Newbie advice in Hawaii

[Austin Yamamoto]

Hi, I’m a newbie and thinking of investing in real estate. Ive been browsing these forums off and on for some time and want to jump in.

I just had a baby (Late in life) and it’s beginning to hit me that if I want to spend more time with my baby I need to do something else than work for a paycheck for the next 25 years. 

I live on Oahu. I bought my grandmas house 5 years ago at a small discount and fixed it up. I’m planning to move back with my parents for a couple of years to help with babysitting. During this time I plan to buy another place and rent it out and move into it after a few years as my primary residence. I’m wondering if I should sell or rent. 

My current loan amount is 450,000. My mortgage, taxes and insurance is 3,000. I spoke with a property manager and they said they could get around 3,200 in rent. I spoke with my realtor and she would list it for 950,000. 

Thanks for any advice. 

[Isi Nau]

Aloha @Austin Yamamoto  It sounds like you have two plans.  Rent or sell your current home.  Purchase another property to rent out and then move in to. 

Regarding your current home.  I'm assuming it's a single family home.  I would recommend selling it and buying something with better investment returns.  Single family homes on Oahu are one of the least performing property types.  You could take the money and make better returns in almost any other property type.  After selling you'd have around $400k to work with.  That is an excellent amount of seed capital.  If invested right, you shouldn't have any problem meeting your investment goals.  The key being investing right.  Make sure you get advice from those who have been doing it since before 2008.  The current market (post 2010) has made everyone look smart.

Also, a quick note about realtors.  On Oahu, I would estimate that less than 10% of realtors invest in real estate.  Of that 10%, only about 1% invest intentionally and intelligently.  Every realtor can help you buy and sell a home, but very few can help you invest wisely.

Most often, the only type of single family homes on Oahu that have good returns are nonconforming (a single family home converted into multiple units).  There are some nuances for this type of rental.  Appraisals, zoning/permitting, neighbors, floor plans, tenant relations, utilities, laundry, etc.

Regarding your potential second home purchase.  One challenging part of this is finding a home that is both a good rental and also a home that will fit your lifestyle.  Usually the home will lean one way or the other, and you'll need to be a little flexible.  Typically buyers will purchase a home that is more suitable to their lifestyle and less stellar as a rental, which is fine.

Another factor to consider in this model is renovations.  The scope of renovations for a rental (more practical and durable) are often different than those for an owner occupant (a little higher end).  You'll want to plan ahead as to when to do the renovations.  It might be a good idea to hold off on nice renovation items until you are ready to move in. 

Last, it might be a good idea to purchase the second home as an owner occupant first, and then decide later if you'll need to rent it out.  This will allow you the benefits of owner occupant loan terms and rate.

Feel free to reach out with any other questions.  Aloha!  Isi