Buying Advice

The Rule of 3 For Home Buying

What is the Rule of 3? The Rule of 3 is simply this: You can get a good general estimate of your property affordability by multiplying your gross household income by three. For example, if your household income is $150,000, the Rule of 3 states that an affordable property for you would cap at about $450,000.

How Does the Rule of 3 Play Out in Hawaii?

Like in many areas, Hawai is an exception to the rule. Over 73% of the population lives in property with an estimated value higher than three times their estimated gross income. Suffice it to say that the best places to live come at a premium. And, Hawaii real estate does come at a premium. A big premium.

Many of the reasons to live in Hawaii are self-evident. To begin with, you have year-round sun, sand, and surf. However, Hawaii’s natural beauty isn’t the only thing it has going for it. In addition, it’s probably best to mention at least one special factor that makes prices higher in Hawaii than they are in other areas of the country. Let’s start there.

Because Hawaii is a uniquely situated Pacific archipelago thousands of miles from the U.S. mainland, all materials have to be flown in or brought by ship, which means it costs more to build homes on the islands. In fact, the median property value is more than six times the median income in the state.

But the story of Hawaii’s residents isn’t all bleak. To find out why, check out the quality-of-life rankings from U.S. News & World Report below. The beaches do help, but there’s much more to the story. Out of the 50 U.S. states, Hawaii ranks 16th in terms of natural environment (no surprise there) and 12th in infrastructure. Most impressively, Hawaii ranks fifth in terms of (low) crime and first in healthcare.

In addition, in U.S. News’s Best U.S. Cities rankings (based on the largest 125 U.S. metropolitan areas), Honolulu checks in at number 60 (as well as scoring a perfect 10 out of 10 on the U.S. News & World Report Real Estate Desirability Index), in large part because of the weather. The high temperature never dips below 80 during any month of the year.

Hawaii Positive Scores

  • #1 for Health Care (U.S. News & World Report)
  • #5 for Crime and Corrections (U.S. News & World Report)
  • #12 for Infrastructure (U.S. News & World Report)
  • #16 for Natural Environment (U.S. News & World Report)
  • #24 for Quality of Life (U.S. News & World Report)

Yes, Hawaii does come at a premium, but there are many good reasons why. What’s your reason? I would love to hear from you. Please share your reason for living in Hawaii. I’d also love to give a big shout out to Clay Closson of Rocket Homes for sharing the Rule of 3 with me.

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September 4, 2020

Although my income is only 30,000, I was preapproved for a 175,000 loan .How can that be right?

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