Getting familiar with the process of buying real estate in Hawaii is the first step in taking full advantage of the major opportunity that exists right now in this under-valued marketplace.
By Eric West
All economic indicators point to the following: a surge in demand, real-estate appreciation and high return on investment. Most of the indicators are related to rising tourism numbers, a favourable currency exchange, the demand for housing on the islands (both tourist and locals) and the scarcity of housing/land in these relatively small islands.
Most investors enjoy not only high occupancy rates in their rentals, but also get the added benefit of possible vacationing on that property throughout the year. If you have the spare capital and also enjoy spending time in paradise, it only makes sense to put your dollars to work in this market and enjoy the next ride on Hawaii real estate boom. The time is now to start asking the right questions.
Kazuo Nishiyama, PhD, of the University of Hawai’i recently answered these most commonly asked questions about Hawaii’s real estate market.
1 I am a citizen of another country. Can I buy real estate property in Hawaii? You can buy real estate in the USA, as it is an open country and welcomes foreign investors.
2 Are there any governmental restrictions? There are no restrictions at all. You can bring in any amount of funds for investment, but the US government is very strict about laundered money. If the government discovers that you illegally obtained the money by tax evasion or drug trafficking, your investment will be confiscated.
3 Can I get a green card by purchasing a home or condo in Hawaii? No. There is a special immigrant visa if you invest more than US$1 million and create jobs for US citizens, but does not apply to an individual buying a home for personal use.
4 How much does land cost in Hawaii? That depends on the location, the size and use of the land. Prices can average in the millions per acre, but lower-priced acreage is certainly available.
5 Which real estate company should I inquire about purchasing real estate in Hawaii? There are many options to choose from, but it’s always best to speak with various licensed individuals and interview them to see if they fit your communication style, and have a good reputation for being straightforward and reliable. Asking friends who they have successfully worked with is another good approach.
6 Do I have to pay a commission to that realtor when I am the buyer? Sales commissions are paid for by the seller of the property and that commission is shared between the seller’s broker and buyer’s broker.
7 Do I meet and negotiate with the seller of a property that I am interested in buying? The negotiation is conducted through the agent of the buyer and seller by exchanging written documents.
8 What is a counteroffer? This when the seller or buyer are asked to reconsider the purchase price currently offered by either party until mutual consent is reached. This is also done in writing.
9 Is ‘Timeshare’ a good investment? Timeshare means that you are buying a fractional interest in a resort condominium and the privilege of using it. You are actually buying a one-week or two-week vacation. It is a great way to have a guaranteed vacation every year in Hawaii and can typically be exchanged at other participating locations throughout the world.
10 When I close on my real-estate acquisition in Hawaii, do I pay the seller directly or his bank account? We have Escrow companies and in some cases real estate attorneys who handle funds for real-estate transactions. The most common practice is for the agents to ask an Escrow company to handle all of the paperwork and money on your behalf.
11 I don’t want to rent my property to local surfer boys. Is this legal? Unfortunately, it is against the law to discriminate against renters, but you can request your rental agent to carefully select your tenants.
12 Can I hide my rental income from tax collectors? You are required to pay General Excise Tax, Transient Accommodation Tax and Income Tax. You should ask your rental agent to pay the General Excise Tax and the Transient Accommodation Tax from your rental income on your behalf, and ask a certified public accountant to work on the income tax. You are required to pay the annual income tax before June 15 for the previous year’s income.
13 Can I hide my income in Hawaii from my country’s tax collector? This is difficult. The USA has many mutual tax treaties with foreign countries and they exchange information on taxpayers’ income whenever they find it necessary.
14 I heard there is a federal tax law making it cumbersome for a foreign owner to sell his or her property? This is called the Foreign Investor Property Tax Act and was enacted to eliminate income tax evasion by non-resident foreigners and foreign corporations. Any buyer of a US property owned by foreigners is required to withhold 10% of the gross purchase price. Part of this withholding may be returned to the seller after paying the income tax. The problems are that the buyer is responsible for taking the withholding and paying this amount to the Internal Revenue Service, and the seller cannot use the entire sale proceeds right away. The balance of the withholding tax will be returned after paying the income tax.
15 Does the State of Hawaii have a similar tax law on state income tax? A foreign seller of a Hawaiin property is also subject to the Hawaii Property Tax Act. A buyer of a Hawaiin property owned by foreigners or non-residents must withhold 5% of the purchase price and send the amount to the Hawaii Department of Taxation. After paying state income tax, the seller can get a refund if there is a balance.
Eric West has a degree in finance from the University of Colorado at Boulder. He is one of Cabela’s Trophy Properties top producers and has personally brokered the purchase and sale of thousands of acres of land and many multi-million-dollar luxury homes in the USA.
For more information visit: hawaiirealestate.org