I Hope I can answer all you questions on Maui real estate and how purchasing or selling property in Maui Hawaii can effect you with state and ferderal laws. First of all I must provide a disclosure that I am not a tax expert and you should seek professional tax advise from a tax expert or attorneys. There are also local county and state zoning laws that you should be aware of, you can go to the websites that will provide additional information.
I. Can I carry a mortgage in Hawaii? Yes, if you plan to carry a mortgage on the property, you can obtain a mortgage if you live outside the U.S., but there are some special points to consider when getting a loan. There are several lenders here in Maui.
You will need to work with a lender that is licensed in Hawaii. If you are getting a loan on a property here on Maui, it is best to work with a local lender.
You will have to pay a higher interest rate if you are a foreign buyer and you may have to put down up to 40%.
All cash to close must be deposited into an existing U.S. bank account. You will need to open up a checking account at a local Hawaiian bank.
II. Can I pay cash? Yes, if you are paying cash to purchase the property you may need a proof of funds letter from your broker/banker. Often the Sellers’s will require one in as part of the sales contract. Funds must be deposited into you an existing U.S. bank account.
III. Where can I get my real estate papers notarized? The bank where you open your account in Hawaii, or going to a U.S. Embassy in your county. Luckily, there are eight embassies located in Canada. If you need the location of one, here is a link with all embassies around the world: http://www.usembassy.gov/.
IV. If I choose to use my property as a vacation rental where to I start? There are three points you should know about renting your property out as a vacation rental. Laws on short term vacation rentals are set by the laws of the local county government, not all islands are open to vacation rentals, so check local laws.Condos are very popular as a vacation rental, but some condo projects restrict the use as a vacation rental, so again check before putting in an offer. Can and make an appointment to meet with the on-site rental agency on property. The managers are always helpful, and can answer your questions. It is a great way to begin to know the complex, and the folks who will be managing the complex. If it is a house,you need to do your due diligence as the residential vacation laws have changed.
V. Are there taxes? Yes, there are Hawaii State Tax (General Excise and Transient Tax) that apply to short term rentals such as a vacation rental. Also Maui County Property Taxes. Check with your CPA about your income taxes if you have a vacation rental.
VI. What is Fee Simple and Leasehold? There are two types of property in Hawaii, fee simple or leasehold..Fee simple is the term for property where you own the land and all the improvements on the land. With leasehold property, you are paying for the improvements on the land, but do not own the land, instead you pay a lease on the land. If you are buying leasehold, you will want to know the terms of the lease. Also, it can be more difficult to obtain a loan on leasehold property as the loan needs to be for 5 years less than the time left on the lease.
VII. What is a “distressed property? In Hawaii, a large percentage of the properties for sale are distressed properties – either a short sale by the owner or a REO property. A short sale is a sale where the sales price is not enough to pay off the mortgage, so the transaction must be approved by the seller’s lien holder or lien holders. A REO is short for Real Estate Owned, this is property that has gone through the foreclosure process and is now owned by the bank. While there are many details to these transactions, the key points are:
- Because you need lender approval, the process will take longer than a normal sale – expect anywhere from 2 to 6 months…and maybe even longer.
- Distressed properties are almost always sold “as is” and often have been damaged and may have had appliances and fixtures removed.
- The buyer will often pick up costs that a seller would “normally” pay, such as termite inspection, cleaning of property, and staking of property. The buyer may need to pay for liens on the house, back taxes, or HOA fees (monthly home owner association fees). It is always best to know what these figures may be before you submit an offer. Check with your agent about AOAO back dues as Act 48 may apply.
VIII. Will the Seller have to repair and up date the home to code if needed? No, unlike Canada, where a seller must bring a home up to code when selling, a seller does not have to repair a property before selling it. Hawaii law does require the seller to complete a seller’s disclosure on the property. However, any repairs paid for by the seller have to be negotiated into the sales contract, and in the case of distressed properties, the sale is usually “AS IS” where the seller will not perform any repairs, even those that may be considered a safety issue, but these are the types of homes you can often call a “steal of a deal.”
IX. What do I need to do first? You’ll need your finances in order before you write up an offer. In Hawaii, it is common practice that all offers to buy include documentation on the buyer’s ability to buy the property. If you are paying cas h, you’ll need “proof of funds,” or a copy of statements that show you have the needed money for the sale. If you are using financing, then you will want to talk to a lender about getting a pre-qualification, or even better, a pre-approval letter from a lender that is licensed in the State of Hawaii. It can take 45 to 60 days to complete your purchase. In Hawaii, this is the usual time to complete the sales process. The first portion of this time is used for buyer due diligence – home inspections, review of documents, review of seller disclosure – this will usually take 10 to 14 days.
X. Do I need to attend the inspection? Yes, you should. After you have made your offer and it is accepted, you will undoubtedly be attending the inspection. Condos are simply compared to home inspection so you may want to plan accordingly. I suggest you try to attend or send someone by proxy.