Condos Worth Starting Out With?

Question

Hi, my husband and I will be moving to Hawaii this summer for my career (military), and we are looking for our first RE purchase. We'll be in Honolulu for the next 6 years and will most likely return to the island in the future.

Our long-term goal is to buy-and-hold SFHs and multi-units. However, the downside to our sunny move is the average price of SFHs in Honolulu is pretty hard to swallow as our first purchase (and we are both from the San Francisco Bay Area, so we are accustomed to high prices). Thus, we started to look at condos*, and although their prices are more compatible with our budget (with enough cushion for emergencies), we fear having a lack of control over HOA fee increases (only one direction to go, in our opinion). As it's well-known, it's very difficult to achieve something near the 2% rule in markets like Honolulu and the Bay Area so having a large factor like HOA fees out of our control increases our anxiety about condos being our first purchase.

Although we are apprehensive about entering a RE market with such high entry prices, we are even more apprehensive about investing remotely (only other market we are interested in is the SF Bay Area, where both of our families are). Fellow BPers, what do you think we should do in order to help us balance our desire to add RE into our portfolio and our situation of living in Honolulu? Thank you in advance!

*For those familiar with the Honolulu market, we are specifically looking at the Salt Lake/Moanulua area.

Ally H. · Answer

@Johnny Aloha @Val Csontos @Michael Mazzella Thank you for your advice! I think that unless we find a SFH or a multi-unit that fits our criteria, renting while we keep searching would be wise. Neither of us really know much about construction, but we're willing to learn. Thank you all!

Michael Mazzella · Answer

Aloha Ally! You may have a difficult time with buy & holds here. It's certainly doable, just difficult. If you are just looking to make good money as an investor, and are not married to particular strategy, there is very good money in Buy-Fix-Sells here on Oahu. Lots of 6-figure deals here, mostly with SFRs. You can flip condos too, for a lower cost, easier to renovate, and Salt Lake has plenty of them. Seize the day! ~Michael

Val Csontos · Answer

@Ally H. I am not familiar with your markets but I personally would never consider investing in condos. It seems like when ever there is a market correction,(price drop in real estate) the condos are the first one to drop prices and they go down the furthest, and in a recovery phase of the market cycle the condos are the one to come up last. So why make it hard on your self? Also I am sure there are people here who think otherwise but my view on condo fees are: Overtime those fees could add up so much, if you owe say two condos and pay those condo-fees for many years, for the same money you probably could have purchased and paid for another SF or a Town house with no fees! Again not knowing the market, If I had to go there and money is tight but I had lots of time to search, may be I would consider the following? Search and search and keep search for a multi-unit say a duplex or a 3 unit, with ugly outdated paint jobs (forest green/ navy blue etc...) carpet etc... and fix that up and rented out to other military folks may be? Not on the sexy part of town but further in I guess where locals regular folks live? And where the numbers start make sense? I started my real estate investing I here on the East Coast where I was sent here just like you by the military (Air Force and I was a E-3), I started purchasing homes(no money down) and rented them out to O-2s, O-3s We lived on Base here on Ft Meade in 40 old row homes for low ranking enlisted housing, for the first year or so, when I stared to purchasing newer foreclosed homes, small apartments and those higher ranking military folks were paying my mortgages! This was in the 90s and we still have those properties and some more! Good Luck to You!

Johnny Aloha · Answer

Aloha Ally! A quick answer to your question: no (for me personally anyway), I would not buy a condo in that area. My goals might be different than yours though. Condos in the Salt Lake/Moanalua area have lower appreciation rates than places like Waikiki, Gold Coast, Kailua, etc. But as you might know, there's a big housing shortage here and so 0-2% vacancy is a good assumption. I agree with you that HOA fees are high and only go up. There's a caveat though - there's a new rail system under construction, and if you buy in the right area close to a rail stop, you might see a good bump in value. Check out UHERO forecasts - they are predicting strong appreciation the next few years for SFH and condos. They are normally pretty accurate. Forget the 1% and 2% rules, unless you buy in a desirable area near a beach (not Salt Lake or Moanalua) and plan on renting as a vacation rental. I know people that do this on Oahu (Ko Olina resort on the west side) as well as neighbor islands, and do very well. 1% is easily achievable.