Buying vs Renting on Oahu

[Paul K.]

Hey BP family! I'm in the process of moving to Oahu and would appreciate some advice. I'm military and will be moving there for a minimum 1 year assignment, likely will extend to 4+ years.

I currently househack a SFH in Dallas. All my housing expenses are covered and will cash flow even more once I rent my room out when I leave.

The condo I am looking at purchasing is a 2/2 in a great location, one dedicated parking spot & plenty of guest parking. I like the option of the 2/2 in case I do get a roommate later on, friends/family visiting, etc. I would prefer to not have a roommate in Hawaii, but would be able to rent out the extra room for around $1500-1800.

The numbers:

$630k VA, 0% down, 7% interest.

Closing costs: $10k

Principal and Interest: $4200

Taxes & Insurance: $200

HOA: $700 (this will increase in a few years when the building undergoes pipe replacement, unknown how much but I'm estimating around $300).

Electric & Internet: ~$200

Total: $5300, likely $5600+ in a few years 

If/when I move out, I would likely be able to rent the unit for $3300-3500 or $3600-3700 if I rent by the room. Ideally I would refinance in a few years.

Potential rentals (2/1 or 2/2) I’m looking at would cost me around $3300. Likely would not have a roommate if renting.

I could cover the $5300 but it is def not ideal going from $0 in housing expenses to $5300 and would probably get a roommate in this case. 

Other considerations:
I wouldn't be able to use remaining VA entitlement anywhere else with 0% down (except other very high cost of living areas).

Extension not guaranteed but I’m in the guard so I have a lot more flexibility/freedom than active duty in where I want to live/work.

More affordable condos ($520-550k range) are an option (typically no/limited guest parking, fewer amenities, etc). This would reduce monthly payments to around $4700.

Is there anything I’m missing or other things/strategies I should be considering?

Thanks in advance!

[Ricardo R.]

@Paul K.  I'll try to assist using your numbers. 

Okay, when I run your $630K VA with 0% down and at 7% over 30 yrs the P&I (principal/interest) payment I get is @ $4,191.41/mo. ------- Once your taxes and insurance are added your PITI monthly payment is $4,391.41 ----- HOWEVER, I don't know if the $200/mo. for taxes AND insurance you have listed is accurate or if that is for each but $200/mo. for BOTH taxes and insurance together SEEMS EXTREMELY LOW... please double check.

Okay from there $4,392 (PITI) + $700 (HOA) + $200 (Elect/Inter) = @ $5,292 / monthly

Of special note: I noticed that you included electricity & internet (utilities) but nothing else i.e. gas, garbage, water, etc. -- I don't know if they are included in the HOA or if they were overlooked. Also, unless cashflow from your current SFH covers these utilities in full then you should not include them in your current condo calculations either if you want a true apples to apples comparison, if that makes sense.

I don't really like the numbers of using this new condo as a rental later down the road, it just depends how much later down the road since rents typically tend to increase and outpace your expenses but as it stands, at @ 3,500/mo. rent potential you would be Cash Flow negative by about $1,500 a month !!! You would be LOSING $1,500/mo. if the 2/2 condo was a rental today... not an investment... the likely scenario would be for you to sell the condo later unless you were able to get the rents to cover your expenses and ideally actually come out on the other side as positive CF.

Now considering a more affordable condo of say... $540K that equates to a PITI of @ $3,793+700 /mo. + $700 (tentative) + $200 = $4,693/mo............. Now assuming this $540K condo is a 2/2 and follows similar rent numbers and now excluding eletc./internet from expenses that means that you would have fixed expenses of @ $4,490/mo. --- you would receive @ $3,500 in rents which still equates to a loss of @ 900/mo. BUT I like these numbers much better than the first... projecting that you will try to turn it into a rental in the future when rents are higher and assuming you can push rents a bit higher, you may be able to decrease the $900 loss into a $0 loss and maybe even a CF positive. 

One major thing that concerns me is that we haven't even factored in other expenses such as vacancy, maintenance, CapEx, etc.

Personally, if you are set on buying a condo as a primary residence, I would buy in the more affordable range and would go in with the PRIMARY likely exit strategy to sell later down the road... my SECONDARY strategy which would hinge and be dependent on timing, rents, market, etc. etc. would be to rent... it's one of those scenarios where... it might make a great rental for you down the road but as of RIGHT NOW, it does not. 

I hope this helps. I'm a Veteran but I want to thank you for your service. I sent you a DM, I hope you can assist.