should we rent or buy

[clarkfan1979]

I was ready to buy, but we found a pretty good rental that is making me question buying.

It's difficult to find a rental that will accept a dog on Kauai. The red clay stains very badly and is tracked in with shoes and dog paws. From what I have been told, shoes off is a Hawaiian culture based on the powerful staining capabilities of the red clay.

The last 2 years we rented a studio for 1,100/month, internet and utilities included, but was 332 sq. ft. The drive was 27 minutes in the morning and 45 minutes on the way home.

The new rental is a 2 bed/1 bath and 900 sq. ft. We now have a baby, so the extra room is nice. It's 25 minutes in the morning and 30-35 minutes in the afternoon. It's in a different direction with less traffic. It's 1500/month with internet and utilities included. The current landlord is super nice.

If we bought in the same neighborhood as the current rental it would cost us 450K to 500K. 450K would need a little work and 500K would be totally done. We would have a mother-in-law suite that generates 1200/month. If you don't want the mother-in-law suite, you might be able to get something for 350K to 400K.

At 500K and 5% down, we are looking at a mortgage payment of $2700/month, including $250 of PMI. Do we wait until we can get 20% to put down? If so, our total mortgage would be more like $2,000/month. Or do we avoid renting all together?

One main advantage of buying is that we can house-swap with different people all over the world. We are not allowed to do airbnb for cash due to zoning (less than 6 months), but house swapping is within the rules. Our income numbers are below.

Me: Base salary of 62.5K, but will make 67K with summer school. People who are close to retirement currently top out around 110K to 120K with base salary. You don't make much to start, but I think they are good raises for higher education.
Wife: Will make 10K substitute teaching. She will be available 3 days/week and average 2 days/week of work at $159/day.

We get about 22K/year in rental income after vacancy and repairs.
Rental #1: Worth 235K, owe 77K. Rent = 1700/month. Total Mortgage 625/month
Rental #2: Worth 360K, owe 113K. Rent = 2200/month. Total Mortgage is 975/month

Current Cash: 35K

Current 401K: 82K

Based on our current cash flow, we pretty much spend all of my W-2 income. We are able to save all of my wife's W-2 income and all the rental income. 
Net worth (excluding pension) 488K

[clarkfan1979]

or wait until I can get 20% down?

[daverobev]

4% of $500k is $20k (4% SWR in invested money), vs $1500 x 12 = $18k.

No property tax or maintenance to pay on a rental, which could be a lot.

But, a house you don't own doesn't go up in value (nor, though, does it go down).

Renting is IMHO the much better choice here in pretty much all ways.

[clarkfan1979]

Our landlord's house with the attached apartment is probably worth 600K. He gets 1500/month from us as rent to offset his mortgage. His Accessory Dwelling Unit (ADU) is a 2 bedroom.

I would like to do something similar, but with a 500K house with a 1 bedroom ADU that gets 1200/month.

If we only put 5% down on a 500K house, our total 2700 mortgage (including $250 of PMI, taxes & insurance) will be offset by 1200/month rental, for a total of 1500/month, which is what we pay in rent, but doesn't include utilities or maintenance.

Utilities should run around $250/month and maintenance $200/month. This makes owning $450/month more. However, we would get $700/month of principle pay down every month at the very beginning of the loan.

[CanuckExpat]

How certain is the rental income with the ADU option if you purchase?

With that much mortgage outlay every month, I'd really worry about cashflow and liquidity

[clarkfan1979]

How certain is the rental income with the ADU option if you purchase?

With that much mortgage outlay every month, I'd really worry about cashflow and liquidity

There are no "for profit" apartment complexes on the island. The only apartments are low-income and run by the county. As a result, there is a shortage of affordable housing. The shortage is filled with ADU's on Kauai.

Any type of housing that is $1500/month or less will get about 20 replies within the first day.

[StarBright]

Were you the guy who was thinking of moving to CO to be near wife's family now that you have a baby?

If so and based on analysis done by previous posters I'd say definitely go with the rental. We found that young children definitely changed our "where do we want to live" perspective and we  ultimately ended up moving to be nearer to family 2 years after our youngest was born.

If you think moving is a possibility in the next few years, don't get stuck with another mortgage in HI.

[clarkfan1979]

Were you the guy who was thinking of moving to CO to be near wife's family now that you have a baby?

If so and based on analysis done by previous posters I'd say definitely go with the rental. We found that young children definitely changed our "where do we want to live" perspective and we  ultimately ended up moving to be nearer to family 2 years after our youngest was born.

If you think moving is a possibility in the next few years, don't get stuck with another mortgage in HI.

Thank you for the advice. I'm really only looking at buying a house with sweat equity, so we could break even if I got another job and we needed to sell fast.

I didn't get that job in Colorado and we are 95% sure that we won't be moving back there full-time. I teach community college and the pay for community college instructors is 20% below the national average with a median house price of 400K. That specific job was a little different because the pay was a little higher than normal, the houses were a little cheaper and it was really close to family (15 minutes). 

The only way we move back to Colorado is if I give up my academic career and get a corporate job. I seriously doubt that I would do that with a 3 month old. However, I would consider doing it when he is older and in school.

We still spend 4 months in Colorado a year. We do 3 months over the summer and 1 month over winter break. I think we realized that it's enough. By the end of the summer we really feel like we need to get away from family for a while.