Author Topic: Case study: Rent vs Own in Honolulu, HI  (Read 1975 times)

wdpk

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Case study: Rent vs Own in Honolulu, HI
« on: April 25, 2015, 10:21:25 PM »
We are a 25 year-old married couple who live in a highly desirable location in Honolulu HI. We have been renting for 6 months in a condo and love it here. We recently learned the owner is trying to sell our unit. He had listed the condo for several years, but no one bought it. Honestly, he has overpriced the unit to match the unit upstairs which has is fully renovated at $345,000. 

Questions:
Can we afford it?
Would it be advisable for us to purchase or should we find a new place to rent?
Is this a good buy?
Would we be better off financially by buying now, or renting for a few years to increase our savings?

Take Home Partner 1: $3423 (Includes Health Insurance). Very stable job in my field which I enjoy and bike commute to, $5000 raise in August was part of the job offer.
Take Home Partner 2: Assume 0, however once he begins school the GI Bill will give him $2994 for the months he is in school (Does not include breaks) for housing which is tax free. They also provide $1000 for “books” per year. Tuition and Fees are fully covered. He expects to start school in January 2016 for 3.5-4 years for a degree in engineering. For the next two months we are saving his entire pay (about $5500- $3300 is nontaxable). He also may work part time or odd jobs to pick up money during school or before he begins school. He plans on biking to school (about 2-3 miles) and getting jobs within biking distance.

Debts:
Partner 1: $85,000 in federal student loans. Current income based payment is $0, will be revised in August. Plan to utilize PSLF. Currently have 13 of 120 months in a non-profit needed to forgive the balance.

Monthly Expenses:
Current Rent: $1700 (similar unit in building rents for $2100)
Phones: $90 (t-mobile 2 phones)
Electricity: $100 (Use approx 280 kwh/month- electric oven & water heater- hang dry clothes)
Internet: $35
Renters Insurance: $11 (Paid Yearly)
Auto Insurance: $20 (Paid every 6 months)
Groceries:  $450 (Partner 1’s fancy pants item)
Gas: $50 (in two months will be near $0)
Entertainment: $100
Total: $2556

Assets:
Cash on hand: $1,900
Roth IRA: $9,100
VTSMX: $10,900
Car: $10,000 (Miata! We are considering selling. Partner 2’s fancy pants item)

We both have decent credit and are thinking of offering a way lower price for the condo ($250,000-$300,000 if a price point leans you towards yes or no, let us know what that price point that is). We could use the VA home loan so we wouldn’t need a down payment.

The condo is fee simple, with current condo fees of $550 and rumor is they are going up 30% to ~$730. Utilities would remain the same.

It is 636 sqft, 1 bedroom, 1 bath.

There are many upgrades that would need to be done eventually, however...

The brightsides are: we love the space, it is open with high ceilings. Plus, we love the area. I bike about 2 miles to work, and there are beaches, parks, restaurants, bars, the mall, you name it within a few miles. Most importantly, a Costco is close enough that we can take our bike trailer to buy groceries. We have a beautiful mountain view from the ninth floor, and can see the ocean from the corner of the lanai. Residence includes one parking spot in a secured garage.

We are looking for any feedback you have- we don’t know any real live mustachians!

lhamo

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Re: Case study: Rent vs Own in Honolulu, HI
« Reply #1 on: April 25, 2015, 11:01:58 PM »
A bit hard to say without knowing what your total housing payment is going to be (mortgage+ association fees + taxes + PMI).  What is the rate on the VA loan at the moment?

The potential jump in condo fees is a point for possible concern -- have you looked at the association minutes and verified that the building's financials are ok?  Be sure to do that. 

I think your biggest challenge is probably going to be getting him to come down in price.  Doesn't sound like the kind of person who would drop from $345k to $250, even if he really likes you.  Maybe you can get him down to around $300k, but I think even that is going to be tough. 

I would hold tight for a bit and see how much interest there is in the place.  In the meantime, look at other places with similar features so that you can get a sense of the market.  You can probably figure out pretty quickly whether this is a good deal or a bad deal.  I wouldn't do it based only on one unit in the same building, though.



Axecleaver

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Re: Case study: Rent vs Own in Honolulu, HI
« Reply #2 on: April 29, 2015, 10:45:14 AM »
I lived in downtown Honolulu for a year for work, and got to learn a little bit about the city and real estate there. It's a wild market. Kaka'ako, for example, is undergoing a huge renaissance. Property values are going nuts as it's suddenly a more desirable place to live. On the other hand, some condo units are going way down in value as they lose Makai views from buildings going up next door, the condo fees go way up, or condo boards change rules to be more draconian (one building banned all smoking in the units, for example)

You really have to be careful when you buy there, condo fees can get really silly really fast. Definitely look at other units and locations. There are more affordable places than what you've described, which are still biking distance to Costco and the University. Find comparables for the place you're at now, assume the higher condo fees and if you do decide to make an offer, leave yourselves some room for error.

Make sure to look at other available condos. Even in Honolulu, 636 sq ft is very small for 350k. If you live near the Costco and the University I'm guessing you're either in the Punchbowl or Kalihi area. Those are still pretty affordable. If you like the neighborhood, look at other places before you consider buying.

On the other hand, with the unit priced so poorly, you can keep renting in safety knowing it's not going to sell anytime soon.

My wife and I are hoping to get back to Honolulu for post-FIRE activities, though we probably won't be able to afford Kaka'ako when we retire. By then we'd be perfectly happy to settle in on the North Shore or a more affordable inland community on Windward. Hawai`i was the most blessed and friendly place we have ever been, and we hope to make it back there someday. Good luck!