Is Buying Our First Property in Honolulu Worth it?

Question

My fiancé and I moved from southern MO where housing is very cheap to Honolulu, HI (Oahu) January 2020. Just in the past 2 years the median cost of a house here has gone from $735k to $1.15M. We’ve recently been learning as much as possible about 203k loans and originally were going to wait till we moved next to somewhere around NW Arkansas to utilize it. My fiancé works for the USDA so there’s relocation benefits as well as first time home buyer benefits through his job. We have saved about $50k in the past 2.5 years or so and have been considering more and more pulling the trigger while we’re here but we only have about 6-8 months left here so not enough time to do an owner occupied loan. $50k will go a lot further on the mainland. Any advice is welcome! We’re not sure what to do or if we had analysis paralysis for too long and missed our chance in this market.

Erik Browning · Answer

Hey @Skylar Williams Great plan using the 203k, however I think there is a better option.

It just so happens to be that your fiancé works for the same institution that I'm going to recommend. Because you are moving to Arkansas, you are likely going to be in a more rural setting and are likely eligible for a USDA loan. USDA loans are 0% down, however they have very strict income, property, and location requirements. I suggest you tailor your situation to conform with the USDA purchase requirements and use your $50k for repairs and closing costs.

Why not a 203k? Because it's more expensive in the long run. Here, take a look

FHA Loans       USDA LoansUp Front Fee                                 1.75%                   1%Monthly Payment Ins./Guarantee    0.85%                0.35%Credit score sensitivity to rate      Less Sensitive		More Sensitive

You can find out more for the USDA Income Req's HEREYou can find out more for the USDA Property Location Req's HERE

Also, there are some lenders that do USDA renovation loans instead of a 203k, talk to you local broker about them.

Lastly, I recommend doing the repairs with your own money because I suspect it will be difficult to find contractors that comply with the FHA 203k req's as well.

Save your money, use the least amount down, get the best financing terms available.

Bryan Vukelich · Answer

Hi @Skylar Williams,

Congrats to saving up that money.  I'm just not clear, are you planning to move to Arkansas but also try to buy property on O'ahu?  Either way, @Erik Browning had a good idea of getting a USDA loan.  You'd probably have more opportunities to use it in Arkansas but there are also areas on O'ahu that are USDA eligible.

Another option though is a local credit union here is offering a 30 year fixed loan at 4%.  Buyer just needs to be under contract by end of July 2022 though.

Regarding if you missed the market - that I do not know.  The market has slowed a bit here but we are still hitting record prices and I'm still seeing multiple offers situations  - just not the frenzy that we had last summer.  I think prices might dip short term but I think long term, Hawaii is still  great place to own real estate.

If you have any other questions, I'm happy to answer them.

Ryan Blackstone · Answer

@Skylar Williams Congrats on the moves. I would suggest a conventional loan with a rehab arm to the loan. 203k is limited in just needed items. However, I was able to BRRR a duplex with a conventional loan for 170k and 50k for renovation. I could do needed and cosmetic rehab to the property. That property is now worth 380k.

Nathan Gesner · Answer

Hawaii is an expensive market. We're in a peak market. Hawaii is one of the markets most likely to get hit if the market starts a downward correction. Hawaii is increasingly regulated and taking away property rights of Landlords.

I think you'd be better off in a more reasonable, stable market.

Bryan Vukelich · Answer

Thanks @Skylar Williams for the additional information.  Yes, that is a tough decision and only you and your family can decide what is best for yourselves.  I agree with @Nathan G. that Hawaii is an expensive and regulated market that is very pro tenant.  However, with cap rates being low here, there is obviously high demand from investors to own property here.  Also, stats seem to show that in more regulated markets, home prices are often higher than less regulated markets.  One main reason being is that the more difficult it is to build new homes, the more valuable existing homes area.  And as you know, land is scarce in Hawaii, there is much opposition to develop raw land, and even trying to build a new home, even in an area of existing homes, is often a very lengthly and costly endeavor to build new here.

For the best cash flow, you can definitely find better opportunities on the mainland.  However, Hawaii appeals to people from around the world and now that many high income earners have the ability to work virtually, there is even greater interest in Hawaii housing than in the past.  There is also a shortage of properties to rent.  I wouldn't be surprised to see home prices drop here in the short term (not sure how much rents will dip - if at all), but long term I am bullish on Hawaii real estate and the historical price charts support this belief.

Best,

Erik Browning · Answer

Lol thank you @Bryan Vukelich and @Skylar Williams for the comments. Feel free to hit the upvotes :) Need to pump those #'s up

Skylar Jennings · Answer

@Bryan Vukelich we are here on a 3 year contract so technically that ends January 2023. At that time we’ll be trying to move somewhere in the NWAR region. So we are torn with whether or not we should go ahead and try to buy our first property here since we do know the area now and think it would make a great long term investment, or just keep our money that we’ve saved and put it into our first investment property on the mainland where we could get a lot more out of the $50k or use it for repairs etc.

Skylar Jennings · Answer

@Erik Browning thank you for that! USDA loans are something we have been looking into as well given that he works there and has the best access to a lot of resources and we just recently learned about the renovation option. I suppose we’ll just need to talk to a lender with experience in that area because we’re worried we might have issues qualifying based on our total household income.

Is Buying Our First Property in Honolulu Worth it?

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