitchen and bathroom, repaint and tear down a fake, unpermitted wall.

Yes, so I put just over 20% down to make a nice round number of $50k. Financed the remaining at 4.125%. 

Thank you for the note on townhouses! My parents are actually looking to buy a place in Ewa, and there are a lot of townhomes on the market. I will tell them to expect higher maintenance costs. 

@Sarah Lam LOL I was jokingly thinking that in my head this girl probably just wants to come to hawaii once a year and use the write off as an excuse ;)

Since you want to self manage I'm sure your realtor told you that you need a point of contact here, so if they are not willing to do it just ask one of your friends if they are willing to be listed as your point of contact and just have the tenants call you directly for anything they need.  Majority of the time though they will call the resident property manager and they will decide if they need to take care of it or for your tenants to call you.  Because this is a concrete condo you dont have to worry about so much should be an easy rental.  I would just make sure the fixtures, hoses and valves are newer so you dont have to worry about any leaks.  

Cool I thought the rate for an investment would be more around 4.5-5%.  What company did you go with?  Ewa is nice but the traffic going in and coming out of Ewa if you are going to town is crazy.  If you work in Kapolei (our up coming 2nd city) it is great.  

Congrats @Sarah Lam ! I'm hoping to do the same thing in the next year or so. You beat me to it - I'm super excited for you! Let us know how it goes! 

Also - is this one  of those Leasehold properties? I'm only slightly familiar with how that works but I know the prices are usually cheaper?

@Royce Talbo oh yes, the write off is fantastic! Haha. But yes, I do actually have great friends out there, and have thought about moving there myself at some point in the future. It's nice to know that at least I'll have a place if I ever did decide to move.

Thank you for your helpful comments! I am pretty sure my agent is willing to be the point of contact, but if not, I didn't realize I could have a friend do that! That is great news. I can't wait to close and get the work started on upgrading the property and collecting some passive income! :) 

4.125% is low because it's a "second home" loan. I mentioned to my financing guy that my parents will also spend time in the unit. The arrangement with my parents is that whenever a tenant moves out, they get the option of flying out for a month to stay in the condo before I rent it out again. 

@Brandon Turner Thank you! I hope you're able to find a place soon :) Where in Oahu are you looking?

This is not a leasehold, just a regular fee simple condo. Yes, LH prices are cheaper, but I don't really want to deal with lease renegotiations, which can happen multiple times before a lease expires. More headache, less value. Not worth it to me.

Congratulations!!!

That is amazing!!! We have very similar styles!! While we don't buy condos we do buy higher end homes that have smaller margins. By self managing we were able to keep even more of the margins!! 

We own all 7 of our houses near military bases and have a lot of military tenants.

Hi @Elizabeth Colegrove! Thanks for the congrats :)

Sounds like you've had good experiences with renting to military tenants! Any insights or advice for a newbie like myself?

@Sarah Lam  

The experience depends on the day ;) 

The biggest different between them and any other tenant is they fall under the Service Member Relief Act (SCRA) which gives them specific protections. I have written extensively on the SCRA on my website.

http://www.ahrn.com/

Aloha Sarah,  This is a good website for military but my experience is that they also look at Craigslist so I'm not sure you'd miss a renter by only advertising on Craigslist.  @Elizabeth Colegrove I've only rented to three military over 40 years.  One young helicopter pilot, one young retired disabled and one young woman brought over by the military.  These are nice one bedroom Waikiki and Diamond Head properties. 

The pilot left to buy after I expounded on the benefits of Honolulu property.  Brought a mainland girlfriend over and when he left the place was filthy.  I'd planned on pulling out the carpet and doing laminate and the guy had a truck so I bartered a pickup and carpet removal vs dinging the security deposit. 

The disabled guy had a wife that disappeared and a new girlfriend came into the picture so he moved to her place.  I was always concerned about him passing in the condo.  Anyway the place was a disaster.  I initially thought I'd do a broom cleaning but decided it was too much work to be a nice guy so I told the guy he needed to clean.  Girlfriend came over with her little cleaning tote and looked around and said we're calling a cleaning service (I'll tell this story for years).  So 4 people show up, 1 bath, 1 kitchen, 1 living space and the boss for two hours, so total 8 hours professional cleaning.  They were good.  I think they paid $400 for a $1600 rental.

Third lady rented completely furnished!  Pots, pans, linens and then must have brought in a container worth of furniture.  Never notified if she was staying past the lease which went month to month so I kinda found out when she wanted to leave about 2 weeks ahead.  East Coast thing?  Anyway I had it rented out immediately and she left it clean but she was literally bringing back furniture as my new tenant was moving in.

These were not enlisted rank so although there was never a problem with responsibility it just did not meet my Gomer Pyle expectation of bouncing a quarter on the bed.

I think you do 3/2's so more likely families.  Just wondering if my experience was typical or if it was just a young/single/Hawaiian thing.

@Bob Bowling

I have had some AMAZING military and I also have stories to rival yours ;)The key is to remember that military tenants are tenants. Every "group" of tenants, college students, retirees, families, etc, etc, are going to have their positives and their negatives. That's why  it is so important to do a good job of screening ANY AND ALL tenants!!

Congrats, @Sarah Lam ! What a great find!

If you're targeting military tenants, putting your place on AHRN and Craigslist should get you some good applicants. The end of peak PCS season is right now. When are you looking to place it in the rental market?

Thank you @Bob Bowling and @Elizabeth Colegrove for sharing your experience and tips on where to list my condo! I will try both craigslist and AHRN, and keep you posted on how my first land lording experience goes! 

@Ally H. thank you for your congrats! Unfortunately, we don't close until October and I am doing some work right after, so realistically, not until November. Not ideal, but I think it's better to front load the work rather than improve in stages. What do you think? 

@Sarah Lam , there is a large enough military population in Hawaii (if you are set on having military tenants - the BAH is certainly enough to cover your proposed rent) that will have people PCSing year-round. However, the majority of PCS moves are during the summer. If you're listing your place in November, you'll likely get a smaller number of military applicants just based on being out of the PCS season, and people move in/out less during the holiday season.

Regarding the renovations, I think it depends on the renovations. Is the condo in rentable condition (for the targeted tenant population) now? 

@Sarah Lam   Congrats!  I've been wondering about you - glad you got something in contract!  Did you ever buy turnkey?

As a former military guy with lots of military friends on Oahu, I wouldn't waste the time with AHRN.  It's kind of a pain to setup IIRC, and everyone is on craigslist anyway.  Literally, I've worked with military who just hit "refresh" on CL every 30 minutes because places go that fast.

I'd recommend you overprice the property slightly.  That's what I do, because I've found if I price it at or below market I get about 50 emails in 8 hours!  If it's slightly overpriced I only get about 8-10 well qualified people over the first 24 hours.  I also schedule about 4-6 people per showing because inevitably one will be a no show, 2 will want something different, and 1-2 will be ready to sign a lease on the spot.  Competition among tenants gives you an edge - last time I had 2 people that wanted to sign, I went with the one that would sign a longer lease.

Also, when you place an ad, be as descriptive as possible.  I tend to prioritize responses based on how/what they put in the email, and have had excellent, low hassle tenants as a result.  I don't really respond to the one liners - "interested" or "call me" just gets prioritized lower on my list.

I think you'll do well with that investment, especially if it is near the new rail line.  Don't forget to pay the general excise tax (4.5% of gross rents) every December.  

If I can help in any way, feel free to PM me. 

Cashflow on Oahu is very possible, glad you are jumping in!  Have fun!

 

@Brandon Turner   You probably already know this, but I'd recommend you stay away from leasehold - the value actually declines as you get closer to the land lease renewal date.  Fee simple only!

@Ally H. it is, but I would still need to do some basic things - repaint, recaulk windows, etc. it's In average condition for Hawaii. My bet was that military moving here from the mainland would be used to more modern and nicer apartments, and would be willing to pay a bit more for something that reminds them of what they can get at home. Not sure if I'm going down the wrong mindset there, though.

@Johnny Aloha I just visited Hawaii two weeks ago (during the hurricane, ha) and thought about you and your family too! How's that Kailua live in/vacation property treating you? I'm sure it's up and running now! I decided not to buy turnkey, but I still wouldn't rule it out. Just figured that if I'm going to invest in property, i would want it to be in places that I have connections to. Easier to manage, because I can always ask friends for help or advice, and I go back there anyways, so it's easier to check on them!  And unfortunately, the places that I have connections to are along the coasts, aka NOT popular turnkey areas. 

Thank you for the tips on pricing! Makes total sense and seems way easier to deal with. I definitely want to shoot for the higher side of rents to attract better qualified tenants, which is why I feel like I need to make some upgrades in my condo. 

And yes, I didn't plan it, but my friend who is an engineer working on the rail told me my condo happens to be very close to the rail! If Honolulu is anything like the SF Bay Area market (which, let's be honest, feels like it's exactly like the SF Bay Area market last year), properties along the route will see some solid appreciation. Not banking on it, but hoping for it ;)

Congrats @Sarah Lam !  

That's awesome that you've got something in contract.  I'm sure it's very exciting.  I don't know much about the Hawaii market but it sounds like you got it figured out.  Hope closing goes smoothly and you can find a tenant to fill it soon.

Nice @Sarah Lam .  I am also in escrow for a place in Aiea.  We close on the 29th of October.  Pearl City and Aiea can be congested at times, but the central location is $$$$.  The rail bringing unknown variables for all cities from Kapolei eastward is exciting as well.

Congrats @Sarah Lam !  I live in Honolulu, and I'm also considering investing locally in a fee simple condo.  I thought about Aiea as well, as it seems to be easier to cashflow compared to town.  Who was your realtor?  Do you have any referrals on contractors?

Thanks @Manly Souza and @Duc Ong ! I closed a couple of weeks ago and am trying to find a contractor. I underestimated how slow hawaii contractors are to respond! Hopefully all the work will be done by December. Unfortunately, it's not an ideal time to try to find a renter, but will try anyways. The good news is that my next door neighbor listed their identical unit for $10K over what I paid and received an all cash, over asking price offer within a week! I knew Aiea was appreciate, but holy cow that was fast! 😀 Duc, I will send you a message with the contact info of my agent and keep you posted on a contractor. 

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