How to Buy Rental Property in Hawaii
How to buy a rental home in Hawaii
I'm asked at least once a week about buying a rental in Hawaii, probably because we have very high rent rates. People always want to know how much they will have to put down on their Hawaii Kai house in order for the rents to cover the mortgage.
Well first things first, you have to find out how much the rents in that area are currently going for. But where do you find rental homes in Hawaii? Most of them are on Craigslist and in the paper, the Honolulu Advertiser, so check those 2 websites to see how much you can get for your rentals. I like the Advertiser's site better because the properties are broken down into areas of the island.
So after you find the rental rates of, let's say, Single Family Homes in Hawaii Kai, look up current mortgage rates using a site like Bankrate or Etrade.
What you'll find is that in Hawaii you'll have to put about 30-35% down on an average property to cover the mortgage and the taxes. Fortunately, our property taxes in Hawaii are very low. Even though everyone here is griping all the time about rising tax rates, they are much lower than rates in California, where you pay about 1.25% on the purchase price. That equals about $7k a year on a $600,000 house in CA. In Hawaii that same house might have a $2k a year tax. Huge difference.
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Now factor in the vacancies you are bound to have, probably equal to around 1 month a year or so in today's market. Even you if you have good renters, eventually they'll move and it takes time to clean up a place and find new renters. So 1 month a year vacancy is not too bad.
Then you have to factor in the repairs and expenses of keeping the place. Don't think your renters are going to treat the place like you would. Just assume they'll trash the place and that you'll have to recondition it every few years. So factor in about 10% of the annual rent into expenses, because new flooring every couple years is probably a must.
After all that, you see that owning a rental in today's market can be expensive, but don't forget you get a huge depreciation write off on your taxes, along with all those expenses too. Buying a rental is not a simple matter and it requires a lot of math before you can make certain that itÂ´s going to work. In the end a newer property is probably better because of less repairs and higher rents.
If you're looking for a rental in Hawaii, call me and I'll help you through all those important calculations.