Most service members are stationed on Oahu for 3-5 year tours. As I discussed in a previous blog article, many choose to buy when they arrive instead of throwing away their BAH on rent. At the end of the tour, they can decide whether they want to sell the home, or rent it out.
Image courtesy of digitalart at FreeDigitalPhotos.net
What factors should you consider if you’re PCS-ing from Oahu?
1. Will you ever return to Oahu? If you think you’ll retire to Hawaii or be stationed on Oahu in the future, keeping the home would be smart. Home prices continue to rise an average of 4 to 5% per year, so your current mortgage would be a bargain while you’d likely collect higher BAH on a future tour.
2. If you think you’ll want to rent out the house, discuss the rental market with a property manager. If you need a resource, contact me. You’ll need to calculate whether you can collect enough rent to pay your mortgage and association dues, maintain the home’s condition, and pay any property management fees.
Ryan Okamura, of Hawaii Executive Realty LLC, notes that “Hawaii does require owners who are absent to have an onsite manager available and able to respond to emergencies immediately. Although a lot of owners see the management fee as loss of income, having a professional handle the rental matters really helps save time, which as we all know is something we cannot replace or buy.”
Image courtesy of renjith krishnan at FreeDigitalPhotos.net
3. Decide how involved you want to be once you’ve moved. Off-island owners must designate a resident of Oahu as the POC for the home, even if that person is not a professional, as outlined in this linked Hawaii Department of Commerce and Consumer Affairs publication. A trusted, reliable, and permanent associate may assist you, or you can hire a property manager to take care of all but the major decisions. Property management rates usually run 8%-20% of the monthly rent and generally cover services such as advertising, tenant screening, showings, lease preparation, execution and enforcement, maintenance and repair coordination, and periodic inspections.
4. Talk to a tax advisor about the tax risks or benefits of maintaining a rental property. You may see some tax benefits, such as depreciation when you sell the home. You may also continue to receive the mortgage interest deduction if you don’t buy a home at your next station.
Lisa Blanchard-Antus, Registered Tax Return Preparer with the IRS, advises that “the total income you receive from the rental property minus all your expenses is the amount you would pay taxes on” when filing. Things like improvements (new carpet, appliances, landscaping, etc.) and expenses paid to a property management company can be deducted, as well as mortgage interest, property taxes, tax preparation fees, utilities paid by you, insurance, and survey and legal fees.
Of note, when you sell the home, you do have to account for the depreciation you took when the home was being rented, but if you are military and moving due to orders, you will not have to pay taxes on the profit or loss from the rental income.
5. To explore selling the home, contact me to get a market evaluation of the property’s current expected sale price. I provide a detailed list of the fees involved in selling the home, such as commissions, title and escrow fees, and transfer taxes, so you have a reliable expectation of the bottom line before you list the home for sale.
6. Consider your next duty position. If you’ll be deployed most of the time or would not want to buy a home at the next location, it’s easier to keep your Hawaii home. If you plan to buy a next home and you used a VA loan for the current one, you’ll most likely need to sell it to restore your VA Certificate of Eligibility.
As you can see, there are several considerations to weigh when making this decision. Contacting a real estate professional can help set your mind at ease about being fully informed as you move forward.