Okay, so if you rent the house out and in 2009 (only 2 years away) you sell it for LESS than 1.29 mil, will you be upset? Because, really you should do some research on what people are saying about the economy. And alot of people believe that we will be in a very, very long recession. Loan companies are becoming very stringent on their requirements. Jumbo loans are now beginning to rise in interest rates (much higher than "regular loans"). The San Francisco Bay Area (highest priced property in California) is starting to feel the pinch. Hawaii will be next. Doesn't look good for home selling or buying in the future.

So, the question is . . . do you want to break even today. Or do you want to gamble on your future?

Is the gamble worth the problems of being a long-distance landlord. Or do you want to move on with life and look for other opportunities to make a gain (free of this albatross around your neck)?

Your call.

Here is a link that might be useful: I like reading about people struggle to make millions

I'm not sure if I understand all the details. Are you saying that when the loan adjusts you won't be able to afford the house? I don't understand why you bought and renovated if you knew you couldn't handle the upcoming negative cash flow. If that is the case, you need to get out of it while your real estate market is still warm. How will you feel in two years if the house decreases in value? The rental market may also goes soft if homes become more affordable.

A few months ago someone else from Hawaii posted about building there. From what I looked at using realtor.com, it's hard to say anything about the market there as it's not over here.

I also don't understand why you bought it unless you were hoping to turn a profit; but the market is going down & it's not looking like a good investment. From what you posted, I'm getting the feeling that once the loan changes, you may not be able to keep it for long unless the market changes. Only you know how long you can hold out. It sounds pretty risky to me.

You might do better posting at a Hawaii specific board; you'd have the advantage of speaking with locals.

It sounds like you over leveraged. Astute real estate investors do not normally purchase SF rental properties on IO loans that will put them $1K/month underwater. The whole idea of a rental is to let somebody else pay your holding costs. Were you betting on appreciation to bail you out when your loan converted? If so, you placed a bet & now you're questioning whether you should pull your money off the table before the dice stop rolling.

The answer is simple & easy. There should BE NO EMOTION IN investing $1,180,000. If you can't afford to take the $1K/month hit then sell now. Why did you take an IO loan if you knew you couldn't handle P&I payments? You were speculating. Please don't become another statistic in the mortgage meltdown. Sell the house & next time buy something you can afford.

/t

Thanks - the reason I wrote was to get objective perspective - we are way to emotional on this.

FYI - I didn't realize I would be asked to justify past decisions - Don't want to sound ddefensive - but here goes. I was transferred to Hawaii for my job, we werent sure if we would like it there so refinanced the CA house to use equity as down payment for the Hawaii house. We then rented out the CA house. Always knew that we couldn't afford both over the long haul - but got 5 year fixed IOs on both with great rates to buy us time to figure out where we wanted to be. We still have three years left (not two). The renovating was about me thinking I was keeping the house. (however with the market shift - selling would have been a bear at that price point without having the house in good shape).

Job picture changed - I left my company to come back to CA and move into my CA house.

The emotion comes in with really believing that over the long haul - this house / location will really appreciate big and we will probably never have the same opportunity again. (not to mention I love the house and living in Hawaii). In addition the IO loan won't put us underwater for three more years - until then we will be positive.

I wasn't betting on the rental market, really just figuring out where we want to live. Now we are struggling with "letting go". I never went into this with an "astute investor" mentality (or I wouldn't have two expensive houses - we would be at the other end of the market for rentals).

In addition, I have ready much about the economy - With the current issue with Jumbos - I am concerned that this may not be the moment to put this house on the market. I feel certain that the Jumbo market will open back up eventually - but the next six months or so may cause more pain.

Thanks for helping me take the emotion out

If you decide to rent, beware that renters do not keep up landscaping or yards. So whatever landscaping was redone, prepare for it to die unless it can stand no care at all while the home is being rented.

Also - prepare for possible interior repainting, recarpeting and other interior improvements that will be needing after the place has been rented.

I had redone a home and rented it out. Had to replace carpet that was only 2 years old once the renters moved out. Also had to clean interior walls (lucky, used semi gloss) where the renters had gotten the walls dirtier than most people could have done in 15 years. Kitchen cabinets had so much dirt that cleaning all that grim took off some of the finish.

My vote = sell now.

Thanks - I will be including a gardener in the rent to be sure that the renters don't killl the yard. And, you're right what renters do to an interior is shocking - especially dirtying the walls. My last renters in the CA house got the walls just filthy.

I think that I have made my decision to sell though.

NOW- the arguement with DH about leaving the house furnished and looking great while on the market or empty. He tells me it won't matter if it's furnished or not - I say he's dreaming, it needs to be decorated and look good. He is correct, camping in our new home totally stinks - however I think that at the end of the day, we will be compensated for the inconvenience.

We own a condo on Maui that has performed very well as a vacation rental. This has been more profitable and easier than any SFH long-term rental we'd owned. We employ a local agency to look after the place, arrange cleaners, register guests, etc. but we do the vast majority of bookings ourselves via VRBO.com We also use the condo every February, saving us $5K rental and making our travel a tax deduction. If your house could be licensed as a vacation rental would this work for you?

The Maui market has declined a couple percent since the end of 2006. We considered selling then but decided to hold onto our "piece of paradise" and wait out the looming recession. Our situation is different from yours, of course, since we bought in a market dip in 2001.

If vacation rental is a possibility for your property, would the numbers work to let you bet the market will go up before your P+I begins? Hawaii tends to lag the mainland by 12 - 18 mos.

BTW, the first thing I did when we bought was to rip out all carpeting and tile the floors! Easy to send out area rugs for cleaning or to replace them.

I moved back to the mainland from Honolulu a couple of years ago so I have some perspective on this, which boils down to, sell it and be thankful not to have to worry about it. We sold our house in Kahala and have not regretted it for a minute.

1. Hawaii is very hard on houses - weather, humidity, bugs, etc. No matter how good it looks now it won't look nearly as good in a couple of years, especially if you're not there taking care of it personally.

2. Services in Hawaii are not the best, so even if you have a management company, gardener, etc., they're not going to keep it up like you would.

3. Hawaii is on a different economic and real estate cycle from the mainland, but is not totally divorced. It is shaping up to be a difficult next couple of years, hard to imagine the market not being flattish at best.

4. Be thankful to have had the opportunity to live in Hawaii but also to have the opportunity to come back to the Mainland. Look forward, not back.

Good luck!

I really appreciate the feedback from everyone but most especially those that get the Hawaii differences!

I can't get licensed as a vacation rental and I don't think I could make the $$ work. Being a mile from the beach is a liability for that market.

Thanks again!

In that case, establish a realistic selling price and unload it.

We would never have bought on Maui except that we were able to buy low and do a 1031 exchange after selling a rental in Illinois. It's worked out much better than I'd hoped, but it's an ocean view condo, not a house!