Owning a Condo in Kailua

You can buy a condo in Kailua right now for about $350-400k. That's a 2 bedroom condo of about 850sqft. I sold one in "Hokulani in Kailua" last month for $365k, which was a good deal for a 2bedroom condo within walking distance of Kailua town, and about half a mile to the beach.

Craigslist has some for rent in this complex for around $1800/month. So let's do the math...

(Pay attention!)

You buy it for $365k, and with 20% down your payment should be about $1750/month plus the maintenance fee which is $368/month right now. Taxes are about $100. Total payment is about $2218. Your 20% down was $73k.

Now your monthly negative appears to be about $468, plus some expenses for repairs and vacancies. So let's call it $600/month of negative cash flow. But wait!

You depreciate 80% of the cost basis over 27.5 years, which is what the IRS allows, and you get $1061 of depreciation a year. AND the negative cash flow is a deduction for most people, usually up to $12,500 per year per person. Double that if you're married.

So in this scenario you get a $8261 deduction at the end of the year, and if you're in the 35% tax bracket, you save $2478 in taxes. (This is all totally hypothetical. If you base your taxes or a purchase on this example, well you need a shrink more than a Realtor.)

So your $7200 negative cash flow is actually more like $4722/yr, or $393/month. BUT WAIT! The rent is going to go up at some point, probably about 5% per year forever!

What is the point?

For $393/month or less, you can invest in a condo in Hawaii and own it, in theory, forever. PLUS, you can deduct the cost of your trip out to Hawaii to buy it, maintain it, work on it, etc.

Now some day, I'm nearly sure that your condo is going to be worth double what you paid for it. Perhaps it will take 50 years to double, but all you've paid is $393/month. And also, you've paid down your mortgage every month, so at the end of 30 years, you own it free and clear.

If this was all too complicated for you, here is the bottom line. Investing in a condo in Oahu is actually a lot cheaper than you think, and will probably make you a millionaire someday. And even though it's negative cash flow now, it probably won't be for long.