Townhome Purchase on Oahu, Hawai'i! Looking for your Insights!

6 Replies

Hi Community! I am looking for some candid guidance here, specifically if you know the Oahu market. 

My fiance and I are buying our first townhome together (actually got chosen from a housing lottery with DR Horton for one of the Flex units at Ho'opili- the new development in Ewa/East Kapolei). The flex allows for us to rent the bottom down for commercial space (has to be our commercial business) or as a 1 Bedroom rental. We decided to move forward so far, and have a couple more weeks to decide if we want to go through with the actual purchase. Some stats: 

The townhome is a 3 Bedroom, 3.5 Bathroom, three level with one car garage and two other assigned parking. It's in a major up and coming development called Ho'opili with a monorail station about 3 blocks away. The purchase price is $678,000, with $469 HOA and $70 Maintenance fees roughly. The bottom floor we plan to rent out, however we DO need to invest about $10k right after closing to convert it into the rental by adding a wall and kitchenette and washer/dryer. We are only able to put 5% down, with an interest rate of 3.5% for 30 years conventional loan. We will have PMI, and our monthly mortgage payment comes out to just about $4000/month including HOA and fees. The downpayment of 30+k IS going to be a bit of a stretch for us. We will have to aggressively save the next couples months as the townhome is being built. The reason we are trying to justify this purchase is for a couple reasons:

- It's in a new development that has tons of potential down the road with the new rail, UH west, and close to Kapolei, which is being called Oahu's 'Second City'. We hope it can build equity in which we can refinance down the road to reach out 20% down faster to remove PMI.

- We can rent the bottom floor for roughly $1600/month and can bring our monthly payment down to just about the same cost of renting a comparable unit. 

- It is our first home and we hope to be someplace we are happy and comfortable with, and we truly did fall in love with this townhome... 

Some facts about us:

We are both 31 years old, we have a condo already in Waianae, Hawaii (purchase price was $236k back in 2018), that we rent out for the cost of the mortgage (not cash flow +), and we both work full time jobs remotely on the island. Our goal is to try and stay on the island for at least a few more years, and then see what makes sense as we settle down some more.

Hoping to get some honest thoughts, advice, anything! Just want to check ourselves before we commit to such a large purchase! It feels a little crazy, but I can't tell if it truly IS crazy, or if it's a risk that hopefully we can leverage down the road?... Thank you everyone for your help. Aloha :)

@Lisa Kay

Take this as just my opinion and my perspective: if you love it there, then it may be worth it to continue the purchase. Regarding the points you make: (1) Kapolei as a 'second city' has been toted for over 30+ years, but I'm not sure what that really means anymore - how much more industry is going there, I'm not sure; (2) the rail project is, well, fraught with scandal and misappropriation of funds, and I'm not sure if the usage is going to be what was projected at the beginning - the cost of the rail is an endless pit, which I'm pretty sure more taxes will need to take care of; (3) how much more appreciation will be needed to recapture the additional 15% to refi and eliminate the PMI - are you positive that it can appreciate that much more; (4) Remember, Covid really hit Hawaii hard and economists expect that the economy won't return for a couple of years. The good thing about Hawaii is the rental market - so you have that going for you.

I guess what it comes down to is if you are truly okay with the financials for both of you now and in the near future. There's something to be said about living in a place that you love, which #'s can't account for. Good luck Lisa. 

@Lisa Kay

The house sounds awesome! Great area, especially right next to the rail. I own a house in Ewa Beach that does about the same, rent only covers the mortgage. I am hoping that once the rail is finished it will boost the prices a bit. And all I have heard since getting to the island 2 years ago is that Kapolei is an up and coming area, which I definitely see.

I'm no expert on the market, but historically the prices have doubled every 10 years and with the rail going up I don't see that stopping on the west side...

@Lisa Kay the best time to invest is always yesterday so you're right on focusing on location. I will politely disagree with the earlier lack of confidence in Kapolei as a true second city. I live in town but work in Kapolei and it is the best market on Oahu right now in my opinion for long term steady growth. I see enough potential in the west side that my better half and I just purchased a SFH approx 3 months ago for the BRRRR method.

I don't advise buying new properties because there are limited ways for you to build equity vs buying/accruing equity but having a second income stream changes everything, if the numbers work than bet on yourself and trust the math.

You're on a great path, let me know if you need anything further, I hope you keep the community updated!


numbers are right than I would move forwarf

I would take that money and buy 1% Rent-to-Value Ratio homes on the mainland where the rental income supports the investment.

1% is needed to be able to cashflow after expenses. You find the Rent-to-Value Ratio by taking the monthly rent dividing by the purchase price. For example a $100,000 home that rents for 1,000 a month would have a Rent-to-Value Ratio of 1%. Most people I work with live in primary markets (as opposed to Birmingham, Atlanta, Indianapolis, Kansas City, Memphis, Little Rock, Jacksonville, Ohio, or other secondary or tertiary markets) where the Rent-to-Value Ratios are under 1%. 

I think owning your home in a primary market like Hawaii, Cali, etc... is one way people avoid financial freedom. Rent your home... it is not throwing money down the drain... if you invest it instead in prudent cashflow.

Thank you all for the advice- it is truly helpful to get your various perspectives and expertise. Does it make any difference if we live in a primary market (aka Hawai'i), and our rent would be the same if not more than our mortgage on this townhome? It just pains me to put so much money into rent, but to your point, Lane, maybe the money saved from our large downpayment on this townhome, can go towards a cash flow positive property... 

@Lisa Kay common logic is what you are thinking and what is being repeated by our parents and co-workers.

Rule #1... never take financial advice from those who are not FI and financial planners :P