First Rental Investment (Triplex in Hawaii)

[Account Closed]

Hello everyone, so I am looking at purchasing a triplex in Waipahu,HI (8 bedrooms, 4bath, 3,095 sq/ft living area/6000 sq/ft total). $38k down and financing $837k @3.99% (30 yr) w/ an potential annual cash flow of $21k. Assuming no rehab is needed, and based on these numbers alone, does this look like a positive investment as I am planning on holding for at least 20 years (Cash on cash return expected: 5,012.64%)? Thank you for your input!!!

[Isi Nau]

Hey @Account Closed

To your main question, based solely on the numbers provided is this a positive investment? Yes. Your CoC would be awesome and your cap rate would be pretty good for Hawaii (typical for Waipahu). But I don't think the CoC would be 5000%. I came up with something closer to 38%, but I may have missed something.

I love them Waipahu castles!  A few gems come up every once in a while with some good numbers.  Just a few thoughts on the loan and rental income:

The numbers you provided would put you in the jumbo loan range.  An $837k mortgage is a huge loan for an owner occupied property.  I'm assuming you'd need the rental income to help you qualify for the loan?  Most people would!  Hahaha. Have you been prequalified already?

One issue you may run into is not being allowed to use the rental income to help qualify for the loan.  Owner occupant jumbo loans often don't allow rental income to be counted towards qualifying.  Also, since the home is nonconforming (none of the units are legal) banks won't let you use the rental income to qualify for the loan.  You may be able to get a portfolio loan to allow the rental income, but then you may run into the issue of needing a larger down payment.

I think the projected cash flow might be a little high.  I'm guessing the home has three units (based on the number of bedrooms, and these types of homes in Waipahu).  I'd estimate the annual gross rent at $72,000.  I'd estimate annual expenses (including debt service) at $65,000.  Leaving $7,000 annual cash flow.

I don't know if I'd hold it for 20 years, unless you do a cash out refi down the road and use the funds to purchase another property.  The return on investment starts to decline over the years, so you'll want to trade up or refi.  Unless you are planning on retiring in 20 years, then a paid off asset is probably desirable.

Overall I think you're looking at a good area and property type.  Waipahu produces some winners.