Advice Needed - Oahu Real Estate

[Kate Malchow]

I need some advice.

I purchased a 3B 1.5B condo in Makakilo, HI (Oahu), in the fall of 2018. I lived in this property until the spring of 2020. I put the house up for rent - COVID hit! It has sat empty for 9 months now. I have used two property managers, consistently lowered the rent, and offered rental incentives. I am at a loss for what to do. Should I keep the house or sell it? I now live in North Carolina and am paying rent here. I am also looking at a career change within the next 12 months, so I wouldn't be able to float this property empty. 

Current Numbers

Sell:

- $440,000 Purchased Price in 2018 (completed a refinance in 2019)

- $338,000 Estimated pay-off

- $465,000 needed to break even (4% realtor + 1% closing cost)

- Talked to a realtor today. She says that she thinks it will sell fast, but I have a hard time believing that I will get a price that will allow me to break even on the property.

Rental:

- $2,800 P&I+HOA = per mo

- $2,500 Current list price

- PM fee = 10% of rental price

- PM says there is interest, just no applications

[Isi Nau]

Hi @Kate Malchow

Sorry to hear!  The market now is pretty unprecedented.  It looks like you've done some pretty good research and have a good picture of both choices.  I did a little research and have a thoughts.

As a rental:

The rental market right now is all over the place.  Meaning we're seeing a lot of variance across neighborhoods and property types within those neighborhoods.  It's hard to predict if a specific property will rent quickly or not.

Also, the most recent numbers I saw were that 11,000 renters are behind on rent.  There are always renters behind on rent, but this is a little more than normal.  Which brings us to the eviction moratorium.  If a renter is behind on rent, or a renter feels they may soon fall behind on rent, they have a huge incentive to stay in their current rental.  They'd be crazy to move.  So we're seeing less movement in the rental market overall.

I would recommend allowing Section 8.  We have had very good experiences with tenants using Section 8.  This would expand your potential tenant pool.  Your unit has a great outdoor space, is ground floor, and is a good size.The only thing I would recommend might be to redo the flooring with vinyl planks, which is very affordable.  But removing the tile would a beast of a job, possibly making it not viable at this time.  How are the views and breeze?  If there are any, I would highlight those in the description.

I think $2500 is a good rent price for this property.  With the 10% management fee, plus all expenses, you could be about $150 negative a month.  Not ideal, but not a major loss.

In addition to allowing Section 8, maybe the property manager could be more flexible on showings (maybe they already are), remove the application fee (if there is one), be one of the lowest priced 3 bedrooms in Makakilo.

Whatever you do, do not settle for a mediocre tenant!  It would be better to lower the rent by $200 and get a great tenant than to get one that will cause problems.

As a sale:
A 3 bedroom townhouse like yours is a rare product in Makakilo right now.  I believe you could get an offer in 7-10 days.

I agree that a sale price of $440k is reasonable, with a range of $435k to $450k.  And that a sale price of $465k would be needed in order to break even.  I believe this would be hard to achieve, since similar units that are fully remodeled are selling close to $450k.  You would need to bring cash to closing for any sale price under $465k.  Assuming a sale price of $440k, you'd need to bring $25k to closing!  That's a pretty big hit.

Overall:
I would recommend renting it out.  Even if you were to be negative $200-$300 a month.  I believe that's better than a $25k loss right out of the gate.  And then watch the market and be ready to sell when (not if) prices get up to $465k.

Good luck!
Feel free to reach out with additional questions.