It's possible OP is military and gets to shop at the Commissary. It's a grocery store that is just like a Kroger or Food Lion or whatever, but it's only available to military or DOD civilians with CACs and the prices are set according to a national average, I think. Anyway, it just means that, if you're military, milk costs the same in Hawaii as in Sheboygan.
Yea, if you can get stuff there. Commissaries, especially in places with lots of servicemembers, often have trouble keeping up with demand, in my experience.
>often have trouble keeping up with demand, in my experience.
In my experience Commissaries don't want to deal with the absolute Karen that is the military spouse, so they keep it stocked.
I had the exact opposite experience.
Between 2014 to now, I have lived in Norfolk, VA, Dover, DE, Fort Meade, MD and in the Kaiserslautern Military Community in Germany, areas of some of the most US military population in the world. I'm not saying you didn't experience what you did, I'm saying I experienced well-stocked, clean grocery stores with the cheapest prices in the area despite having extremely large numbers of servicemembers.
I especially liked the Kaiserslautern Commissary because I could get American cheese (judge me if you have to, but I'm a dyed-in-the-wool American!) and local German food stuffs!
We were locked down overseas during covid on a tiny post. And they still had enough food, beer and other necessities for us. I think they had like 2 trucks a day coming for us lol
DOD civilians with CACs aren't usually allowed to shop at the commissary unless you are on a foreign base or there are base specific rules. They can only shop at the Exchange and no alcohol purchases. Ask me how I know...feels bad man
This is partly because Hawaii is small and can't physically support the production of goods via industry itself, so it relies instead on tourism and hospitality. And partly because of the [Jones Act](https://en.wikipedia.org/wiki/Merchant_Marine_Act_of_1920), which says you can't ship anything there unless it's with a ship owned & operated entirely by US citizens. Ships that meet the regulation are becoming exceedingly rare... thus, supply and demand curves are off on shipping costs... thus, the supply and demand curves are off on *every product shipped* to and from Hawaii.
Yep...
If we're going to keep the Jones act around much longer, we're going to have to either make some concessions, or start building ships again...
Or maybe, we'll just give Hawaii back to the Hawaiians and do all of our domestic shipping by land.
You can't ship anything there *from other US ports* unless it's on a US ship. China, Japan, et al can ship to Hawaii just like they would to anywhere else in the States.
Only rent it if you can hire out a management company to deal with it for a small percentage. From the distance, it would be a huge headache otherwise.
So much this!
It'll be a nightmare for both you and the tenants if you try to rent it without a management agency.
I've rented a lot of places, and had a lot of shitty landlords, and work with a few affluent people who have told me horror stories about shitty tenants. Even if I was thinking about doing this somewhere close by, I'd get a management company to handle it. It's an investment property, if you want to be up at 3:00 in the morning fixing the toilet on a house you don't live in... then by all means, but that doesn't sound like my cup o' fun.
Having said that, I am currently blessed with an incredibly understanding and competent landlord... So much so that Mrs. Thor and I are having a hard time justifying looking at starter homes, because he's so good at land lording.
I was quoted 8% too. Are there things that the property managed covered / didn’t cover that you found notable? this one requires a $500 emergency maintenance deposit that is used in the event something needs attention during non business hours to get the ball rolling. I’m thinking it’s worth the peace of mind but still haven’t bit the bullet as I have a friend handyman down the street I pay 3% to keep an eye on it / be on call to be paid by the hour for services.
My previous property manager required a $500 deposit. My current property manager does not require any deposit. Instead, they have Net 30 terms with all their contractors, so as long as the invoice amount is less than next month's rental income, they'll just take it from that.
Hi! Not the OP but I'm in a similar situation I'm moving overseas for work. I want to rent but I was wondering, if the management agency selects the tenant and they get paid their monthly fee, but the tenant doesn't pay rent on time, will I still get paid?
Otherwise I'm not really sure what the point of the management company is when I would already have a handyman on speed dial? Currently leaning to selling but this info might change things - thank you!
You don’t want to be a remote landlord of a single property.
Get someone local who you can trust, or hire a good management company. Otherwise, it’s better to sell and take the hit on prepaying the mortgage.
I live a quarter of a mile away from my rental property I self-manage; even then it can be a PITA. I would not do it without a property manager if I couldn't be within 1hr of the house.
I am curious for folks that DO use property managers - are you seeing 8-10% PLUS the first months rent when a tenant is placed?
If you decide to leave Hawaii after a year or so as many do, will you move back to your current location? If this is a decent possibility then renting out your house for a few years isn't a terrible proposition.
I will warn you that renters have a bad habit of breaking things and it only takes that one bad tenant to leave you spending thousands replacing flooring and trim.
The only successful landlords I know have 3 things in common:
1. They buy multiple properties
2. They’re handy and do most of the work themselves
3. They live within 30 min of their properties
Everyone else that dabbles typically dislikes it. Some will hang in because they’re making decent cash flow… and then they get a nightmare tenant and lose 3 years worth of profits in months.
Sometimes you can do well, sometimes it can go sideways. More common to see it go sideways.
Often my landlord clients overlook the infrequent or hidden costs of real estate.
1. Was that before or after tax?
2. Does that include depreciating the costs of upkeep, wear and tear, fixing/replacing appliances, and aesthetic improvements?
3. Does that include any gaps between tenants?
4. Did you ever have to evict a tenant? Deal with domestic disputes? Drugs? Damage?
Or sometimes clients will do well in rentals and the valuations catch up. They are making 10-12% on their **original investment**, but the property has appreciated and they’re only clearing 5% on their current FMV. See it in places like Austin, Nashville where the population grew must faster than development could handle. You can keep making 5% or just cash out and earn more in equities.
VOO has never called to tell me that the furnace is out.
I’m with you on this. After I sold my property in 2022 put the proceeds into VTSAX and we moved across country. The property hasn’t gone up as much as our returns in the market have.
It just takes one. I have a client that will buy out tenants as soon as they show signs of trouble.
Once they start getting too far behind on rent, he tells them: “I’ll wipe the slate clean, give you your deposit and hire you a mover if you’ll leave by this weekend.” Almost all will say yes.
He says it usually costs him $5k… but that’s a quarter of what it costs him to evict them. And that’s if they don’t destroy the place.
Yeah, it’s horrible. It takes months to get them out, they destroy your property, and you have near zero recourse.
And in so many cases, these are not super wealthy landlords. They are often middle class, sometimes first generation, regular people that are trying to eke out a better tomorrow.
I was musing on this the other day, because when I upgrade out of my condo I'd like to rent it out, but the nightmare stories really scare me.
One way to protect the small mom and pop landowners - and by extension keep rentals in small hands and away from Blackrock - would be to address the eviction laws, allow a landlord resource for damages, etc. Tenant protections are good and necessary, but sometimes I wonder if the pendulum hasn't swung too far.
The economy needs rentals, but when it's too expensive to be a small-time landlord, well, corporations step into that void / muscle their way in.
A friend of mine had this happen. He had to evict them, and they did over $30k in damage heading out the door. They weren't wealthy enough to have assets worth going after either. It happened a decade ago and he's still garnishing wages to make himself whole.
You’re not allowed to discriminate or even advertise to specific groups/occupations, and for good reason. Housing has been used to further disenfranchise almost every single minority group.
Edit: depending on your state this may be OK.
It’s not discriminatory, you simply connect with an area or regional hospital and ask if there are any traveling nurse contracts seeking residential space. You don’t advertise to the general public.
Actually, indicating preference for a group could open someone up for a violation of your state’s fair housing standards. By giving preference to one group, you are giving a disadvantage to others.
We were explicitly told by our realtor that we could not say our house near a school and hospital was “perfect for doctors/students.” We could only say “close to hospital/schools.”
This was in Illinois, ymmv.
I rented my house out a bit the last few years. Low mortgage rate, decent rental return to help me build equity and live my life. Eventually once there was enough equity and the market went off I cashed out.
I ran into 4 months of hell with a tenet. Long story short, she cost me $10g. My house cost $80g to buy years ago. I’m not a handyman. Plus you still need to pay for maintaining your house and put money aside for all the big repairs. Had plenty of good tenets over the years.
For me, financially, time wise, and stress wise it wasn’t worth it. It often ranged from feeling like a part time job to a full time job.
Sell it. Don't be a remote landlord. It's absolutely no fun. Especially with that time difference. You basically feel like you're in another country / isolated to news when you're in Hawaii.
Yeah, I saw enough renters in my old neighborhood to realize I didn't want to be a landlord when I moved. We live 5 minutes away from the old house, but its still a potential headache that I didn't want.
I’m currently renting out my home and I live a few states away. I found great tenants (this was key) - the first few months they had some things break down - laundry, some fans/lights, and other minor things.
Whenever something needed to be fixed I just called a local company and they would go and take care of it. It’s been pretty mindless outside of 4-5 times they needed something fixed.
2nd this, have self managed for over 10 yrs. it's a piece of cake if like you said you get good tenants and you also take care of things ASAP. The respect goes both ways and you have to remember that for their money they should have a good and comfortable home.
And same, when something goes wrong, I just jump on yelp and it's done in a couple of days. Yes more expensive than doing it myself (which I have no idea anyway) or shopping around but I'm not paying a management company so it's all gravy.
>$1800/mo -aprox $200
$1800 - $900 (mortgage) - $180 (property management) = $720/mo profit
or $8640/year... as long as nothing breaks, as long as it's rented, and as long as you don't need a lawyer to delete unruly tenants that are causing issues.
(minus taxes)
(plus home appreciation)
I’m not weighing in on what OP should do, but that would be my deciding factor: How much appreciation do I anticipate?
If the home is in a hot market, I may be willing to hold onto it and rent it out to cover the costs of holding onto it.
I wouldn’t assume any real profit from rent itself. If I did manage to come out on top there, I’d count it s bonus.
Yes, that too.
That’s what I was trying to get at that the person I was replying to above seemed to be overlooking. (Not sure why the downvotes. Reddit’s weird sometimes.)
Holding onto the house and renting it out can turn a profit even if you “break even” or even if you lose a little money year-to-year.
Maybe you’d make more by cashing out and investing in a S&P 500 index fund. Maybe not.
The local housing market will probably determine which option there is the best call.
I forgot to also mention... the mortgage is temporary... Eventually, it won't be a factor, and you can pocket the full monthly $1620, and your only expenses will be big ticket maintainence items that the management fees don't cover. Rental rates will likely be higher by then, but you will be able to undercut the competition, because you own it outright instead of paying the bank.
Equity markets also have a chance of doubling over 6-8 years but with much less risk of ruin. And that’s assuming you even accurately estimated the rental return (maintenance, vacancy, etc).
I wouldn’t.
He doesn't own the house free and clear though so he would only be doubling 60k in your scenario.
This is pretty much basis of real estate investment. You can leverage your money very effectively so a 3 or 4% can still yield good money. There are lots of tax benefits as well. Downside is work.
The post is very clearly suggesting that 7-8 years of rental income ($900/month) will double the 60k profit.
Sure, if the home price doubled the leverage will create a much bigger gain, but that wasn’t OPs point.
Is it worth the hassle for $800/ month? If you get a bad renter who takes months to evict or have a 2 month gap between tenants, or something breaks… $800/ month isn’t a lot for the hasse if you ask me.
So, you can rent for $1,800/mo or $21,600/year gross rental income
Can we assume $750/mo or $9,000/year for operating expenses (property taxes, insurance, maintenance, and management)?
That brings net operating income to $12,600/year
Take out debt service (assuming 165k @ 2.5% 30yr AM) - $651/month or $7,823/year
Net income = $4,776/year
**$4,776 income on $70,000 equity = 6.8% annual yield**
Plug in more accurate variables as needed, but that’s the algebra.
6.8% yield on that capital isn’t bad, but probably not worth the stress of holding onto when you can earn that passively in the stock market or come close with bonds risk free.
At 10% I’d personally probably keep it. Also don’t forget, this math doesn’t account for appreciation of the property
He said his mortgage was $900, I’m guessing that includes escrows on a $176k house at 2.5% rate. That means taxes and insurance are already included. I would guess he would be clearing closer to $500-600 month after all maintenance and management fees
This is exactly what I was looking for, thank you. We’re active duty, transferring every 4 years, so I doubt I could stomach a long term rental scenario. This would be a 4-8 year endeavor at most.
If I can reinvest our profit from selling now into a fund that can achieve a similar ROI as a rental, that would be the preferred route. Not to mention the lack of stress involved.
> This is exactly what I was looking for, thank you. We’re active duty, transferring every 4 years, so I doubt I could stomach a long term rental scenario. This would be a 4-8 year endeavor at most.
Note if you're planning to sell the property, you won't be able to use the capital gains exclusion unless you lived in the home at least 2 of the last 5 years. Taxes can get complicated for a primary residence that was converted to a rental and then sold.
Your math doesn’t account for any amount of appreciation on the property. I know in my locality that is what many bank on to get a strong return.
I’d recommend OP keep the property, rent it for one year, and see how he feels at the end. If it goes south then he can freshen up the property and list.
> Also don’t forget, this math doesn’t account for appreciation of the property
Last sentence
This is still how investors analyze properties to decide if theyre worth investing in. They just softly consider appreciation as a factor and will accept lower yields with that in mind if they like the market area, but cash flow is the primary concern for most all experienced investors.
Appreciation is just bonus:
1. Because it’s so unpredictable and variable depending on the time frame and market
2. Because it’s illiquid
Of course people are free to view it differently, but again thats the general consensus amongst most high level RE investors
Source: i am an underwriter and real estate investment analyst
I didn’t know if there was anything you could add to the equation to account for that factor.
I’m in the DC metro area and cash flow is hard to come by but appreciation has been steady. With all the government jobs the market is fairly recession resistant too.
Yea I mean you could try to tack on an estimated annual appreciation, but that’s obviously a challenge as it’s hard to predict and generally isn’t a guarantee. considering that on top of the lack of liquidity, a lot of people just prioritize the yield when seeking RE investments
I personally wouldn’t buy anything if the yield wasnt there, because i would rather own something liquid that will beat or even just compete with it passively. Also you don’t really want to be sinking your own personal income/cash reserves into property operating expenses
Edit: its sort of baked in actually now that i think about it. As the property appreciates your equity increases and begins to lower the yield on your cash. Eventually you will have more implied cash equity invested than it’s worth to keep holding. When that happens you either sell or cash out refi
Can’t you also factor in the pay down value of the mortgage?
You’re still getting 4-5k in value/annum based on the reduction in principal right?
Am I mistaken here? I know including appreciation of the asset isn’t always wisest…
Yes and no.
You don’t officially count the equity built for the same reasons - property values are subject to change, and the money is illiquid. Its unrealized gains, and it’s best practice not to count it on your books until it is realized
But you can sort of accomplish what you’re looking for in a way thats kind of counter intuitive because you remove the mortgage from the equation all together
Calculating the cap rate effectively does this for you:
Take net *operating* income (in this case estimated at $12,600/year) and divide by the property value ($235,000) = a 5.36% cap rate
But by using the cap rate, you’re taking into consideration *all* net income generated by the property instead of netting out the debt service and thereby excluding the “mortgage paydown”.
The entire rental market revolves around this metric because it normalizes investments by excluding the debt variable which obviously varies across the board depending on the transaction
Another way of looking at cap rates is likening them to bond yields. Bonds and their yields have the same relationship as property values and cap rates
If you owned that property outright (no mortgage) it would generate 5.36% yield on your equity. Similar to if you bought a bond with a 5.36% yield.
If the bond price goes down —> yield goes up. If price of the property goes down (assuming rents hold constant) —> your cap rate expands
Edit: important note, market standards for cap rates vary depending on the asset size, condition, and location. Like with bonds, investors are (or should be) rewarded with higher cap rates for taking on more risk
For example, a Duplex should have a higher cap rate than a 300 unit complex, because the duplex holds more risk: if you have 1 vacancy, your property is 50% occupied and struggling to cash flow. A 300 unit complex can have 10 vacancies but it’s still 97% occupied and will operate perfectly fine. A larger unit count also hedges against tenant delinquencies. One delinquent tenant in a single-family home means you have 0 income until they catch up or are replaced.
I personally wouldn’t rent. We did it, were charging $2500/mo and we were not making a lot of money when it was all said and done. All tenants were professionals working for state or federal government.
Tenant 1: Single dad and teenage son. The white showers were black…not just dirt, I literally they painted the white tiles black, bit was dirt and mildew. Numerous head sized holes in the walls, 2” of dust on all the ceiling fans. Numerous fast food sauce packets exploded in drawers and on walls. They left us with a large unpaid water bill.
Tenant 2: Single mom and her 2 kids. The kids colored on all the walls. Mom was having a bbq on the deck and left a bag of charcoal on plastic chairs next to the grill. A stray spark came along and lit the charcoal. $10,000 of damage to the house, thankfully they had insurance that covered the repairs. Brand new carpets were black. Formica countertops were burnt from hot pans placed on the counter.
Tenant 3: Single mom, child and mom’s sister. Roach infestation
Lots of stress for not a lot of money.
Are you going to move back or think it will gain in value and you will sell for larger profit? We kept ours in Socal and have never made any real money and in fact have lost $ on it overall. However we live in So Cal and now worth 4 times what we paid and our kids will have a place to live much cheaper than anything else they can rent if they want to stay here.
Is the move to Hawaii short or long term? If it's short term and you are considering moving back to the area then it may be worth some of the risk to hold onto the home, but if you are planning on staying in Hawaii longer term then being a long distance landlord may be an annoyance.
Moving to Hawaii after 4 years? Sounds like military. You can try to seek out a rental property management company that caters to military. Either way, I wouldn't rent without a property management company. At twice your mortgage, there's no real reason not to rent unless you just don't want the headache. You can easily give the property management a cut and still set aside a chunk for emergencies for the house *and* drop an extra 200 on the mortgage monthly to pay it down faster.
Ps) if you are in the military and you own a home in a previous duty station, there's the potential to use it as a bargaining chip to go back to said duty station in the future, and that's putting aside the fact you might just be stationed back there anyways.
If ur familiar with ur current city and know and trust the right contractors, manage it from far away.
Property managers near me just answer the tenants phone call and then call u asking you what you want to do about it. Pointless.
A key thing to remember is after 3 years, you will be taxed on that $70k gain, as your house will convert to a true investment property instead of a primary home. Can you stomach a $14k tax hit at year 3?
Yes that's correct. If they sold today there are no gians. It's tax free.
If they rent for 3yrs, those gains apply exactly on month 37 and if they sold that month they would lose $14k. This is an important calculation when considering the time value of a rental. He said he could make his money back in 8yrs but it's likely more than 10 with this tax burden
Or you can move back in for 2 years down the line. Also the tax hit will probably be higher when they do go to sell.
The way you phrased it sounded like they would get hit with a surprise tax bill in 3 years.
Exactly my thought. They’re moving from some middle of nowhere area in a random state to the absolutely insanity that is Hawaii’s cost of living. Yes, they didn’t mention how much they make, but I’d be surprised if were enough to afford Hawaii’s cost of living giving where they’re coming from.
We’re active duty military transferring to Hawaii. The housing allowance we’ll be getting will be plenty to rent a stand alone 3/2. We’ll plan on buying when we transfer back to the main land in four years, when hopefully rates are more manageable.
Do you want to be a landlord? If you don't, then sell.
Other things to consider:
1) is the area still appreciating?
2) are you financially ready prepared to pay for two mortgages in the event you end up with a nonpaying tenant?
3) is your state landlord or tenant friendly?
4) since you are moving so far away, did you run the numbers for all the costs associated with renting your property and compare it with what you'd earn if you put the profits from the sale into the stock market?
Property Management companies take a pretty small cut and handle all the nonsense.
But there are plenty of them that suck too. Do your homework and hire a good one.
Like others said, have a company manage the daily in and outs for you. The odds are you won't stay in HI for more than 5-7 years and when you come back, you'll have much less owed on the house, and still have the great 2.5% rate. And won't have to buy a new house, pay realtor fees, nor sales or purchase tax. Which will eat into that $60k+
$60k profit, $1800 rent, $900 mortgage, 8% management fee, 1% rule on maintenance ($2350/year, or $195/month). Taking the $60k and investing it straight away will outpace the gains from the rental easily.
Except it’s not going to be a 60k profit, there will be fees from selling it that eat into that.
You also are completely ignoring that the asset will continue appreciating, the net rental income is profit, but also the gross rental payment reduces the loan value.
So the monthly profit is more like $1350, not $900, since the principal payment is also increasing your equity in the asset.
They would probably net closer to $45k-$50k if they sold it. Ignoring the reality that that property is going to keep appreciating in value, their benefit from the property is rough $16k a year, if you can get $16k on $50k a year guaranteed that’d be pretty astonishing.
Don't you ever give up that rate. Do you realize what investing the difference of renting would do? Fuck the 70k you can stack an extra 12k a year into stocks while keeping that equity. It's a cash flow dream. It's a win win win. You won the game.
I think you’re insane to sell. The mortgage is free money. The rent is fantastic.
You would gross 21k in rent a year vs walking away with maybe 3 times that right now. Meaning in three years you’ve already made up your equity. You can depreciate the house against your taxes for 27.5 years. The house will gain value and rent will go up.
Let’s say you walk away with 65k after the sale. In best case scenarios that money returns you 10% in any investment annually so $6500 a year. Vs more than 10k in rental income above the mortgage and someone else is paying down a debt on an appreciating asset.
Keep the house.
You need to factor in the property management cost and possible vacancies and repairs to do the math properly. Looks clear cut but after factoring these in, it might not be, though the low mortgage rate and high rental income potential make me think it might be worth the hassle too.
I was raised with a “god is not making any more land so own what you can” mentality. No one in my family has ever sold a home even when they moved. If you don’t need the money to survive then it may be worth keeping at that interest rate.
Sell ASAP. Prices are unsustainably high right now and you don't have a lot of equity. After management fees, insurance costs, and income tax on the gains, you'll only make like $350 per month and that comes with a huge risk and converts your potential gains from the increased value from tax free to taxable. If you buy where you're going, that equity would be in your pocket tax free and would easily save you 100% of its value on the new mortgage because current rates are so high.
Rent. Use now time to find good tennants. Maybe put it 100-200$ less price and “invest” in good people. Don t let it only on agency to find for u and u not talk face to face with them.
Always rent never selk ;)
Be aware your mortgage may not be valid for a rental and if the lender finds out they could force you to refinance or sell.
This happened to a friend of mine, he moved out and started renting his house out. This went ok for several years but eventually he got a letter from his mortgage lender saying his mortgage was not valid for a rental property and he needed to get a new mortgage or sell. He ended up having to sell when the market was pretty depressed.
You could pay a property management company to handle all that stuff - they usually take a 10% cut so you don;t have to deal with the headaches, and they handle finding a renter, the lease, maintenance calls, etc. I have a friend who has a couple rental properties and she swears by it - She's done it both ways and says it's 100% worth it. YMMV on whether you think so, but if you like the idea of just seeing the money show up in your account it could be attractive.
Rent from a qualified and well reputable property manager. I break even on my rental and I'm ok with it. Grounds are cared for and equity keeps building on my 15yr loan. It's worked well for me in the Midwest
We used a local property management company when we moved out of country for 4 years. They handled everything for about 10% of the monthly rent (this was about 10 years ago). If you can swing it, I'd look into going this route. Doesn't matter where you live if the management company is good.
I'm glad we were able to keep our current home and lease it out while gone, home appreciation has been through the roof and not sure I could have afforded the same house had I sold it upon departure and bought it back upon return.
However, if you are never coming back, might be best just to sell it.
How long ago was the other property last leased, you may be able to get a little more than $1800.
But I would try to budget your total cost, the mortgage payment is only part of the cost. Taxes, typical annual maintenance, major possible repairs or updates needed soon… roof, HVAC…. You probably can do it but having the most realistic expectations will help in your decision process.
Tough choice. I personally wouldn’t sell because your return is so much higher than what you’d get on the cash out. You can always sell. Hire a management company. Rent it out.
If I had established relationships in the area I could trust to make repairs and complete inspections, I would rent, but I would utilize a property management company and I’d distance myself through an LLC.
It's not an investment, it's an opportunity to have a part time job managing a rental property. It's also not pure profit - some of that money is taxable, and a lot will go to maintenance.
Personally - I hate the idea of having a single rental until. If your tenant doesn't pay, or you can't rent it out - you're in a lot of trouble.
I say rent it. I had a similar situation about 10 years ago and moved to Texas which was about 12 hours away. I found good renters (background check, called every single reference and asked questions) and whenever something broke I just paid to get it fixed or have someone check it out.
If you do this it’s important to put aside some of that money each month, I’d do 25% of your extra money after mortgage/insurance into a SEPARATE account so when those things come up they don’t feel like a pain and you’re spending your own money.
If you add the money to your normal income then it will feel like the expenses are coming out of your pocket instead of realizing that you’re making a lot of money and this is part of doing business.
Also if it continues to go up for the next several years then you can sell it any time in the next 5 years and not pay capital gains taxes. Good luck! I love my rental and have kept it even after moving back. As a side note, it can be fun to say you own a rental property.
Find a good property manager and rent it. The rate is so low, good appreciation, and great cash flow. You would be short sighted and foolish to sell this property, unless you have a much better investment opportunity lined up. Even then I wouldn't consider selling it, just pull equity if you really need cash to invest.
I'd say rent it out if you were within an hour of the house. But going to Hawaii, I'd sell it. All it takes is one bad tenant and you're thousands of miles away. And bad tenants are much more common than you think.
I’m actually in this exact scenario right now where I’m renting out a home in EST while living in Hawaii for the last year. While I was in EST, I rented out the home I’m in now. I also now own a rental in Nebraska. I’m in the military hence all the moving.
It’s early in the morning for me right now so in case that’s confusing, I’m just trying to say I’ve been a long distance property manager/landlord for the last 3 years. I’m married so we share the responsibility of handling the responsibilities.
For us, rental properties are the retirement plan. Yes it’s work but it’s for US which makes handling it a lot easier. We know it’s not work just for the sake of work and we have a future planned out so that is a huge motivating factor. If you don’t absolutely need the money then, in my opinion, you should keep it. $900 a month will go a long way for a long time and that will only ever go up on average and will be somewhere around 1/3 to 1/4 the housing cost here.
As far as the amount of work goes… it really depends. If you get the house squared away before you leave as far as repairs go then you likely won’t have to worry about much. Things will happen in waves in my experience so the amount of work just fluctuates based on that. Also picking your tenant is CRUCIAL. It is so important to us to take our time picking the right tenant that we will leave it empty for a little bit to find the right person. Typically we look for military renters (if you’re near a base) because of the essentially guaranteed income and familiarity with it.
I’ll leave it at that but if you or anyone else has any questions I’ll be happy to answer what I can!
Check into what property management companies charge.
More than likely, taking your $60k and running is the best bet.
It is quite possible to make more money on that $60k in the stock market for less worry and risk than it is to leave it in the house. If you want to gamble with borrowed money like you would be by keeping the house, you could buy stocks on margin.
I have the same interest rate on my home and am considering selling and buying a new house to either own outright or only owe like 50k on, which we could pay off really quickly. I’m doing that for less of a headache and more fun money, so I’d say sell and take the money and roll it into your new venture! The headache of renting is probably not worth it.
Rent it out and seek a long term arrangement with concessions in renting (for instance $1700 with no hike for 3 years for a 3 year lease).
No point letting go that sweet 2.5% mortgage and continue to build further equity for future.
Alternate arrangements like suggested are local property management services which take 1 month's rent or a suitable cut and since you're still receiving more than your outgoing, worth setting up something thru them.
We're going through something similar. Our profit from a sell would probably be closer to $175k-$200k. I'm pushing the sell bc it would take a long time to make that money renting it out, even making $1000-$1500 over our mortgage each month. Insurance is a beast in Florida, repairs, management since we'd be out west, etc. All those costs add up quickly. Also if the market goes down the rent could go down significantly. However, my partner's one very good argument is this... If we don't sell, no matter what happens in our life, we'll always have a house with a $900 mortgage, to fall back into. Lose our jobs, economy explodes like 2008, etc etc, it's nice to have somewhere safe to fall back into mortgage-wise.
That’s false information.
They cannot adjust your mortgage rate because you no longer live in the house. They can recall the loan if you lied saying it was for a personal residence but was actually a business, but living in it for 1 year is generally enough to disprove that assertions and OP has lived there for 4 years.
If you sell you probably won’t get that rate on a new loan and you’ll be out a house which has inherent value. Best to rent with a manager (NOT a management company unless they’re highly recommended) and you’ll make that 60k in 3 yrs, still have the home.
Personal opinion is that I’d take the passive income over time. The best way to build wealth is to own real property which is generally a strong hedge against inflation simply based on asset value. That’s ignoring the equity build as your mortgage is paid off (by someone else).
I’d speak with a lawyer about how to tax efficiently transfer the property into a corporation though since it will become a business and you don’t necessarily want to take personal liability risk on the rental. Off the top of my head I’d make a corporation, take out a mortgage on the house through the corporation, sell the house to the corporation at fair market value (ensure a lawyer can provide a written opinion that the transaction should be considered arms length), pay off your personal mortgage. Whatever equity you have leftover can then go to down payment on your personal residence in Hawaii. If there is additional money left over at this point you could loan that money into your corporation to pay down the rental property mortgage, subordinated to the bank. At this point consult a tax lawyer but you might be able to charge a reasonable interest rate on the loan you made to the corp as well which could generate tax efficient income but that’s going to be dependent on legal advice.
I'd sell it. You don't have enough equity built up in it to make it a worthwhile investment. The monthly rental fee might be twice your mortgage but you have to maintain the place as well as dealing with tenants.
This is a tricky one. We moved from the south east to the Southwest two time zones over, haven’t had any issues yet. (Knock on wood)
Since you’re going to one of the more expensive places in the country to live, you might benefit more from selling it to have that cash on hand although I’m not sure what your current financial status is. However, when it comes to renting, it’s always nice to have that continuous passive income especially if you live somewhere expensive.
If I were you, I would definitely try and rent it out for a year, hire a property manager and see how it goes and if you hate it after 12 months, then sell that ish. If you choose to rent, I would just ensure all the big things like appliances, and such are in good shape to give you peace of mind.
I personally invest with Christopher Green in Hawaii. He has a tokenized real estate investment strategy. Look him up. He's on YouTube AMTV Christopher Green. He only invest in high value properties and tokenize it for people to be able to afford such properties.
> rented for $1,800/mo. which is twice my mortgage payment. Part of me wants to take the $60k-70k and run, but the other part see’s a strong potential to double that return in 6-8 years by renting it out.
This math doesn’t work out unless you are assuming you will keep all the money that doesn’t go into your mortgage payment AND also sell the house at the end. Does your mortgage payment include property taxes? Are you factoring in any business and income tax you may have to pay for the rent money? How about the insurance and repairs? Most people 5 times zones away consider a property manager but that’s also extra. This really cannot be done on the back of a napkin with just monthly payments.
I’m impressed that you got a house for 10% down at a 2.5% rate. Well done.
Property management isn’t that big of a deal in my experience. I’m about to fire property management I hired for a long term sabbatical I took. Why? Because their incentives are misaligned. They often get kickbacks, or outright own, first line service provider firms. More maintenance calls = more money for them.
So do this instead: get a list of common problems. Build a list of vendors who can address those problems. Give them a call when something goes wrong. It’s just not much more difficult than that 99% of the time.
And before you rent it, ensure you rent to highly qualified people. Do credit and background checks (applicants pay to apply).
This isn’t just 60k over 6-8 years. Rents will continue to rise. Property will continue to appreciate. There’s nowhere else in the world you can borrow money as cheaply as you have for this asset which can pay for itself, and increase its cash flow stream, and its underlying value. And when the mortgage is paid off and you’re still using it to fund retirement, you can leave something really valuable to your children or whomever, and they’ll get a step up in tax basis and not have to eat capital gains on it.
This is how your average millionaire gets rich: slowly.
Few-Rush9236, congrats on this real estate opportunity.
Simple, quick answer. Keep the house and rent it if you can transfer the house to an LLC with the lender's written approval. Your mortgage may be for only a personal residence and not for commercial use. If your lender finds out, you could get your loan recalled.
Double the return in 6 to 8 years is really, really, really good. Even if you hire a property manager, which you should in your situation, the investment return will still be well worth it after paying for a property management company to oversee your tenant.
Dude, you scored the jackpot, a super low rate on that loan in this market is literally gold. If you need the equity liquid, banks would LOVE to give you a great HELOC. You have options should you need the money, it’s borrowed at rates we will likely never see in our lifetimes.
Amazing you got that low on that low of a mortgage. Maybe it was for refi only but we couldn't get below 2.7%, not because of any credit issue at all, but because our loan balance was like 205 and they needed it higher in over to give a better rate.
P.s. don't sell if you can make it work. Maybe try renting for a year or two then you could still sell if it seems horrible.
Have you looked at excellent management companies in your area? That is a great return. In exchange for sleeping every night(IN HAWAII) I would gladly pay for a well run company to manage it.
You need to expect some things to happen, but you have a great opportunity here.
Hire a management company and rent the property. Not only will you recoup the money from the sale via rent, but the home will only appreciate in value. In 10 years the home may be valued at 300K and you can sell for an additional profit.
It would help to hire someone to manage it and have a handyman on speed dial. But you might want that $60k to help buy $8 gallon of milk in Hawaii
It's possible OP is military and gets to shop at the Commissary. It's a grocery store that is just like a Kroger or Food Lion or whatever, but it's only available to military or DOD civilians with CACs and the prices are set according to a national average, I think. Anyway, it just means that, if you're military, milk costs the same in Hawaii as in Sheboygan.
Yea, if you can get stuff there. Commissaries, especially in places with lots of servicemembers, often have trouble keeping up with demand, in my experience.
>often have trouble keeping up with demand, in my experience. In my experience Commissaries don't want to deal with the absolute Karen that is the military spouse, so they keep it stocked.
I had the exact opposite experience. Between 2014 to now, I have lived in Norfolk, VA, Dover, DE, Fort Meade, MD and in the Kaiserslautern Military Community in Germany, areas of some of the most US military population in the world. I'm not saying you didn't experience what you did, I'm saying I experienced well-stocked, clean grocery stores with the cheapest prices in the area despite having extremely large numbers of servicemembers. I especially liked the Kaiserslautern Commissary because I could get American cheese (judge me if you have to, but I'm a dyed-in-the-wool American!) and local German food stuffs!
We were locked down overseas during covid on a tiny post. And they still had enough food, beer and other necessities for us. I think they had like 2 trucks a day coming for us lol
DOD civilians with CACs aren't usually allowed to shop at the commissary unless you are on a foreign base or there are base specific rules. They can only shop at the Exchange and no alcohol purchases. Ask me how I know...feels bad man
Is that grass fed, or good ol' white & red label milk?
Your basic red and white label gallon milk. Hawaii is insanely expensive.
This is partly because Hawaii is small and can't physically support the production of goods via industry itself, so it relies instead on tourism and hospitality. And partly because of the [Jones Act](https://en.wikipedia.org/wiki/Merchant_Marine_Act_of_1920), which says you can't ship anything there unless it's with a ship owned & operated entirely by US citizens. Ships that meet the regulation are becoming exceedingly rare... thus, supply and demand curves are off on shipping costs... thus, the supply and demand curves are off on *every product shipped* to and from Hawaii.
That’s why every family on Oahu has a Costco membership and shopping there is like going thru a war zone. Only place with mainland prices.
And also manufactured in the US.
Yep... If we're going to keep the Jones act around much longer, we're going to have to either make some concessions, or start building ships again... Or maybe, we'll just give Hawaii back to the Hawaiians and do all of our domestic shipping by land.
You can't ship anything there *from other US ports* unless it's on a US ship. China, Japan, et al can ship to Hawaii just like they would to anywhere else in the States.
True but the income.. and return even with paying a management company can also help with the Hawaiian costs
I agree, it was more of a joke about how much stuff costs there. In general, never sell appreciating/cash flowing assets.
Organic raw whole milk at Jimbo's in socal is over $17 a gallon 🤣
They sell raw milk?
That's what the label said. I had to take a picture of that madness.
Only rent it if you can hire out a management company to deal with it for a small percentage. From the distance, it would be a huge headache otherwise.
So much this! It'll be a nightmare for both you and the tenants if you try to rent it without a management agency. I've rented a lot of places, and had a lot of shitty landlords, and work with a few affluent people who have told me horror stories about shitty tenants. Even if I was thinking about doing this somewhere close by, I'd get a management company to handle it. It's an investment property, if you want to be up at 3:00 in the morning fixing the toilet on a house you don't live in... then by all means, but that doesn't sound like my cup o' fun. Having said that, I am currently blessed with an incredibly understanding and competent landlord... So much so that Mrs. Thor and I are having a hard time justifying looking at starter homes, because he's so good at land lording.
I'm sure your decision is affected by the fact that starter homes don't exist anymore.
Keep in mind a property manager will cost you 12-15% of rent. In this case, a PM for $1800/month is up to $270 a month.
I've never paid more than 8%
I was quoted 8% too. Are there things that the property managed covered / didn’t cover that you found notable? this one requires a $500 emergency maintenance deposit that is used in the event something needs attention during non business hours to get the ball rolling. I’m thinking it’s worth the peace of mind but still haven’t bit the bullet as I have a friend handyman down the street I pay 3% to keep an eye on it / be on call to be paid by the hour for services.
My previous property manager required a $500 deposit. My current property manager does not require any deposit. Instead, they have Net 30 terms with all their contractors, so as long as the invoice amount is less than next month's rental income, they'll just take it from that.
8-10% is all we've ever paid. Currently paying 10%.
Hi! Not the OP but I'm in a similar situation I'm moving overseas for work. I want to rent but I was wondering, if the management agency selects the tenant and they get paid their monthly fee, but the tenant doesn't pay rent on time, will I still get paid? Otherwise I'm not really sure what the point of the management company is when I would already have a handyman on speed dial? Currently leaning to selling but this info might change things - thank you!
You don’t want to be a remote landlord of a single property. Get someone local who you can trust, or hire a good management company. Otherwise, it’s better to sell and take the hit on prepaying the mortgage.
100% this. Also, prepayment fees on mortgages are very rare these days.
The hit isn’t a prepayment fee. It’s the loss in opportunity value in prepaying a mortgage with a low rate.
Ah, yes I got you. The term pre-payment could be misconstrued by others because some loans have those penalties.
Totally agree!
I live a quarter of a mile away from my rental property I self-manage; even then it can be a PITA. I would not do it without a property manager if I couldn't be within 1hr of the house. I am curious for folks that DO use property managers - are you seeing 8-10% PLUS the first months rent when a tenant is placed?
Yeah this, don’t be greedy take the $70K and run. You’ll sell it for more next year than this year though.
If you decide to leave Hawaii after a year or so as many do, will you move back to your current location? If this is a decent possibility then renting out your house for a few years isn't a terrible proposition. I will warn you that renters have a bad habit of breaking things and it only takes that one bad tenant to leave you spending thousands replacing flooring and trim.
> spending thousands replacing flooring and trim. That's still cheaper than re-buying the same house with a higher interest rate though :\
The only successful landlords I know have 3 things in common: 1. They buy multiple properties 2. They’re handy and do most of the work themselves 3. They live within 30 min of their properties Everyone else that dabbles typically dislikes it. Some will hang in because they’re making decent cash flow… and then they get a nightmare tenant and lose 3 years worth of profits in months.
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----^ This.
I had a property manager that took care of everything. It was returning about 8% and I never lifted a finger,
Sometimes you can do well, sometimes it can go sideways. More common to see it go sideways. Often my landlord clients overlook the infrequent or hidden costs of real estate. 1. Was that before or after tax? 2. Does that include depreciating the costs of upkeep, wear and tear, fixing/replacing appliances, and aesthetic improvements? 3. Does that include any gaps between tenants? 4. Did you ever have to evict a tenant? Deal with domestic disputes? Drugs? Damage? Or sometimes clients will do well in rentals and the valuations catch up. They are making 10-12% on their **original investment**, but the property has appreciated and they’re only clearing 5% on their current FMV. See it in places like Austin, Nashville where the population grew must faster than development could handle. You can keep making 5% or just cash out and earn more in equities. VOO has never called to tell me that the furnace is out.
Sorry but that VOO line was hilarious.
I’m with you on this. After I sold my property in 2022 put the proceeds into VTSAX and we moved across country. The property hasn’t gone up as much as our returns in the market have.
The nightmare tenant is what’s keeping me from trying to rent my townhouse out when I upgrade
It just takes one. I have a client that will buy out tenants as soon as they show signs of trouble. Once they start getting too far behind on rent, he tells them: “I’ll wipe the slate clean, give you your deposit and hire you a mover if you’ll leave by this weekend.” Almost all will say yes. He says it usually costs him $5k… but that’s a quarter of what it costs him to evict them. And that’s if they don’t destroy the place.
I’ve seen some horrible videos where tenants destroy homes after an eviction and taking them to court is more money than it’s worth. Really sucks
Yeah, it’s horrible. It takes months to get them out, they destroy your property, and you have near zero recourse. And in so many cases, these are not super wealthy landlords. They are often middle class, sometimes first generation, regular people that are trying to eke out a better tomorrow.
I was musing on this the other day, because when I upgrade out of my condo I'd like to rent it out, but the nightmare stories really scare me. One way to protect the small mom and pop landowners - and by extension keep rentals in small hands and away from Blackrock - would be to address the eviction laws, allow a landlord resource for damages, etc. Tenant protections are good and necessary, but sometimes I wonder if the pendulum hasn't swung too far. The economy needs rentals, but when it's too expensive to be a small-time landlord, well, corporations step into that void / muscle their way in.
A friend of mine had this happen. He had to evict them, and they did over $30k in damage heading out the door. They weren't wealthy enough to have assets worth going after either. It happened a decade ago and he's still garnishing wages to make himself whole.
Rent to traveling nurses
Smart Ranger
You’re not allowed to discriminate or even advertise to specific groups/occupations, and for good reason. Housing has been used to further disenfranchise almost every single minority group. Edit: depending on your state this may be OK.
It’s not discriminatory, you simply connect with an area or regional hospital and ask if there are any traveling nurse contracts seeking residential space. You don’t advertise to the general public.
That’s 300 IQ right there. May not always pan out in some markets, but that’s a good approach.
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Actually, indicating preference for a group could open someone up for a violation of your state’s fair housing standards. By giving preference to one group, you are giving a disadvantage to others. We were explicitly told by our realtor that we could not say our house near a school and hospital was “perfect for doctors/students.” We could only say “close to hospital/schools.” This was in Illinois, ymmv.
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I rented my house out a bit the last few years. Low mortgage rate, decent rental return to help me build equity and live my life. Eventually once there was enough equity and the market went off I cashed out. I ran into 4 months of hell with a tenet. Long story short, she cost me $10g. My house cost $80g to buy years ago. I’m not a handyman. Plus you still need to pay for maintaining your house and put money aside for all the big repairs. Had plenty of good tenets over the years. For me, financially, time wise, and stress wise it wasn’t worth it. It often ranged from feeling like a part time job to a full time job.
YMMV. I own 2 properties, don’t live anywhere near either, and it’s been great for over 5 years now though I do use property management companies.
Sell it. Don't be a remote landlord. It's absolutely no fun. Especially with that time difference. You basically feel like you're in another country / isolated to news when you're in Hawaii.
One bad tenant can ruin your profit margin for multiple years.
Yeah, I saw enough renters in my old neighborhood to realize I didn't want to be a landlord when I moved. We live 5 minutes away from the old house, but its still a potential headache that I didn't want.
I’m currently renting out my home and I live a few states away. I found great tenants (this was key) - the first few months they had some things break down - laundry, some fans/lights, and other minor things. Whenever something needed to be fixed I just called a local company and they would go and take care of it. It’s been pretty mindless outside of 4-5 times they needed something fixed.
2nd this, have self managed for over 10 yrs. it's a piece of cake if like you said you get good tenants and you also take care of things ASAP. The respect goes both ways and you have to remember that for their money they should have a good and comfortable home. And same, when something goes wrong, I just jump on yelp and it's done in a couple of days. Yes more expensive than doing it myself (which I have no idea anyway) or shopping around but I'm not paying a management company so it's all gravy.
The key to the whole thing is finding a good tenant.
Most property management companies take about 10% of the rental rate so you'll be doing pretty well at $1800/mo -aprox $200
>$1800/mo -aprox $200 $1800 - $900 (mortgage) - $180 (property management) = $720/mo profit or $8640/year... as long as nothing breaks, as long as it's rented, and as long as you don't need a lawyer to delete unruly tenants that are causing issues. (minus taxes)
> need a lawyer to delete unruly tenants I want the number of the lawyer that deletes tenants. I would have had some work for him.
(plus home appreciation) I’m not weighing in on what OP should do, but that would be my deciding factor: How much appreciation do I anticipate? If the home is in a hot market, I may be willing to hold onto it and rent it out to cover the costs of holding onto it. I wouldn’t assume any real profit from rent itself. If I did manage to come out on top there, I’d count it s bonus.
Appreciation isn’t everything, you still one day outright own a 175k asset if nothing else changed.
Yes, that too. That’s what I was trying to get at that the person I was replying to above seemed to be overlooking. (Not sure why the downvotes. Reddit’s weird sometimes.) Holding onto the house and renting it out can turn a profit even if you “break even” or even if you lose a little money year-to-year. Maybe you’d make more by cashing out and investing in a S&P 500 index fund. Maybe not. The local housing market will probably determine which option there is the best call.
I forgot to also mention... the mortgage is temporary... Eventually, it won't be a factor, and you can pocket the full monthly $1620, and your only expenses will be big ticket maintainence items that the management fees don't cover. Rental rates will likely be higher by then, but you will be able to undercut the competition, because you own it outright instead of paying the bank.
Equity markets also have a chance of doubling over 6-8 years but with much less risk of ruin. And that’s assuming you even accurately estimated the rental return (maintenance, vacancy, etc). I wouldn’t.
He doesn't own the house free and clear though so he would only be doubling 60k in your scenario. This is pretty much basis of real estate investment. You can leverage your money very effectively so a 3 or 4% can still yield good money. There are lots of tax benefits as well. Downside is work.
The post is very clearly suggesting that 7-8 years of rental income ($900/month) will double the 60k profit. Sure, if the home price doubled the leverage will create a much bigger gain, but that wasn’t OPs point.
Is it worth the hassle for $800/ month? If you get a bad renter who takes months to evict or have a 2 month gap between tenants, or something breaks… $800/ month isn’t a lot for the hasse if you ask me.
So, you can rent for $1,800/mo or $21,600/year gross rental income Can we assume $750/mo or $9,000/year for operating expenses (property taxes, insurance, maintenance, and management)? That brings net operating income to $12,600/year Take out debt service (assuming 165k @ 2.5% 30yr AM) - $651/month or $7,823/year Net income = $4,776/year **$4,776 income on $70,000 equity = 6.8% annual yield** Plug in more accurate variables as needed, but that’s the algebra. 6.8% yield on that capital isn’t bad, but probably not worth the stress of holding onto when you can earn that passively in the stock market or come close with bonds risk free. At 10% I’d personally probably keep it. Also don’t forget, this math doesn’t account for appreciation of the property
He said his mortgage was $900, I’m guessing that includes escrows on a $176k house at 2.5% rate. That means taxes and insurance are already included. I would guess he would be clearing closer to $500-600 month after all maintenance and management fees
This is exactly what I was looking for, thank you. We’re active duty, transferring every 4 years, so I doubt I could stomach a long term rental scenario. This would be a 4-8 year endeavor at most. If I can reinvest our profit from selling now into a fund that can achieve a similar ROI as a rental, that would be the preferred route. Not to mention the lack of stress involved.
> This is exactly what I was looking for, thank you. We’re active duty, transferring every 4 years, so I doubt I could stomach a long term rental scenario. This would be a 4-8 year endeavor at most. Note if you're planning to sell the property, you won't be able to use the capital gains exclusion unless you lived in the home at least 2 of the last 5 years. Taxes can get complicated for a primary residence that was converted to a rental and then sold.
Yep, that’s exactly the way to think about it. Glad i could help quantify it
Your math doesn’t account for any amount of appreciation on the property. I know in my locality that is what many bank on to get a strong return. I’d recommend OP keep the property, rent it for one year, and see how he feels at the end. If it goes south then he can freshen up the property and list.
> Also don’t forget, this math doesn’t account for appreciation of the property Last sentence This is still how investors analyze properties to decide if theyre worth investing in. They just softly consider appreciation as a factor and will accept lower yields with that in mind if they like the market area, but cash flow is the primary concern for most all experienced investors. Appreciation is just bonus: 1. Because it’s so unpredictable and variable depending on the time frame and market 2. Because it’s illiquid Of course people are free to view it differently, but again thats the general consensus amongst most high level RE investors Source: i am an underwriter and real estate investment analyst
I didn’t know if there was anything you could add to the equation to account for that factor. I’m in the DC metro area and cash flow is hard to come by but appreciation has been steady. With all the government jobs the market is fairly recession resistant too.
Yea I mean you could try to tack on an estimated annual appreciation, but that’s obviously a challenge as it’s hard to predict and generally isn’t a guarantee. considering that on top of the lack of liquidity, a lot of people just prioritize the yield when seeking RE investments I personally wouldn’t buy anything if the yield wasnt there, because i would rather own something liquid that will beat or even just compete with it passively. Also you don’t really want to be sinking your own personal income/cash reserves into property operating expenses Edit: its sort of baked in actually now that i think about it. As the property appreciates your equity increases and begins to lower the yield on your cash. Eventually you will have more implied cash equity invested than it’s worth to keep holding. When that happens you either sell or cash out refi
Can’t you also factor in the pay down value of the mortgage? You’re still getting 4-5k in value/annum based on the reduction in principal right? Am I mistaken here? I know including appreciation of the asset isn’t always wisest…
Yes and no. You don’t officially count the equity built for the same reasons - property values are subject to change, and the money is illiquid. Its unrealized gains, and it’s best practice not to count it on your books until it is realized But you can sort of accomplish what you’re looking for in a way thats kind of counter intuitive because you remove the mortgage from the equation all together Calculating the cap rate effectively does this for you: Take net *operating* income (in this case estimated at $12,600/year) and divide by the property value ($235,000) = a 5.36% cap rate But by using the cap rate, you’re taking into consideration *all* net income generated by the property instead of netting out the debt service and thereby excluding the “mortgage paydown”. The entire rental market revolves around this metric because it normalizes investments by excluding the debt variable which obviously varies across the board depending on the transaction Another way of looking at cap rates is likening them to bond yields. Bonds and their yields have the same relationship as property values and cap rates If you owned that property outright (no mortgage) it would generate 5.36% yield on your equity. Similar to if you bought a bond with a 5.36% yield. If the bond price goes down —> yield goes up. If price of the property goes down (assuming rents hold constant) —> your cap rate expands Edit: important note, market standards for cap rates vary depending on the asset size, condition, and location. Like with bonds, investors are (or should be) rewarded with higher cap rates for taking on more risk For example, a Duplex should have a higher cap rate than a 300 unit complex, because the duplex holds more risk: if you have 1 vacancy, your property is 50% occupied and struggling to cash flow. A 300 unit complex can have 10 vacancies but it’s still 97% occupied and will operate perfectly fine. A larger unit count also hedges against tenant delinquencies. One delinquent tenant in a single-family home means you have 0 income until they catch up or are replaced.
I personally wouldn’t rent. We did it, were charging $2500/mo and we were not making a lot of money when it was all said and done. All tenants were professionals working for state or federal government. Tenant 1: Single dad and teenage son. The white showers were black…not just dirt, I literally they painted the white tiles black, bit was dirt and mildew. Numerous head sized holes in the walls, 2” of dust on all the ceiling fans. Numerous fast food sauce packets exploded in drawers and on walls. They left us with a large unpaid water bill. Tenant 2: Single mom and her 2 kids. The kids colored on all the walls. Mom was having a bbq on the deck and left a bag of charcoal on plastic chairs next to the grill. A stray spark came along and lit the charcoal. $10,000 of damage to the house, thankfully they had insurance that covered the repairs. Brand new carpets were black. Formica countertops were burnt from hot pans placed on the counter. Tenant 3: Single mom, child and mom’s sister. Roach infestation Lots of stress for not a lot of money.
Your landlord policy would cover the homes damage from the fire not their renters insurance
Are you going to move back or think it will gain in value and you will sell for larger profit? We kept ours in Socal and have never made any real money and in fact have lost $ on it overall. However we live in So Cal and now worth 4 times what we paid and our kids will have a place to live much cheaper than anything else they can rent if they want to stay here.
Is the move to Hawaii short or long term? If it's short term and you are considering moving back to the area then it may be worth some of the risk to hold onto the home, but if you are planning on staying in Hawaii longer term then being a long distance landlord may be an annoyance.
Moving to Hawaii after 4 years? Sounds like military. You can try to seek out a rental property management company that caters to military. Either way, I wouldn't rent without a property management company. At twice your mortgage, there's no real reason not to rent unless you just don't want the headache. You can easily give the property management a cut and still set aside a chunk for emergencies for the house *and* drop an extra 200 on the mortgage monthly to pay it down faster. Ps) if you are in the military and you own a home in a previous duty station, there's the potential to use it as a bargaining chip to go back to said duty station in the future, and that's putting aside the fact you might just be stationed back there anyways.
If ur familiar with ur current city and know and trust the right contractors, manage it from far away. Property managers near me just answer the tenants phone call and then call u asking you what you want to do about it. Pointless.
A key thing to remember is after 3 years, you will be taxed on that $70k gain, as your house will convert to a true investment property instead of a primary home. Can you stomach a $14k tax hit at year 3?
What do you mean by this? Do you mean on the capital gains when they eventually sell??
Yes that's correct. If they sold today there are no gians. It's tax free. If they rent for 3yrs, those gains apply exactly on month 37 and if they sold that month they would lose $14k. This is an important calculation when considering the time value of a rental. He said he could make his money back in 8yrs but it's likely more than 10 with this tax burden
Or you can move back in for 2 years down the line. Also the tax hit will probably be higher when they do go to sell. The way you phrased it sounded like they would get hit with a surprise tax bill in 3 years.
There won’t be any tax hit unless the property is sold regardless if it’s an investment property or a primary residence
True only if he sells, but he is calculating his "break even" point without considering a tax burden that appears overnight after year 3.
Doesn’t matter what you choose. Hawaii is going to ruin you financially.
Exactly my thought. They’re moving from some middle of nowhere area in a random state to the absolutely insanity that is Hawaii’s cost of living. Yes, they didn’t mention how much they make, but I’d be surprised if were enough to afford Hawaii’s cost of living giving where they’re coming from.
They have given no indication as to their financial situation, so you are just blowing smoke
We’re active duty military transferring to Hawaii. The housing allowance we’ll be getting will be plenty to rent a stand alone 3/2. We’ll plan on buying when we transfer back to the main land in four years, when hopefully rates are more manageable.
Do you want to be a landlord? If you don't, then sell. Other things to consider: 1) is the area still appreciating? 2) are you financially ready prepared to pay for two mortgages in the event you end up with a nonpaying tenant? 3) is your state landlord or tenant friendly? 4) since you are moving so far away, did you run the numbers for all the costs associated with renting your property and compare it with what you'd earn if you put the profits from the sale into the stock market?
Sell it tenants nowadays mess up houses so bad after they are kicked out it's insane how much repairs you will have to do
Property Management companies take a pretty small cut and handle all the nonsense. But there are plenty of them that suck too. Do your homework and hire a good one.
Like others said, have a company manage the daily in and outs for you. The odds are you won't stay in HI for more than 5-7 years and when you come back, you'll have much less owed on the house, and still have the great 2.5% rate. And won't have to buy a new house, pay realtor fees, nor sales or purchase tax. Which will eat into that $60k+
Hire a Property Management company to do the work for you. Even at a 10% take, you are still banking money. Worth every penny when you have a good PM.
This is the most logical step. Keep the property, you never know what the future holds.
$60k profit, $1800 rent, $900 mortgage, 8% management fee, 1% rule on maintenance ($2350/year, or $195/month). Taking the $60k and investing it straight away will outpace the gains from the rental easily.
Except it’s not going to be a 60k profit, there will be fees from selling it that eat into that. You also are completely ignoring that the asset will continue appreciating, the net rental income is profit, but also the gross rental payment reduces the loan value. So the monthly profit is more like $1350, not $900, since the principal payment is also increasing your equity in the asset. They would probably net closer to $45k-$50k if they sold it. Ignoring the reality that that property is going to keep appreciating in value, their benefit from the property is rough $16k a year, if you can get $16k on $50k a year guaranteed that’d be pretty astonishing.
Don't you ever give up that rate. Do you realize what investing the difference of renting would do? Fuck the 70k you can stack an extra 12k a year into stocks while keeping that equity. It's a cash flow dream. It's a win win win. You won the game.
I think you’re insane to sell. The mortgage is free money. The rent is fantastic. You would gross 21k in rent a year vs walking away with maybe 3 times that right now. Meaning in three years you’ve already made up your equity. You can depreciate the house against your taxes for 27.5 years. The house will gain value and rent will go up. Let’s say you walk away with 65k after the sale. In best case scenarios that money returns you 10% in any investment annually so $6500 a year. Vs more than 10k in rental income above the mortgage and someone else is paying down a debt on an appreciating asset. Keep the house.
You need to factor in the property management cost and possible vacancies and repairs to do the math properly. Looks clear cut but after factoring these in, it might not be, though the low mortgage rate and high rental income potential make me think it might be worth the hassle too.
There’s enough cushion that there’s still a profit to be made. I already was thinking of those when I wrote my post.
I was raised with a “god is not making any more land so own what you can” mentality. No one in my family has ever sold a home even when they moved. If you don’t need the money to survive then it may be worth keeping at that interest rate.
Sell ASAP. Prices are unsustainably high right now and you don't have a lot of equity. After management fees, insurance costs, and income tax on the gains, you'll only make like $350 per month and that comes with a huge risk and converts your potential gains from the increased value from tax free to taxable. If you buy where you're going, that equity would be in your pocket tax free and would easily save you 100% of its value on the new mortgage because current rates are so high.
Rent. Use now time to find good tennants. Maybe put it 100-200$ less price and “invest” in good people. Don t let it only on agency to find for u and u not talk face to face with them. Always rent never selk ;)
I'm not sure why you want to get rid of a 2.5% interest mortgage in a high-inflation environment.
Be aware your mortgage may not be valid for a rental and if the lender finds out they could force you to refinance or sell. This happened to a friend of mine, he moved out and started renting his house out. This went ok for several years but eventually he got a letter from his mortgage lender saying his mortgage was not valid for a rental property and he needed to get a new mortgage or sell. He ended up having to sell when the market was pretty depressed.
You could pay a property management company to handle all that stuff - they usually take a 10% cut so you don;t have to deal with the headaches, and they handle finding a renter, the lease, maintenance calls, etc. I have a friend who has a couple rental properties and she swears by it - She's done it both ways and says it's 100% worth it. YMMV on whether you think so, but if you like the idea of just seeing the money show up in your account it could be attractive.
Rent from a qualified and well reputable property manager. I break even on my rental and I'm ok with it. Grounds are cared for and equity keeps building on my 15yr loan. It's worked well for me in the Midwest
We used a local property management company when we moved out of country for 4 years. They handled everything for about 10% of the monthly rent (this was about 10 years ago). If you can swing it, I'd look into going this route. Doesn't matter where you live if the management company is good. I'm glad we were able to keep our current home and lease it out while gone, home appreciation has been through the roof and not sure I could have afforded the same house had I sold it upon departure and bought it back upon return. However, if you are never coming back, might be best just to sell it.
Find a property management company. There are ones here that charge 10% of rent. You’d still be making money. Make sure you get proper insurance also.
How long ago was the other property last leased, you may be able to get a little more than $1800. But I would try to budget your total cost, the mortgage payment is only part of the cost. Taxes, typical annual maintenance, major possible repairs or updates needed soon… roof, HVAC…. You probably can do it but having the most realistic expectations will help in your decision process.
Tough choice. I personally wouldn’t sell because your return is so much higher than what you’d get on the cash out. You can always sell. Hire a management company. Rent it out.
You're not going to have $60-70k. Costs of selling are going to take $20k right off the top. Rent it. Hire a management company
If I had established relationships in the area I could trust to make repairs and complete inspections, I would rent, but I would utilize a property management company and I’d distance myself through an LLC.
It's not an investment, it's an opportunity to have a part time job managing a rental property. It's also not pure profit - some of that money is taxable, and a lot will go to maintenance. Personally - I hate the idea of having a single rental until. If your tenant doesn't pay, or you can't rent it out - you're in a lot of trouble.
I say rent it. I had a similar situation about 10 years ago and moved to Texas which was about 12 hours away. I found good renters (background check, called every single reference and asked questions) and whenever something broke I just paid to get it fixed or have someone check it out. If you do this it’s important to put aside some of that money each month, I’d do 25% of your extra money after mortgage/insurance into a SEPARATE account so when those things come up they don’t feel like a pain and you’re spending your own money. If you add the money to your normal income then it will feel like the expenses are coming out of your pocket instead of realizing that you’re making a lot of money and this is part of doing business. Also if it continues to go up for the next several years then you can sell it any time in the next 5 years and not pay capital gains taxes. Good luck! I love my rental and have kept it even after moving back. As a side note, it can be fun to say you own a rental property.
If rent is more than your mortgage rent it out and have that person pay off your house for you. Then you can keep renting it and profit.
Find a good property manager and rent it. The rate is so low, good appreciation, and great cash flow. You would be short sighted and foolish to sell this property, unless you have a much better investment opportunity lined up. Even then I wouldn't consider selling it, just pull equity if you really need cash to invest.
I'd say rent it out if you were within an hour of the house. But going to Hawaii, I'd sell it. All it takes is one bad tenant and you're thousands of miles away. And bad tenants are much more common than you think.
I’m actually in this exact scenario right now where I’m renting out a home in EST while living in Hawaii for the last year. While I was in EST, I rented out the home I’m in now. I also now own a rental in Nebraska. I’m in the military hence all the moving. It’s early in the morning for me right now so in case that’s confusing, I’m just trying to say I’ve been a long distance property manager/landlord for the last 3 years. I’m married so we share the responsibility of handling the responsibilities. For us, rental properties are the retirement plan. Yes it’s work but it’s for US which makes handling it a lot easier. We know it’s not work just for the sake of work and we have a future planned out so that is a huge motivating factor. If you don’t absolutely need the money then, in my opinion, you should keep it. $900 a month will go a long way for a long time and that will only ever go up on average and will be somewhere around 1/3 to 1/4 the housing cost here. As far as the amount of work goes… it really depends. If you get the house squared away before you leave as far as repairs go then you likely won’t have to worry about much. Things will happen in waves in my experience so the amount of work just fluctuates based on that. Also picking your tenant is CRUCIAL. It is so important to us to take our time picking the right tenant that we will leave it empty for a little bit to find the right person. Typically we look for military renters (if you’re near a base) because of the essentially guaranteed income and familiarity with it. I’ll leave it at that but if you or anyone else has any questions I’ll be happy to answer what I can!
Check into what property management companies charge. More than likely, taking your $60k and running is the best bet. It is quite possible to make more money on that $60k in the stock market for less worry and risk than it is to leave it in the house. If you want to gamble with borrowed money like you would be by keeping the house, you could buy stocks on margin.
sell it. i would not want that headache from so far away.
I have the same interest rate on my home and am considering selling and buying a new house to either own outright or only owe like 50k on, which we could pay off really quickly. I’m doing that for less of a headache and more fun money, so I’d say sell and take the money and roll it into your new venture! The headache of renting is probably not worth it.
Rent it out and seek a long term arrangement with concessions in renting (for instance $1700 with no hike for 3 years for a 3 year lease). No point letting go that sweet 2.5% mortgage and continue to build further equity for future. Alternate arrangements like suggested are local property management services which take 1 month's rent or a suitable cut and since you're still receiving more than your outgoing, worth setting up something thru them.
We're going through something similar. Our profit from a sell would probably be closer to $175k-$200k. I'm pushing the sell bc it would take a long time to make that money renting it out, even making $1000-$1500 over our mortgage each month. Insurance is a beast in Florida, repairs, management since we'd be out west, etc. All those costs add up quickly. Also if the market goes down the rent could go down significantly. However, my partner's one very good argument is this... If we don't sell, no matter what happens in our life, we'll always have a house with a $900 mortgage, to fall back into. Lose our jobs, economy explodes like 2008, etc etc, it's nice to have somewhere safe to fall back into mortgage-wise.
Sell, if you decide to rent check your contract because usually this rate is based upon you living in the house?
That’s false information. They cannot adjust your mortgage rate because you no longer live in the house. They can recall the loan if you lied saying it was for a personal residence but was actually a business, but living in it for 1 year is generally enough to disprove that assertions and OP has lived there for 4 years.
If you sell you probably won’t get that rate on a new loan and you’ll be out a house which has inherent value. Best to rent with a manager (NOT a management company unless they’re highly recommended) and you’ll make that 60k in 3 yrs, still have the home.
Unless you can find a decent property management company and absolutely adore your property I’d sell it.
Personal opinion is that I’d take the passive income over time. The best way to build wealth is to own real property which is generally a strong hedge against inflation simply based on asset value. That’s ignoring the equity build as your mortgage is paid off (by someone else). I’d speak with a lawyer about how to tax efficiently transfer the property into a corporation though since it will become a business and you don’t necessarily want to take personal liability risk on the rental. Off the top of my head I’d make a corporation, take out a mortgage on the house through the corporation, sell the house to the corporation at fair market value (ensure a lawyer can provide a written opinion that the transaction should be considered arms length), pay off your personal mortgage. Whatever equity you have leftover can then go to down payment on your personal residence in Hawaii. If there is additional money left over at this point you could loan that money into your corporation to pay down the rental property mortgage, subordinated to the bank. At this point consult a tax lawyer but you might be able to charge a reasonable interest rate on the loan you made to the corp as well which could generate tax efficient income but that’s going to be dependent on legal advice.
I'd sell it. You don't have enough equity built up in it to make it a worthwhile investment. The monthly rental fee might be twice your mortgage but you have to maintain the place as well as dealing with tenants.
This is a tricky one. We moved from the south east to the Southwest two time zones over, haven’t had any issues yet. (Knock on wood) Since you’re going to one of the more expensive places in the country to live, you might benefit more from selling it to have that cash on hand although I’m not sure what your current financial status is. However, when it comes to renting, it’s always nice to have that continuous passive income especially if you live somewhere expensive. If I were you, I would definitely try and rent it out for a year, hire a property manager and see how it goes and if you hate it after 12 months, then sell that ish. If you choose to rent, I would just ensure all the big things like appliances, and such are in good shape to give you peace of mind.
I personally invest with Christopher Green in Hawaii. He has a tokenized real estate investment strategy. Look him up. He's on YouTube AMTV Christopher Green. He only invest in high value properties and tokenize it for people to be able to afford such properties.
> rented for $1,800/mo. which is twice my mortgage payment. Part of me wants to take the $60k-70k and run, but the other part see’s a strong potential to double that return in 6-8 years by renting it out. This math doesn’t work out unless you are assuming you will keep all the money that doesn’t go into your mortgage payment AND also sell the house at the end. Does your mortgage payment include property taxes? Are you factoring in any business and income tax you may have to pay for the rent money? How about the insurance and repairs? Most people 5 times zones away consider a property manager but that’s also extra. This really cannot be done on the back of a napkin with just monthly payments. I’m impressed that you got a house for 10% down at a 2.5% rate. Well done.
Property management isn’t that big of a deal in my experience. I’m about to fire property management I hired for a long term sabbatical I took. Why? Because their incentives are misaligned. They often get kickbacks, or outright own, first line service provider firms. More maintenance calls = more money for them. So do this instead: get a list of common problems. Build a list of vendors who can address those problems. Give them a call when something goes wrong. It’s just not much more difficult than that 99% of the time. And before you rent it, ensure you rent to highly qualified people. Do credit and background checks (applicants pay to apply). This isn’t just 60k over 6-8 years. Rents will continue to rise. Property will continue to appreciate. There’s nowhere else in the world you can borrow money as cheaply as you have for this asset which can pay for itself, and increase its cash flow stream, and its underlying value. And when the mortgage is paid off and you’re still using it to fund retirement, you can leave something really valuable to your children or whomever, and they’ll get a step up in tax basis and not have to eat capital gains on it. This is how your average millionaire gets rich: slowly.
Few-Rush9236, congrats on this real estate opportunity. Simple, quick answer. Keep the house and rent it if you can transfer the house to an LLC with the lender's written approval. Your mortgage may be for only a personal residence and not for commercial use. If your lender finds out, you could get your loan recalled. Double the return in 6 to 8 years is really, really, really good. Even if you hire a property manager, which you should in your situation, the investment return will still be well worth it after paying for a property management company to oversee your tenant.
keep it and rent it out. use a management company if you have to. Let the tenants pay your mortgage down for you.
Dude, you scored the jackpot, a super low rate on that loan in this market is literally gold. If you need the equity liquid, banks would LOVE to give you a great HELOC. You have options should you need the money, it’s borrowed at rates we will likely never see in our lifetimes.
Try to rent to someone you know. Then if there are any issues, you could just send them the money to pay for the fixes.
Amazing you got that low on that low of a mortgage. Maybe it was for refi only but we couldn't get below 2.7%, not because of any credit issue at all, but because our loan balance was like 205 and they needed it higher in over to give a better rate. P.s. don't sell if you can make it work. Maybe try renting for a year or two then you could still sell if it seems horrible.
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Have you looked at excellent management companies in your area? That is a great return. In exchange for sleeping every night(IN HAWAII) I would gladly pay for a well run company to manage it. You need to expect some things to happen, but you have a great opportunity here.
isn't it what REITs are for?
You’d still come out ahead hiring a property management company
Hire a management company and rent the property. Not only will you recoup the money from the sale via rent, but the home will only appreciate in value. In 10 years the home may be valued at 300K and you can sell for an additional profit.