Have you ever wondered what St Joseph has to do with a real estate transaction? In this fun post I discuss just that!
According to Christian theology, St Joseph is the adoptive father of Jesus. In that way he has become the patron saint of families as well as the person you looked for when you were in need of shelter because he had provided shelter for his young family. This is how St Joseph came to become involved in real estate!
The story goes that if you bury a statue of St Joseph in your yard it will help your home sell. This story has become so prevalent that you can buy small St Joseph statue kits online for ~ $10-$15. What you do is take the statue and wrap it in the small cloth included in the kit. You then bury the statue in your yard next to your FOR SALE sign. Additionally, the statue must be buried upside down and facing your home. Next you say a prayer for assistance and your home will sell quicker! So you may ask, I am selling a condominium, can I still do this? And the answer is YES! Just use a flowerpot, put it somewhere that works for your property and you can do the same exact thing.
Now once your home sells, you just need to dig up the statue of St Joseph and put it in a place of prominence in your new home. Hopefully it bring you good luck in the future.
There are people that swear that the statue of St Joseph helped them to find a buyer for a difficult-to-sell property. Even if you do not believe the story, I hope that you found this fun and entertaining!
If you are looking at older homes you may run into knob and tube electrical wiring that is still in use from the original installation of the home. Knob and tube wiring was the standard in the U.S. from about 1880 through the early 1950s. I have come across many older homes in Hawaii that still have knob and tube wiring. As you can see from the video, this type of wiring can be quickly identified by the porcelain knobs that wires and porcelain tubes which protect the wires as they pass through wood framing. This type of wiring is not allowed by current electrical codes and you should consider having it replaced by a certified electrician if it is in your home.
Risks of Knob & Tube Wiring:
- Knob and tube wiring does not have a ground wire. This lack of a ground significantly increasing the chance of an electrical fire and damage to appliances and other sensitive equipment in your home.
- Any knob and tube wiring found in your home is old and the wiring insulation was made of much less resistant materials than today's wiring. It is much more likely that the insulation and actual wiring have been damaged over the years.
- The insulation used on this older wiring is not resistant to moisture and is considered a fire hazard. Additionally, many homes have had electrical modifications over the years which may increase the risk from knob and tube wiring.
- Due to the increased fire and electrical damage risk, many insurance companies will not insure a home that still has knob and tube wiring installed.
What to do if your home or home that you wish to buy has knob and tube wiring:
First of all you should have the home's knob and tube electrical system evaluated by a licensed electrician to determine if it is safe and if replacement is required. Based minimum seventy plus year age of these systems, they will likely recommend replacing the system. While replacing knob and tube wiring is expensive, not replacing increases your risk of fire, can complicate real estate transactions, and may prevent you from obtaining home insurance or paying a much higher rate for insurance.
If you have questions about your home consult a licensed electrician or I can recommend one for you.
If you have or are thinking of buying or selling real estate in Hawaii, you may have heard of the confusing terms HARPTA and FIRPTA and wondering, what are these and how may they affect me? In this post, I will explain some of the basics and direct you to the resources from the State of Hawaii for additional details.
While HARPTA and FIRPTA are applicable for all real estate transactions in the State of Hawaii, in reality, they only apply when non-Hawaii residents sell property in the state. Both of these are not taxes, but rather withholdings that the State of Hawaii uses to make sure that non-residents pay all applicable taxes from their property sales. For more details on these withholding, this Department of Taxation Fact Sheet provides many answers. Additionally, all of the forms which I reference here can be downloaded from the Department of Taxation web page.
HAPRTA - Hawaii Real Property Tax Act
HARPTA is a withholding of 7.25% of the sale price of a property. Note, that this is not the gain from the sale but the overall sale price. As the vast majority of property sales are conducted through escrow, the escrow company will handle all the required paperwork and withholdings as part of the transaction. Technically, HARPTA applies to all property sales in the State of Hawaii. However, once Hawaii residents submit Form N-289 to escrow, they will be exempt from HARPTA withholdings. So, in reality, HARPTA withholdings only apply to non-Hawaii residents who sell Hawaii property.
This large withholding can often be a large amount and a shock for many people as they get ready to sell a property. However, it is possible in most cases to get some if not all of this withholding back from the state. Since the goal of this withholding is to ensure that non-residents pay all applicable taxes to the State of Hawaii, the most common manner of recovering portions of the HARPTA withholding is through the filing a Hawaii income tax return the next year. Additionally, there are special forms that can be filed for an exemption from the withholding (Form N-288B) or an early refund (Form N-288C). If you think that you will qualify for the exemption you should ensure that these forms are filed early in the property transaction to ensure that they are adjudicated prior to the closing of your sale.
FIRPTA - Foreign Investment in Real Property Tax Act
FIRPTA is similar to HARPTA but applies to non-U.S. citizens who sell property in the State of Hawaii. The FIRPTA withholding is 15% of the sale price. Additionally, in almost all cases the sale is also subject to HARPTA since the seller is also not a Hawaii resident. So for a non-U.S. citizen, the overall withholding is usually 22.5% of the sale price.
If you are a non-Hawaii resident and thinking of entering the Hawaii real estate market, it is important that you have an understanding of the HARPTA and/or FIRPTA withholdings but you should not be scared by them. They are designed to ensure that non-Hawaii residents pay all applicable taxes from their property sale or other income from the state. If you properly file these taxes, you will not be paying any additional tax as a non-resident, you will just be paying it early like an estimated tax. Of note, this type of withholding for non-residents is not unique to Hawaii and used by some other states as well for the same reasons.
If you are thinking of selling an investment property you are probably wondering; Should I keep attempt to sell the property while still having my tenants there? In most cases the answer to that question is no and in this post I will discuss a couple of the primary reasons why.
It can be very tempting to want to keep your tenants until the property is sold. Keeping the tenants until the property is sold will help you to cover your costs and maximize your rental income. However, this may cause problems with the sale of your property and may negatively affect your sale price.
In my experience, the two key factors when it comes to tenants are availability and presentation.
Availability: When you put your home on the market, you will usually have more success when the property is available to potential buyers to see on short notice. However, if you you have tenants, your agent is required to provide the tenants with a 24-48 hour notice prior to showing the property to potential buyers. This has a high likelihood of causing problems because the schedules for the buyer and the tenants may not align for a multitude of reasons. You want the buyers to be able to see the property for you to be able to get into contract quickly. You can mitigate this somewhat by having an open house and concentrating potential showings to the open house. However, the probability of your buyer coming to the open house and immediately making an offer are lower than for a buyer who makes a specific appointment to see the property. Even potential buyers who come to an open house often want to see the property again if they are truly interested.
Your home does not only need to be available for showings. Once you are into contract to purchase the home, you still will need to arrange times with your tenants for a home inspection, a termite inspection, the appraisal, and many other times that the new buyer will need to come into the home. Many of these items can be very difficult to schedule when balancing the schedule of your tenant, the new buyer, and the other professionals involved.
Presentation: Having tenants also affects your ability to properly present or market your property. For examples, tenants may not leave the property as neat and clean as you would like it. When it comes to home buyers, first impressions are incredibly important. Walking into a home that is overly cluttered or has a smell from recently cooked food may be enough to turn that buyer off from your property. A negative impression may also affect their offer price if they do decided to make an offer on your home.
If you have clean, friendly, flexible tenants none of this may be a concern. However, in my experience, tenants are often not amenable to your requests and may be upset that the property is up for sale. If you have the ability to have the tenants leave after their lease expires but before you are ready to put your home on the market, you will have an opportunity to clean, paint, repair, and stage the property. You can have the home looking its best before you are ready to present the property to potential buyers. Additionally, buyer's agents can bring their buyers at a time that is convenient to them and also allows for short notice showings from buyers in the area looking at other homes. If this happens you can be confident that the property is clean and ready to present to potential buyers.
You can definitely list your property while still having tenants, but recognize that there will be some challenges. Whereas, with a property that is vacant, you can be flexible to buyers schedules and know that the property is ready at all times. By making everything more convenient to your buyers, you increase your chances of maximizing your return on your investment property as the buyers will know that there will be less potential issues throughout the transaction.
I have had a number of clients who are looking at properties in Hawaii and see the property listed as a CPR and ask "What is a CPR?" A CPR stands for Condominium Property Regime that is a mechanism sometimes used to subdivide a larger property into multiple separate homes.
When a lot of people think of condominiums, they think of the classic vertical high-rises with units stacked upon each other. Those individual units are individually owned. With those condominiums there are common elements such as hallways, reception area, pools, and outdoor spaces that are shared by all of the owners. The condominiums have homeowners associations, condominium rules and bylaws, homeowners's dues, and owner's meetings.
A CPR is just liked those vertical structures except that the idea is flipped on its side in a horizontal direction. For example, if you owned a parcel of land that is 20,000 square feet in size and wanted to subdivide it you likely will not be able to based on zoning restrictions. However, one way to still divide the land into separate properties is to make the overall parcel a CPR. In this example, you could take the 20,000 square foot lot and divide it into four separate 5000 square foot lots with separate homes on each. Each of these homes is an individual property but they share common elements such as a a driveway, a water easement, fencing, or common ground areas. Another possible example is a duplex CPR in which the homes share a roof line or a wall but other than that are separate properties.
CPRs have many of the same elements as traditional condominiums such as bylaws, dues, and an association. Each home is a separate property with its own Tax Map Key that the owner fully owns and is responsible for insuring and maintaining. However, there are also common elements laid out in the CPR incorporation documents. If you purchase a property that is part of a CPR, you are also agreeing to abide by the rules determined by the other owners.
A Condominium Property Regime may be the right vehicle for you to hold ownership in land and property in a single family home. This setup is not right for everyone but it if you are open to this arrangement you may be able to find the perfect home for you.
If you have any additional questions on CPRs, please ask and I can point you in the right direction!
In this post I discuss some observations of how what buyers in Hawaii are looking for has changed since the onset of COVID-19 earlier this year. There are definitely a lot of buyers interested in the market and a clear shortage of inventory.
I attribute the increased interest in buying to two things:
1) Low interest rates
- As interest rates remain low for all types of mortgages, many potential buyers have determined that this is the right time to jump into the market.
2) The pandemic has changed the needs of many buyers
- With more people working or learning from home their needs have changed. In my conversations with potential buyers some of the specific items that they are looking for include:
This may be more interior space or more exterior space but as potential buyers realize that they are spending more time at home many of them want more room to spread out both insides and out.
Closed Floor Plans
There was already a trend away from open floor plans but with people spending more time at home, many potential buyers have a desire for privacy in their home. This may be for work spaces or just someplace for family members to have some quiet time but closed floor plans are definitely becoming more popular.
Many buyers are looking for smart tech in their homes. This can range from programmed lighting to touchless faucets as potential buyers are looking for ways to reduce the need to touch everything in their home.
Workcenters in the home
With more and more people working from home or going to school from home either full-time or part-time, potential buyers are specifically looking for innovative ways to create additional workspaces in their homes.
The market has definitely changed in the last six months and many home features that were popular with buyers earlier in the year may no longer be. Some of these trends may be useful to you as you either think about changing your lifestyle with a different type of home or look at what features may be attractive to buyers if you are ready to sell.
When a client asked me why I insist on using a local lender, it made me think that person is probably not the only one who has this question. So why do I insist that you use a local lender? There are four reasons I insist on a local lenders.
1. Local lenders know the closing process in Hawaii
The closing process in Hawaii is unique and very different from the mainland. Here is an example, hypothetically you sign closing documents on a Monday and you sign them separately from the seller, the lender will fund the loan on a Wednesday, and two days later the City and County of Honolulu will record the deed. So bottomline, you own your new home on Friday.
On the mainland everybody sits down at one table, everybody signs documents, they pass along keys and anything else, and in the end everything is complete at one time. As you can see, this is very different from the process in Hawaii and local lenders know and understand this.
2. Local lenders can be reached on closing day
This may seem simple, but due to time zone changes this can be a very big deal. On more than one occasion, I have been at escrow on the closing day and realized that the final settlement statement had an error. with a local lender they can be easily reached and fixes made that will allow the transaction to proceed. However, I have often seen clients have extreme difficulty reaching a mainland lender, especially if the closing in in the afternoon in Hawaii and the lender is closed for the day.
3. Sellers like local lenders
Local sellers like to know that everything is being conducted in Hawaii. They will often know the lender or know someone who has worked with the lender and this will give them the piece of mind that the transaction will proceed smoothly.
4. Local lenders have relationships with escrow
Hawaii is an escrow state and as such, the escrow company handles all of the documents and money transfer as part of the closing process. I have seen that a lender having a well established relationship with escrow can ensure that all of the small details are taken care of and the transaction moves along smoothly. The last thing that you want as a buyer is to have your closing and move in day be delayed because the lender misunderstood the escrow instructions or transferred money on the wrong day. A local lender who has worked with the escrow company many times will understand all of the unique Hawaii timelines and have the relationships to ensure that everything is completed correctly and efficiently. It also helps the escrow company to know that they have one easy to reach person to work through the details on the transaction.
So hopefully this helped to explain why it is important to choose a local lender when you are ready to purchase in Hawaii. I have relationships with a number of local lenders who can help you answer any of your specific questions when you are thinking about buying.
In this post, I discuss some the trends that I am seeing in with mortgages and how this relates to real estate sales in June 2020.
As an overview, if you are looking to buy a home, plan on the lending process taking a lot longer than it normally does. There are some lenders at lower price points that are moving much more rapidly. However, as the loans get larger, I am noticing that they are taking a little bit longer to complete. Part of this delay is that the lenders are asking for a lot more documentation. They are specifically checking on employment due to the effects of the COVID-19 pandemic. They want to make sure that once they give you this loan you are still going to have a job and be able to pay the mortgage. In the end, lenders are being much more cautious. Another factor is that many parts of the lending process are working from home, which is slowly down the overall process.
If you are buying or selling a home, recognize that the process may take longer than normal and may require an extension to complete. Transactions right now are also including a COVID waiver, which usually provides the buyer with an additional 30 day window to complete the lending process based on current circumstances. It is important to understand that the process may take longer than normal. With those expectations are set in advance, the process will complete, it just may take slightly longer than you have seen in the past.
Another area where I have seen a lot of interest from clients is refinancing. This is a great time to take advantage of low interest rates. However if you are going to refinance, you should plan on being in your home probably for at least another two to three years unless you already have significant equity in the home. This time frame will likely be required to recoup the closing costs required to complete the refinance. Realize that if you try to sell your home before regaining any equity lost or prior to your home value increasing, you may have to bring additional funds to close your mortgage at the time of the sale. In the end, every situation is slightly different and you should talk directly to your lender about different scenarios for refinancing.
The last item that I wanted to discuss was forbearance. Forbearance is a temporary agreement between a lender and a borrower to temporarily suspend payments on a loan. A lot of people right now need forbearance on their loans due to the COVID-19 pandemic. If you think that you may be in this situation you should contact your lender to fully discuss your options. Also recognize that asking for forbearance will likely impact your ability to obtain a loan on a separate property.
In summary, the process of buying and selling homes continues throughout the current economic environment. Just realize that it may take longer than normal. And finally, you should contact your lender directly to discuss various options and fully understand what will be required for either a purchase, a refinance, or a forbearance situation.
I get questions all the time about building an ADU on a property. So you might ask what is an ADU? ADU stands for Accessory Dwelling Unit.
It is an individual home on a single-family lot. It can be attached or detached and it must have a kitchen, a bathroom, and sleeping quarters. Essentially it has to be its own individual unit. Previously if you wanted to have an additional unit on your property you had to build them for family members. That is how Hawaii real estate developed the concept of the O'hana unit.
In 2015 the City and County of Honolulu loosened the restrictions on who can live in these units and created the Accessory Dwelling Unit or an ADU. So you can now build an additional unit on your property for non-family members that can rent if desired. However, in order to build an ADU on your property you must live in a residential zone. Additionally, some specific communities have prohibitions in their covenants on these types of structures.
Residential zoning is differentiated by an R in front of all of the codes. The R stands for residential. The number after the R indicates the lot size. So there are different R codes for different sized properties. You will see codes such as R5, R10, or R20. These zone codes coupled with the size of your lot will tell you if you can have one home, two homes, or have a duplex on the property. There are also many rules having to do with the height of the structures, how much lot you can cover, and setbacks. And if you are interested in seeing the zoning for your neighborhood or anywhere else in the City and County of Honolulu use this link. The chart can be found around page 50 and that will give you additional information about residential zones and what you can build on your property.
Some additional rules for ADU construction include:
- You must have parking specifically designated for that ADU.
- You have to reside on the property.
- Your property could not be landlocked so you must have either a driveway, an easement, or some way to get onto your property.
- Your property must have a minimum of 3500 square feet of land
- The size of your lot will also determine the maximum size of the ADU that you allowed to build:
- A 3500 square foot lot can build up to a 400 square foot ADU
- A lot of over 5000 square foot lot can build up to a 800 square foot ADU
If you are interested in constructing an ADU or just want to better understand the requirements the website hawaiiadu.org can provide you with a checklist and all of the information that you are going to need to start the process. After you understand the basics you will want to contact an architect or general contractor to determine the costs involved and how you will construct the ADU. You also may want to contact an accountant in order to fully understand the tax implications of renting out your ADU.
In summary, an ADU may be an option for you if you have space on your property and are looking for the possibility of additional rental income.