Bought first condo on east side of Oahu on a no money down 5/5 arm loan 2.5 years ago. Condos value has increased significantly for a short amount of time.
Financed loan for $379000
Balance is now 360000
Current county assessment value $397000
Interest rate at 3.875%
Condo is currently being rented out to a tenant who covers my entire mortgage but none of the HOA fees.
Mortgage: $1900 a month includes taxes and insurance
Current rent : $1900 a month
HOA fees : $356 a month
I work full time and live for free in my current place.(family)
I have no reserves saved up. Just a good credit score and a well paying full time job and also a well paying part time job.
Current monthly gross from both jobs is $5800
Sounds silly but since I have been receiving rental income and seeing all the money from my paychecks again, I actually have NO idea what to do with it. :(
Id like to buy my second property and rent it out for a profit. I also want to set up the first property on a more secure mortgage that would avoid variable rates and allow me to see some positive cash flow.
Main goal is positive cash flow.
I am 31 years old and of all my friends I am the only one in my circle of friends that is focused on real estate goals, so basically I have no one I can go to with this dilemma. Just simply learning as I go. Any advice? Reading material suggestions? Or simply what would you do in my situation..... be aware that I am in Hawaii, prices are beyond ridiculous but I'm charging into the real estate game anyways. Thanks for reading.
Depending on how much equity you have on your condo, you could refinance and pull cash out to buy the next one. I did this with my Anaheim SFH, which allowed me to buy an investment property in Indy and my primary residence in Honolulu.
Another option is to pull out a HELOC on the condo, and use that as the down payment.
I can run a CMA for you if you'd like to see where you're at, in terms of equity.
Let's connect and chat more about your situation!
I don’t think I would personally refinance to pull money out. This would raise your monthly payment and make this property even more in the red monthly since you are paying hoa out of pocket now. I would concentrate on building a reserve with your w2 job, then save up for a down payment for another property.
Slow and steady:)
Your condo is burning cash every month. Not just the hoa fee, but also vacancy / repairs / capex / etc that will hit you soon.
I would sell the condo and invest in something that cash flows
@Tina Acevedo I'm in the process of renting out my condo and purchasing a 2nd property myself. Let me know if you ever want to grab some coffee or a beer and chat real estate. I'm actually working on a project on your side of the island for the next couple of months
@chrischantavong sounds good. And waipahu is not out of the way for me. Coffee is ideal since my mornings are usually free. Let's talk RE since you know how crazy it is here on Oahu.
@tina you are not seeing income from rents. You are seeing negative cash flow by subsidizing your tenant's lifestyle to the tune of over $4000 per year. Your part time job is paying for your tenant to live in your condo. If the HOA does a special assessment for unexpected needs or an improvement project you will be even deeper in red. Nix the condo and find something that has positive cash flow from day one. Good luck.
@Tina Acevedo don’t listen to the mainlander advice as they have rent to value ratios that you can’t find here on island. I congratulate you for getting started. I would take a pause and talk to other investors who are doing it. Depending on your goals going to the mainland for cashflow might be an option if you are too busy and about to find the other investors who are doing it too. Let me know if you want to chat.
Just a reminder that county assessment may not truly reflect the current market value of the property. Since your investment is bleeding you to the tune of $4k per year, not including repairs, capex and other possible expenses, you might consider taking @Duc Ong up on his offer of a CMA to see what the true value of the property is to help you decide what to do next.
You are losing money by paying HOA fees out of pocket. I would sell it as soon as the tenant’s lease expires. Then buy a property that will cash flow. If you are not able to find one in Hawaii then research the market in another U.S. city and purchase there. Or use the profit from the sale of your current condo and the money you are paying for HOA and invest it and at least these investments will make money for you. You could hire a financial advisor for guidance with investments. You are only losing money with your current rental.
I love your success but the no money down deal
makes me nervous about the lending practices of the banks in your area.
@Tina Acevedo Who did you do your financing with? I have the same deal on my last property I purchase in May this year but my FCU has done away with their 10% down 5/5 ARM.
I circled back around to this post after seeing a couple votes. Yes, I’m a “main lander”, and no I don’t know Hawaii. So, instead, consider the advice of Robert Kiyosaki who is Hawaiian (Reading material suggestions: Rich Dad Poor Dad, and Cash Flow Quadrant).
You've taken some risk and got in the game which more than most people. However, you asked for advice in your post, so I'm giving my perspective based on information you provided. I'm not being critical of you, so please just take this as constructive feedback. Not only are you losing $356 each month, as others stated, you're not accounting for capex, repairs, vacancy, etc. You have 2.5 years before your 5/5 ARM adjusts, let's hope the rate is not higher for your sake. Your monthly gross income from two jobs is $5,800 so after tax you're probably taking home about $50k to $53k. You're 31 years old and living for "free" with family. You have no reserves saved, but you go on to say you're seeing all this money coming in from paychecks you don't know what to do with it. That being said, how do you not have any money saved? Maybe consider giving some money to the family member who is allowing you to live for "free" and then start saving for lease turnover repairs, maintenance and cleaning in your condo. Also consider saving a few mortgage payments in case you have a vacancy period, and check your HOA financials to see how much the HOA has in reserves. You admit to having no reserves saved, so what happens if your HOA is under-funded? An HOA without reserve funds or with inadequate reserve funds = Higher Dues and/or Special Assessments. Your $356 monthly red ink can get drastically worse overnight. When an HOA is without adequate reserves and it's faced with expenses outside its normal operations budget, the HOA usually has two choices: immediately increase dues or levy special assessments. You won't see it coming if you don't look at the HOA financial statements. Some, but not all, states regulate HOA reserve funds. Those states which regulate typically require a reserve fund study to be completed every three or four years to ensure the HOA has funds and a plan to meet the anticipated repair and replacement obligations. Let's hope Hawaii regulates and your HOA is financially prepared for a large unexpected repair or a needed improvement. I'm sincerely trying to help you. Wish you all the best.
Can you explain how this "investment" is paying off for you?
Unless you are getting huge appreciation in a short time and using that as leverage or selling and taking the profit......or some huge unforeseen tax advantage/write off....or house hacking..... I don't see the advantage of this property as an investment.....
Yeah....its Hawaii...... but the profit vs loss data is what it is..... the numbers don't lie as far as an investment...... you either positive cash flow or you profit by appreciation........ otherwise this is a liability.....not a positive investment
Originally posted by @Lane Kawaoka :
Tina Acevedo don’t listen to the mainlander advice as they have rent to value ratios that you can’t find here on island. I congratulate you for getting started. I would take a pause and talk to other investors who are doing it. Depending on your goals going to the mainland for cashflow might be an option if you are too busy and about to find the other investors who are doing it too. Let me know if you want to chat.
This is so SAD. As a cash flow play this is about as bad as it gets. Sugar coating by saying Hi is a tough cash flow market doesnt do OP any good.
10% of ones income to feed an allygator isnt what RE is about.
Being in the game just to be in the game is pure SILLYNESS. Numbers dont lie. Waikiki $250,000 condo would have been a better choice.
Sell and start all over.
Updated 9 months ago
Say you appreciated $200,000. Take that and buy all cash a little rental. Now you talking.
Hawaii just has too much foreign investors pushing the averages up like in seattle and San Francisco. A lot of people don’t know anything about the 10% rule. Hawaii will always be paradise but the whole “location x3” is priced in already.
Whats the 10% rule?
@Tina Acevedo - I'm on the same page with @Lane Kawaoka , Hawaii is unique and it's difficult to make investing work here, I've resorted to searching in the Midwest for cashflowing properties. But since you already have the property and have found a way to make ends meet, just move forward.
If you do decide to use the HELOC suggestion like @Duc Ong mentioned, you should reach out to the various banks for more information. When you ask about the HELOC, you want a full conversion of your existing mortgage, not the traditional HELOC where you pull out what's left of your equity. I can give you the contact information for the branch manager at the First Hawaiian Bank Kaneohe Bay location. Depending on the specific condo, the LTV will probably be between 65% -70% for the investment status. They will not provide a HELOC on certain condos unless you're an owner-occupant. This means that if your condo is worth $397k, they could only loan you $278k on 70%LTV. So you'll need to come up with the difference in cash from your current $360k balance. This method could help you offset your personal income losses on the HOA fee every month, because you're only obligated to pay interest only payments.
Example: you get the HELOC for $278k @ 2.75% interest rate fixed for 3 years (ARM thereafter), your interest payment would be somewhere around $637/mo.
Balance = $1900 Rent - $356 HOA - $125 Tax/Ins - $637 interest = $782/mo left over for principal paydown, vacancy, repairs, capex, etc. Make sure to recycle this balance and NEVER spend it on personal expenses or it could be disastrous. After the fixed term is up, redo the process again at another bank to avoid the ARM.
But just be careful this method has major risks. Good luck!
You can not go on forever with negative cash flow. So what remains is what is the fair market rent is further down the road. If you always run in red and condo price appreciates fast, cash out and move to another state is doable.
In Fresno, CA one can get $1800 on a 4/2/1800sf decent ranch home for $225-350K. If you like southern CA inland it will cost more. HI is not the current place to invest in RE while enjoying a decent returns.
Aloha @Tina Acevedo . Congrats on being on BP, it's awesome! I would start small and build a property portfolio and not take on any further debt. With little cash you can get a website going (to sell what you buy), find motivated sellers, and start flipping property. Vacant land is a great place because no big issues and you can buy and sell all over the country fairly easily. Because you will start investing with no debt, it is okay if a property takes a few weeks to sell. The key is really learning how to buy it right. Look at property as a business. Not emotional - just as an investment. If you cannot buy it so inexpensively that you can easily double your money tomorrow, don't buy it. Just move on to the next deal. Easy to get your phone ringing with motivated sellers once you learn how to reach them! Hope this helps and holler if you need anything.
For you FLIPPERS, how is someone located in HI supposed to get involved in a small FLIP. Think people think. This girl just might give it a try.
I want some 10% rule please :-)
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