Investing in Hawaii for military question

[Jacob Trimble]

Hello BiggerPockets readers, 

This may be a little long but I appreciate any input and or advice. Currently I work Active Duty in The USAF and am stationed in Hawaii. I will be here for the next 2 1/2 years. Currently, my wife and I own a rental in SC (This home cash flows about $250) and have bought a condo here in Honolulu (Both with VA loan). During 2020 my wife and I plan to pay off all debt except for the mortgages in an attempt to position ourselves the best way possible for future investment opportunities. Here's my question. We would like to move out of our condo and rent it out and move to on base housing for a year. We want to do this because we would like a backyard for our dogs and also housing there comes with central AC (our AC bill in the summer pushes $500 for a 791 SQFT condo). Renting it out would negative cash flow about $800 a month. However, if you consider appreciation and principal payoff (approx. $600 mo. currently) we would still be doing okay. The main reason I want to rent it out is so that we can show some rental history for this home when we try and obtain a new loan for an actual home here in Hawaii. We also need to wait before buying because my wife currently only has 1 year of work experience (She's a nurse) and so we need to wait until she has 2 before attempting to get approved for a loan. I would like to buy a home for upwards of $1 million in the early year of 2021, live in it approximately 1 to 2 years and then rent it out once we get stationed somewhere else or get out of the military. I've noticed so far, Hawaii is an appreciation game and not a cash flow one. That being said my wife and I make enough money to cover the negative hit we would take from not only the condo but also the other home we may purchase here. Currently we both net about 130k a year and that should go up in the next two years to around 180k. I understand cash flow is important but I believe if we hold onto these homes for 10+ years we could do really well. I left out some detail because I didn't want to make this super long but I am more so interested in the idea of buying and holding here in Hawaii with a negative cash flow in the long run to ideally come out ahead in appreciation of the property. Also, we would plan to buy the home with a VA as I understand they just recently lifted the amount of the VA loan to any amount a lender is willing to give. Anyway, let me know if I left anything out or something is unclear and I'll do my best to explain. I would appreciate any insight. Like I said during the next year we plan to pay off all debt, learn the market, and gain as much knowledge as we can during that time. We appreciate any help or advice in advance!

Thanks, 

Jake

[David Pere]

@Jacob Trimble A lot of what you just wrote scares me. 

Firstly, don't move out of the condo until you've lived their for (2) years or you'll pay a TON in capital gains taxes in Hawaii. 

Secondly, $800/month loss is INSANE for how little that condo will appreciate in Hawaii, no. Just no. Now, are you in a zip code where you can AirBnb? That might take your $800 negative and flip it into positive cash flow, I have (2) friends that do this successfully!

Thirdly, a million-dollar home in Hawaii WILL NOT CASH FLOW AT ALL...you will be out of pocket over $1000/month (possibly closer to $2000)...Are you CONFIDENT this home will appreciate faster?...so was my friend, who had to bring $30k to closing in order to break even.

Hawaii is an appreciation play, but that doesn't mean it will always appreciate. You need to be 100% certain you can continue to cover all of the expenses, plus GET tax, plus out of state investor tax, etc. even if your property value tanks...and then have the nerve to hold it for years. I caution against this when you could easily invest elsewhere for cash flow...the number of successful investors I know who focus their efforts on the mainland and strive to SAVE as much of their BAH as possible is a testament (to me) that this is the greater strategy.

All that being said, make your decision, and stick to it...but be conservative on your numbers, and keep LARGE cash reserves.