Buy vs. Rent – Kauai SFR

Mortgage rates are going up. Home prices continue to rise. For those that think they missed the boat, you are sorely wrong. If you are renting, you are paying someone else’s mortgage payment. With a projected shortage of homes in Hawaii for the next two decades, home prices will only continue to rise. Yes, we may see some fluctuations but if you look at the trajectory, it is up.

This week I would like to share with you a 10-Year comparison of continuing to rent, or buying a home on Kauai. The benefits of buying so outweigh renting, after you see this, you would be crazy to keep paying someone else’s mortgage instead of your own.

Here’s the simple comparison. If you were to buy a home on Kauai right now, the median sales price is $730,000. If you were to rent the same home, you would pay $2,950 per month.

For the financing, we are using an FHA loan with a down payment of just 3½%. To get into this home, you would only need to come up with just under $30,000 in total, which includes the down payment and estimated closing costs.

On the rent side of the equation, we’ll use a starting rent of $2,950 that has an annual increase of 4%.

The comparison ends with the homeowner selling the property after 10 years. This analysis is so complete it takes into account everything during the time of ownership. We then look at the costs associated with selling after the 10 years. The analysis takes into account the taxes on the sale of the property, and even the real estate sales commission.

What’s the result? With less than $30,000 out of pocket when purchasing, in a short 10-year period, the person that is buying versus renting will walk away with $411,933. The renter only rented, so they have nothing to show for their 10 years, other than paying off someone else’s mortgage.

You skeptics may be asking how much income one must have in order to buy a $730,000 home. After all, we are talking about nearly three-quarters of a million dollars! Here’s the answer: $99,750 in annual income. While the average annual family income on Kauai is just around $70,000, that’s the average. There are plenty of families on Kauai with an annual household income of $100,000. For those with sufficient income, the merits to buying greatly outnumber renting – period.

If you would like a customized buy vs. rent comparison, please let me know. We have the data for all the islands in all different price ranges, down payments, loan programs, and how they compare you what you are currently paying in rent.