Use funds to house hack in Hawaii or invest out of state?

[Chris Kiser]

Hi All,

My wife and I currently live and rent in Kailua Kona, Hawaii.  I am looking into real estate investing in order to diversify and to develop passive income.  I'm in a bit of a dilemma, as I always thought I would just rent and use money to invest in rental properties instead of tying up funds in a residence.  Especially with the high costs of property in Hawaii.

Circumstances changed when we found out we will be having our first child in December.  Our small 2/1 rental is already getting cramped with all the baby stuff and she hasn't even arrived yet!  So we are really feeling the need for a 3/2 place.  Here those rent for about $2,200 - $2,800/month.  Looking through this site I came across "house hacking" and it got me thinking.  I could buy a 3/2 house here with an attached "ohana" unit and my monthly payments would be much less than renting as long as the ohana was rented out.  However, doing this would still tie up much more money each month than we spend currently and that would lessen the amount I have for investing.

So, question is, should I go the house hacking Hawaii residence route, or try to find an affordable place (or suck it up and stay where we are) and invest in cash flowing property out of state?  Any advice from the community would be greatly appreciated.

[Loren Clive]

I bought a duplex in the hood on Maui in 2013 way below market, led to huge financial freedom. I refinanced, bought and flipped the house down the street and was able to buy my dream home in Haiku this year. Still own the cashflowing duplex which has become an income stream for me.

If you can afford it, you're crazy not to take advantage of the $250k-$500k tax-free capital gains on your personal home in Hawaii. I know investors who employ this as their sole strategy, moving every 3 years. The HI market is ideal for it.

Plus, with the little one coming, you have the security of owning and upgrading as you wish. Here on Maui, rentals are scarce, and it would be horrible to get notice and have no place to go. Owning guarantees you're NOT in that situation.

I can refer a realtor in Kona also if you need one.