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The Advantages of Hiring a Management Company for Your Rental Property

Purchasing Hawaiian real estate for investment purposes is usually a wise decision, as the demand for such rental properties is strong and is expected to remain so. For all the financial advantages of investing in rental real estate, there is also one disadvantage, and that is property management.

If you do not live in the area or are not particularly handy, taking care of the property becomes a difficult, if not impossible, task. Fortunately, a property management company can take care of your rental for a reasonable fee, so that you can enjoy both the income generated by the rental and its appreciating value.

Hawaiian Law Requiring Property Managers

If a landlord does not reside in Hawaii, or lives on a different island from the one on which the rental property is located, state law requires that the landlord hire a property manager based on the same island as the rental property.

The Role of the Property Manager

A property management company can take care of all the rental unit’s needs from beginning to end, including the screening of potential tenants. Property manager duties may include:

  • Rent collection
  • Routine inspections to ascertain the condition of the rental
  • Maintenance and repair services
  • Financial reporting, so owners can keep track of their investment.

If problems arise, such as the need to evict a tenant, the property management company will also pursue the matter in court on behalf of the owner. Once the tenant is evicted and gone, the property manager will make any necessary repairs and renovations and work to rent the property again as soon as possible.

What to Look For in a Property Management Company

There are certain essentials required for a good property management company, and you should conduct your research as thoroughly as you did when buying your rental home. First, you want a company deeply familiar with the Hawaiian real estate market. Second, you want a company with a strong property management track record.

When deciding upon property managers, ask the following questions to figure out the best fit for your situation:

  • Are you a licensed realtor? In Hawaii, all property managers must hold a real estate broker’s license. Without such a license, a company cannot engage in the process of renting out properties owned by another entity. Check with the Hawaii Department of Commerce and Consumer Affairs to verify such licensing.
  • How many properties does the company manage, and how long has it been in business?
  • How often does the company report to the landlord?
  • What are the record and account-keeping methods used?
  • What is the property management company’s liability?
  • What are the fees?

In addition, make sure you receive a list of all duties the management company performs, in writing. It is often possible to negotiate certain duties if they are not part of the standard property management agreement.

 

Contact Us

If you’re looking to buy or sell a home, find a rental property or rental property manager, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

October 28, 2019

Earnest Money: What Buyers Need to Know!

What First-time Buyers Need to Know About Earnest Money

If you’re in the market for your first home, you’re paying a lot of attention to your budget and what you can afford. After taking into account the down payment, closing costs, moving expenses, home inspection fees, and home insurance, you might think you have a pretty firm grasp on your homebuying costs. However, if you’re leaving out earnest money, you’re in for an unpleasant financial surprise.

What is Earnest Money?

Earnest money is known by several different terms, including good faith money and escrow funds. The earnest money is paid after the property owner accepts your offer on the dwelling. This good faith money shows you are serious about completing the transaction. The downsides to earnest money is that you could lose the escrow funds if the loan doesn’t close, depending on the conditions in the sales contract. When the closing does occur, the earnest money is credited toward your down payment and closing costs. However, if you simply change your mind and decide the house isn’t for you, the earnest money is forfeited.

You’ll need cash for earnest money, which can run as much as 3 percent of the purchase price. If the housing market is very hot, the earnest money is often a higher percentage. In some cases, earnest money is a fixed amount.

Protecting Your Earnest Money

One of the best ways to protect your earnest money is by obtaining financing before you start house-hunting. No one wants to find out they do not qualify for a mortgage after paying earnest money to a seller, or that the amount for which they qualify is much less than they thought.

Make sure the real estate contract contains a contingency clause stating that are you are able to obtain financing. With such a clause, failure to get a mortgage means at least you should receive a refund of your earnest money. Without this clause, the seller probably can keep the funds.

Additional Contingencies

Failure to obtain a mortgage is not the only contingency the homebuyer should have included in the contract to get their earnest money back. All financed homes require an inspection and appraisal. Properties that may appear in good condition to the layperson may turn out to have serious deficiencies once a professional inspection takes place. While you might renegotiate the sale price with the homeowner if repairs are costly, you may also decide the extra expense is not worth it. A contingency clause regarding such issues should allow you to get your earnest money returned.

A lower than the agreed-upon selling price in an appraisal is a different story. Lenders are not going to finance a property for more than it is worth. Since a low appraisal is going to prove an ongoing problem for the seller, most will lower the price for the buyer. If the seller won’t budge, a contingency clause regarding appraisal price should permit the refund of your earnest money.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

Hawaiian Holiday Rentals

Renting Out Your Home During the Holidays

The holidays are fast approaching, and perhaps you are heading to the mainland or elsewhere to celebrate with family and friends. There are plenty of people heading to Hawaii to celebrate or enjoy a vacation, and many of them would prefer renting a home rather than staying in a hotel. There’s no question the demand is there, but whether you can rent out your home for the holidays legally depends on where you live.

Where Vacation Rentals are Permitted

On Oahu, vacation rentals are allowed in resort areas. They are also permitted in apartment medium density districts as long as the dwelling is located within 3,500 feet of a resort district. Vacation rentals are also allowed in apartment and resort districts rezoned as part of a master-planned resort community, according to Hawaii Business.

Rentals and Taxes

Keep in mind that if you rent your home out, you are subject to Hawaiian income tax, the Transient Accommodations Tax (TAT) –also called the “hotel room tax” – and the General Excise Tax (GET). By law, any rental to a transient person – such as a tourist –for less than 180 days is subject to these taxes, and that holds true even if you just rent out your home for a weekend.

Currently, the GET rate on gross rental income is 4 percent, although it rises to 4.5 percent if a country surcharge applies. The TAT rate on gross rental proceeds 10.25 percent.

Pricing a Rental

While high taxes may damper your enthusiasm when it comes to renting out your home for the holidays, you can still make a considerable profit at the going rates. Peak season for rentals is December through March, with vacation home occupancy rates nearing 80 percent, and the winter holidays fall neatly into this timeframe.

Of course, how much you can charge for your home depends on various factors, such as size, location and amenities. For a two-bedroom condo near the ocean, you might fetch $300 per night. A larger home able to accommodate parties of eight or more might reach $1,000 per night, with a true luxury home bringing in weekly rates in the tens of thousands of dollars. Even with taxes, a two-week holiday rental can provide you with substantial extra income.

Renting Out Legally

There is no question the number of illegal vacation home rentals on Oahu is quite high, and no new permits for transient vacation units (TVUs) have been issued in years. A new law passed in June, 2019, toughens enforcement of Oahu vacation rental laws. If you are not legally permitted to rent out your home, avoid the temptation to break the law. Getting caught advertising an illegal vacation rental can subject you to a $10,000 fine.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

September 25, 2019

Rental Laws: What You Need to Know

Changes in Vacation Rental Laws

There are plenty of people heading to Hawaii on vacation, and many of them would prefer renting a home rather than staying in a hotel. However, new regulations regarding Short Term Rentals (STR) may affect your ability to rent out your abode. If you are considering joining Airbnb or a similar organization,  whether or not you can rent out your property legally depends on where it is located.

New Legislation

In June, Honolulu Mayor Kirk Caldwell signed a bill imposing tough new restrictions on vacation rentals. Under the law, bed and breakfast rentals are limited to just 1,715 in all of Honolulu. However, if your home is located in a resort area, such as Waikiki or Turtle Bay, it is exempt from the new regulations.

Potential Penalties

It is no secret that there are lots of illegal rentals already in existence. Under the new law, visitors will not receive punishment if they book an illegal rental, but that’s not the case for the property owner. If an illegal rental is discovered, the property owner faces a $1,000 fine for the first offense, and up to $5,000 for second and subsequent violations.

Short-Term Rental Registration

Under the new law, property owners must register their short-term rental homes by September 28, 2019, and pay a $500 registration fee. If you already have an STR, your registration is grandfathered.

However, if your STR was registered prior to April 1, 2019, you must apply for an annual $250 Non-conforming Use certificate. Only homeowners may apply for STRs, not companies or legal entities.

New Stipulations

The legislation is the result of complaints by residents finding their neighborhoods changing because of so many STRs and the resultant problems. The new law includes various stipulations to protect the quality of life for residents. These include:

  • Quiet hours from 9 p.m. to 8 a.m. –All rental agreements must include this proviso, and the homeowner must post this notice in the dwelling.
  • Guests must park vehicles in designated parking areas onsite.
  • All STR ads must include either the registration or non-conforming use number.

Transient Vacation Units

Bed and breakfasts are considered those homes where the owner is present during the guests’ stay. Many homeowners are more interested in renting out their properties as Transient Vacation Units (TVU), and will not stay there when guests are present. Registration for TVUs by homeowners starts October 1, 2020, as the Honolulu Department of Planning and Permitting requires more time to put these new rules into operation. The initial registration fee for a TVU is $1,000, with the annual renewal set at $2,000. Illegally renting out a TVU can bring a fine as high as $10,000.

Other rules involving TVUs include providing neighbors within 250 feet of the home with a 24-hour number to contact the homeowner regarding complaints.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

Loan Approval for First Time Buyers

What First-Time Buyers Need to Know About the Loan Approval Process

Your introduction to home buying is likely also your introduction to the world of mortgage loans, and the process is often intimidating. Do your research beforehand, becoming familiar with terms like points, fixed vs. adjustable-rate mortgages, mortgage insurance and other intricacies of home buying before starting your loan approval journey.

Preparing for Loan Approval

Get your finances in order well in advance of loan shopping. Avoid taking out new credit cards or other loans in the months before seeking mortgage loan approval. If you have existing credit card balances, try to pay them down so they are less than 30 percent of your credit limit. Make sure all of your bills, including rent and utilities, are paid on time.

Decide on how much of a down payment you can make on a property. Putting down more 20 percent or more of the purchase price means you do not have to pay costly mortgage insurance, but high home prices in Hawaii can result in substantial down payments. If putting down 20 percent on a home leaves you with little or no financial cushion, paying mortgage insurance is probably a better idea.

Pre-approval

First-time homebuyers should start by receiving pre-approval from a mortgage lender. Obtaining pre-approval requires submitting substantial documentation, including pay stubs, banks statements and pay stubs. You’ll also have to disclose any outstanding loans, such as automobile or student loan debt. When the lender pre-approves your mortgage for a specific amount, you can start your home search, since you know how much you can borrow.

Pre-approval is not the same as pre-qualified. The latter simply means the lender has done a fast estimate based on your income, assets and debts, based on the information provided with little or no verification. The bottom line is that a prequalification gives you an estimate of how much you might borrow. With a preapproval, you know how much you can borrow, and make a more informed decision during the home buying process.

Shop Around

Just as you would comparison shop for any other major purchase, it’s critical to do the same with a mortgage lender. For best results, consult at least three lenders, comparing interest rates, loan terms, and lender fees. You might also find that one lender is more efficient and responsive to your needs than others, and that can play a role in your decision when choosing a lender.

Consider Government Loans

For qualifying first-time buyers, government insured loan programs such as Federal Housing Administration (FHA), US Department of Veterans Affairs (VA), and US Department of Agriculture (USDA) loans may make more sense than conventional loans, especially for those with less than stellar credit. FHA loans require just a 3.5 percent minimum down payment, while there is no down payment required for active duty and veteran military members with a VA loan.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. If you’re a first-time buyer, we can help you navigate the process. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

August 23, 2019

Underwriting: What to Expect

What to Expect During Underwriting

Unless you are purchasing a property for cash, the mortgage underwriting process is part of the home-buying experience. In basic terms, underwriting is the process used by the lender for risk assessment, ensuring the borrower meets all loan requirements. How the underwriting process unfolds for individual borrowers may depend on their lender and the type of mortgage for which they are applying.

Document, Document, Document

The underwriting process requires lots of documentation. An underwriter is interested in the following information:

  • Credit score
  • Credit report
  • Income
  • Debts
  • Debt to income ratio
  • Financial assets

The property you intend to purchase is also part of the equation. An appraisal is necessary, because the underwriter must ensure it provides the lender with adequate collateral for the loan.

Keep in mind it is the underwriter’s job to ensure a loan is as risk-free as possible.  All that documentation protects both the underwriter and the bank or mortgage company.

Automatic vs. Manual Underwriting

In most cases, the mortgage application is fed through an automated system, which either approves or declines the application, or more often, refers it to a manual underwriter, also known as a human being. When a manual underwriter gets involved, expect further financial scrutiny, but also the opportunity to explain any discrepancies or issues the automated system flagged.

Underwriter Conditions

If you loan doesn’t pass the underwriting process the first time around, don’t despair. That’s not uncommon, but once you satisfy the conditions set out by the underwriter, it’s more likely you’ll receive loan approval. Conditions generally consist of more documents, including additional bank statements. An underwriter may also request that you pay off certain debts prior to conditional loan approval, or clarify why you missed or were late paying particular bills.

Self-Employed Borrowers

If you or your spouse are self-employed, expect to provide even more intensive documentation during the underwriting process. There are special underwriting guidelines for the self-employed, far more stringent than for salaried workers. In most situations, a borrower must be self-employed for at least two years before qualifying for a mortgage, but there are exceptions. If you have been self-employed for at least one year, but have prior experience in the field and make as much as a self-employed person as you did when working for another entity, you may qualify for a mortgage.

Lenders look for “stable and consistent” income. Business incomes often fluctuate for a variety of reasons, and if your self-employment income does experience significant ups and downs, you may need to supply the lender with several years of tax returns to prove there is a reason for this fluctuation.

The Turnaround Time

Turnaround time for mortgage underwriting also varies, but in most cases borrowers receive an initial decision within 72 hours to one week of submitting the application and all necessary documentation. If you must fulfill conditions, the turnaround time may depend on how quickly you can meet these conditions.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

Plantings for Privacy: Landscape Edition

Plantings for Privacy in Rentals

Nothing beats coming home from a hard day’s work and enjoying a cool drink on the lanai overlooking your garden. Unless, of course, you live in a rental with a low fence line, and privacy is at a premium. Since you don’t own the property, you don’t want to invest in expensive landscaping. Not to worry – there are affordable options for privacy plantings offering beauty as well as screening.

Native Plant Hedges

Various native Hawaiian plants grow relatively quickly for privacy hedging. Top choices include:

  • Alahee (Psydrax odorata) – Boasting shiny green foliage and fragrant white flowers, alahee can grow quite tall if not pruned regularly. It’s drought tolerant and does well in full sun to partial shade.
  • Kului (Nototrichium sandwicense) – Flowers of the kului are used for making leis. The plant can grow as high as 8 feet without regular trimming. It prefers full sun and well-drained soils.
  • Hinahina Ewa (Achyranthes splendens splendens) – The hinahina ewa sports silvery foliage and does well in full sun or partial shade. It grows between 4’ and 8’.

Privacy Vines

If your low fencing is made of concrete, wood or chain-link, planting privacy fines is another good – and faster – option. Vines also attract songbirds and geckos. For best results, plant flowering vines blooming at different times so your garden always has lovely flowers. Tropical privacy vines favorites include:

  • Bengal clock vine (Thunbergia grandiflora) – Also known as the Bengal trumpet, this evergreen vine produces stunning blue blooms. A naturalized vine found all over Hawaii, take care to prune it regularly so that it doesn’t overtake other plantings.
  • Garlic vine (Mansoa alliacea) – Use the leaves of the garlic vine in cooking or as condiments.
  • Perfumed passionflower Passiflora vitifolia – This fragrant perennial, with brilliant red flowers up to 6 inches across, attracts butterflies.

Barrier Plantings

If you’re concerned not only with privacy but security, consider barrier plantings. What various types of barrier plantings all have in common is thorns or sharp leaves and dense growth, which dissuade anyone from entering the back yard. Popular barrier plantings include:

  • Bougainvillea (Bougainvillea spp., Nyctaginaceae) – Although bougainvillea displays beautiful flowers, it also has thorns. Bougainvillea requires regular pruning.
  • Heart of flame (Bromelia balansae) – This thick-growing, large plant has spiny leaves with sawtooth edges.
  • Lantana (Lantana camara) – Also known as lakana, this shrub grows fast and produces flowers nearly year-round. Best grown in full sun, lantana is wind, salt, heat and drought tolerant.

Tree Planting Project

The rapid development of the urban Honolulu area in recent years has led to significant tree loss. The city administration recently announced plans to plant 100,000 trees within the next six years. Depending on where you live, it is possible the Urban Forestry Division (UFD) will add trees that could increase your privacy. Get more information about the plan from the UFD.

Contact Us

If you’re looking to buy or sell a home or find a rental or investment property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

July 24, 2019

Landscaping With No Water!

Landscaping for Minimal Water Use

If your new home requires landscaping, or you want to refresh your landscaping before putting your house on the market, you want plantings that are as environmentally friendly as possible. Xeriscaping is the art of landscaping with minimal water use. That means native plants that don’t require the huge amounts of water often necessary to allow non-native species to thrive. Not only are native plants attractive and often less thirsty than “foreign” plantings, but they usually do not need as much upkeep.

Know Your Zone

Oahu consists of nine climate zones, and its important to know your zone and its soil types and water resources before choosing landscaping plants. Zone 1 through 3 are dry zones, with average rainfall of 47 inches or less. These zones are located around the coastal perimeters of the island. Zones 4 through 6 are mesic, which refers to areas with a balanced moisture supply. These zones receive between 47 and 98 inches of annual rainfall, and are more prominent on the eastern side of the island, although they do exist elsewhere. Zones 7 through 9 are wet zones, with annual rainfall above 98 inches. These zones are not found on the western side of Oahu, but are concentrated in the eastern, northern and southern sections in rainforests.

Many plants can do well across various zones, but if you’re landscaping with minimal water needs in mind, paying attention to the water needs of plants is critical. For example, if you live in a dry zone, you don’t want to install native plants with substantial water requirements.

Native Shrubs

Some of the most suitable indigenous shrubs for landscaping include:

  • Kokio ke‘oke‘o, or Hibiscus arnottianus – native to mesic and wet zones, this shrub – which may grow to tree height – sports dark green leaves and fragrant white flowers. It is salt tolerant.
  • ‘Ilima, or Sida fallax – suitable for dry and mesic zones, the orange flowers of this shrub are used in lei creation. It is salt, wind and drought tolerant.
  • ‘Ūlei or Osteomeles anthyllidifolia – also suitable for dry and mesic zones, this shrub features white bloom and glossy green leaves. It is wind and drought tolerant.

Native Trees

When planting native landscape trees, take into consideration the tree’s eventual height. Here’s a sampling of small, medium and large indigenous tree choices:

  • Naio or Myoporum sandwicense – at maturity, this tree remains relatively small. Suitable for all zones, the naio boasts small pink blooms and glossy or hairy leaves. It is salt, wind and drought tolerant.
  • Lama or Diospyros sandwicensis – the lama may grow to medium height, and is suitable for all zones. It produces an edible orange fruit and is wind and drought tolerant.
  • Koa or Acacia koa – if you want a large tree, the koa fills the bill. Suitable for all zones, the koa produces cream-colored flowers. It is wind and drought tolerant once it is established, but keep a careful eye on it if in a dry area when it is newly planted.

Contact Us

If you’re looking to buy or sell a home or find a rental or investment property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

Fixer-Upper: What To Know

What to Fix When Buying a Fixer-Upper

It’s the investor’s dream –find a house in poor condition in a good location, make some repairs and give it a fresh coat of paint inside and out, and sell it for substantially more money than was put in. While that dream comes true for many investors, there’s a lot of hard work involved. It’s also crucial to know what you can and can’t fix, at least as far as making a profit is concerned.

Structural Soundness

Before considering any fixer-upper, hire a professional to inspect it and determine whether the dwelling is structurally sound. If there are large cracks in the foundation, you don’t need an engineer to tell you the house isn’t worth the restoration cost. Stay away from any property with structural soundness issues, and that includes wooden homes with extensive termite damage.

Cosmetics

Your best bet is a house requiring only cosmetic repairs. Money spent on painting, wallpapering, refinishing or replacing flooring, installing new cabinetry, repairing or replacing broken windows and installing new doors and light fixtures is well-spent, since these relatively easy and inexpensive fixes should allow you to sell the house fairly quickly. Curb appeal is critical, so invest in decent landscaping, pavers and the like to make the house as attractive as possible at first sight.

The Roof

The roof’s condition is obvious even to the casual observer, and a leaky roof not only threatens the home’s soundness, but can cause mold and mildew issues. If you’re lucky, a roof might need just a few simple repairs. Perhaps a roofer can install a new roof on top of the current roof, which is costly but not astronomical. The most expensive proposition is tearing off the old roof and replacing it, and that may not make economic sense if your goal is selling for a quick profit.

HVAC

If the HVAC system isn’t working properly or needs serious upgrades, you’ll need to fix or replace it before putting the home on the market. If you’re installing a new HVAC system, look for the most energy efficient units possible. Not only are you helping the environment, it’s a good selling point for the house.

Kitchen and Baths

The kitchen and baths can really sell a home. A kitchen renovation, however, is expensive. Rather than a complete overhaul, paint the kitchen, let in as much light as possible, put in new cabinets and replace old appliances.

Bathroom renovations aren’t usually as involved as kitchen renovations and putting in new sinks, toilets and tub/shower units make an older home look newer and fresher.

Up to Code

Of course, everything in your fixer-upper must prove up-to-code before you can sell it or live in it. That means what you must fix depends on the individual home. Bringing  a house up to code might not cost that much, or it could end up a deal breaker as far as renovation and resale.  If you aren’t familiar with local zoning codes, your realtor can help point you in the right direction.

Contact Us

If you’re looking to buy or sell a home or find a rental or investment property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.

 

June 25, 2019

Leaseholds: What Are They?

What You Need to Know About Leaseholds

In Hawaii, there are two ways to own property – fee simple and leasehold. Most people are familiar with the fee simple form of ownership, which gives title to the property to the owner and includes the land. With fee simple condominium ownership, the person receives a share of the “land” on a pro-rata basis.

With a leasehold,  you own the home, but not the land. Lease rent is paid to the landowner. Many condos are leaseholds, and in this instance, the condo owner owns their unit, but leases a pro-rata percentage of the land rather than owning it. Homes listed for sale as leaseholds usually include “LH” in the listing.

The majority of Hawaiian leaseholds include a surrender clause, meaning the lands reverts to the owner at the end of the lease. There are many cases of landowners taking back the property when the lease is up. However, most leaseholds are renegotiated with the landowner at the expiration date. Some landowners may offer the land to the leaseholder in a fee arrangement.

Royal Beginnings

Leaseholds are seldom found in other states, and grew out of the large trusts created during the Kingdom of Hawaii, according to Hawaii Business magazine.  These trusts once owned most of Hawaii’s the privately held land. As real estate values soared after World War II, and lawsuits proliferated forcing properties to convert from leasehold to fee simple, most of single-family homes became fee simple by the 21st century.

Leasehold Advantages

Because leaseholds expire, they are often great deals for the right buyer. That’s especially true for older people who want to retire in Hawaii and appreciate the good value provided by a leasehold. Such leaseholds are less expensive than mortgages. Such buyers must have a plan in place in case they outlive their lease.

Parents with children going to college in Hawaii might want to rent a leasehold rather than spend a similar amount on campus housing. Once the kids graduate, the parents can continue renting the unit and generating income until the lease is up – and then just walk away.

Leasehold Risks

Leasehold properties are more likely to decline in value than fee simple properties, especially when the lease hits about 25 years pre-expiration. You cannot purchase a leasehold property and obtain a 30-year mortgage if the lease will expire before that time. That means the buyer must obtain a 15-year mortgage requiring a higher monthly payment. Overall, it’s harder to get financing for a leasehold than a fee simple property.

If the lease expires and the lease is renegotiated with the landowner, expect the lease rent to increase substantially. After all, prices rise significantly over 30 or more years.

Each Leasehold is Unique

Fee simple contracts are generally straightforward, but each leasehold is unique. That’s why it’s essential to have a real estate attorney look over any leasehold you consider purchasing. It’s also important that you understand the terms of the lease and what you can and cannot do.

Contact Us

If you’re looking to buy or sell a home or find a rental property, you need a knowledgeable, experienced realtor familiar with all aspects of the Hawaiian real estate market. Contact Island Realty Group LLC at 808-689-7407 or IslandRealtyGroup@irghi.com.