Earl Lee, Managing Partner

What's different about buying a home in Hawaii?

Perhaps on the surface the process is very similar to buying a home on the mainland, like many metro areas on the mainland, the Honolulu Board of Realtors has an MLS and the public has access to, and it also subscribes to the various rules and regulations of National Association of Realtors regarding standards of conduct.  The biggest differences are in the land tenure, unique terms and custom and practices as well as land use as it affects the environment.  This is where having the right real estate agent familiar with our local customs and practices is essential.

What Is The Difference Between City and County of Honolulu and Oahu?

The City and County of Honolulu is the entire island of Oahu.  We also have a number of city designations but these are not incorporated so they do not have a mayor or separate governing body.  For example the city of Kailua does not have a mayor or governing body and all of the property taxes are paid to the City and Count of Honolulu.  To make it a little more confusing we also mix and use the neighborhoods and these city designations interchangeably.  For example Kailua as a number of neighborhoods such as Lanikai, Kalama, and Beachside.  Confused? this is why using an experience real estate agent is important.      

What is Hawaii Leasehold Property?

While many of the single family properties have converted to fee simple there are still a number although declining of single family homes that are leasehold but there are many condominiums that are still leasehold.  There are several reasons that leasehold was predominate in Hawaii in the early 1950’s which and the attached will give you additional information.  The basic terms of a leasehold property is the home owner has a lease on the fee simple property where by a monthly or annual lease rent is paid for the right to have your home on this property.  The general terms were 55 years with the first 30 years at fixed lease rents either at intervals or for the entire fixed term of the lease.  At the end of the first fixed term (usually 30 years) the lease rent was renegotiated based on the then fair market value of the fee simple property and a rent percentage calculator say 4%. 

The rent re-negotiations became fairly controversial as the originally values of the properties when the leases were originated were much lower compared to a value say 30 years later.  For example it was not uncommon to have renegotiated lease rent in relationship to the original term be say 12 times greater.  For example if the original lease rent was set at $20 per month, and now the property was valued at $1,000,000 the new lease rent would be, based on a 4% lease rent calculator, $4000 a year or $330 per month.  Further depending on who the lessor at the end of the lease the property reverted back to the Lessor.  If you are contemplating a purchase of a leasehold property make sure you read the land lease document thoroughly and understand what the rent escalators and end of lease provisions are.  There could also be land use covenants that would also restrict your use and what you could build.  Financing is also an issue. 

Hawaii Home Valuations

Hawaii real estate is considered expensive when matched against other localities especially in comparison to the Midwest, the Southeast and the Southwest.  This is higher valuation is driven by an  availability of buildable land because it’s an island, secondly restrictive zoning and building requirements, thirdly, almost all construction materials in a home must be transported into the island from somewhere else, and lastly the high cost of labor contribute to our higher costs for housing.

Value of Land in relationship to the physical improvements is generally the opposite of what most mainland buyers are familiar with as two thirds of the value of a property is in the land and one third in the physical improvements.  Thus even if the homes are about the same price as those sold in for example the Bay area when most buyers see the physical improvement they are often disappointed as the physical improvements do not compare favorably with what they are accustomed. 

Further because our climate is less inclement, the quality of construction is not as sturdy as it would be for a home built to with stand a brutal winter.  We obviously don’t have those weather extremes which is why you come to live here but given more moderate temperatures, homes also do not have to be as large and more time is spent outdoors.

Real Property Taxes

Are a lot less when compared to most locales on the mainland based on the tax rate.  Here an owner occupied Home with a value less than $1,000,000 will have maximum property taxes in the $3800-4000 range per year.  This is significantly less than in a lot of major metro areas.  The flip side of this is while real property tax rates are lower the home valuations are higher. 

What is a TMK?

Tax Map Key is unique identifier in addition to a street address and is used to identify the property for tax purposes but is also unique to each property.    

Vacation Rental Property in Honolulu

If you are buying a vacation rental property several things must be considered.  First, many condominiums as well as neighborhoods have minimum rental periods which can be in conflict with the owner’s desire to move to short term vacation rentals.  Violation of these rental restrictions depending on the condominium can be costly or if violating zoning or land use ordinances can result in fines among other remedies.  All vacation rents are subject to a Hawaii General Excise Tax of 4.72% and a TAT Rental tax of 9.25%.

Selecting the right real estate agent is essential in understanding what purchasing a home in Hawaii is like as well as preparing you for your new Hawaiian lifestyle. Contact me