Do Your Research Before Buying a Condo in Hawaii.
Here are the twenty "areas of concern" that I would ask questions about
before tendering an offer to purchase a vacation rental condo in Hawaii
1) What has been the NET income for the property the last 5 years? This would be AFTER paying the management fees (usually runs 20-50% of Gross Income) and GET (General Excise Tax), and TAT (Transient Accomodation Tax) all monthly HOA fees, Leasehold fees (if applicable - ie the property is NOT fee simple ownership) utilities, cleaning, supplies and miscellaneous repairs.
2) What is the occupancy rate for each month. This is the percentage the property is occupied versus sitting empty. How many nights did the owner/friends and family stay in the unit for "free"? Obtain a list of all the website the property is currently advertised and read all of the reviews. How many of those sites will be transferred to you when you if and when you purchase the property (or will you have to start from scratch?)
This is very critical.
Especially when dealing with VRBO. Recent rule changes force you to create a new account when the old owner shuts down the account. So be sure they keep it going and you simply take over payment of the annual fee.
3) Does the property ALLOW short term vacation rental or long term OR BOTH? The vast majority of long term condominiums will NOT allow ANY short terms, BUT most of the short term properties will allow long term.
If it's a short term property, what is the percentage of long term tenants? Why should you ask this?
This can affect the amount of down payment required by lenders.
Most lenders require 30% down for short term condos, but some can still qualify for 25%. If the property is short-term, does it have a "front desk" and what services do they perform?
Am I *required* to use the on-site management and if so, what is their fee. How do the on-site managed condos perform financially versus the non-onsite units? If you manage it yourself or any off-site company, how will the on-site company treat your guests? Good to know before you decide who to go with. You can get answers to these types of questions from previous guests who stayed in an off-site managed unit.
4) How many floors does the property have, and are they serviced by elevators? If so, where are they located and when is the last time they were updated and/or replaced? May seem like no big deal, but not when you are waiting 20 minutes for the elevator to get that towel you forgot, or you are hauling $600 worth of Costco groceries up three flights of stairs since the only working elevator is too far away. Quick and easy access to your unit from the parking lot and the beach....it's worth a lot!
5) What are the HOA fees?
What do they services do they pay for?
Water, sewage, electric, ground-keeping, pool, spa, maintenance?
When is the last time there was a fee increase? How does it compare to similar condos in the immediate area? Is it based on price per finished square foot? Does that include lanai space? Are their any outstanding dues for the unit I am purchasing? What are the history of payments? What happens if I pay late or default? How long do I have to remedy, and what action can the management company take in that event? Are there any special assessments in place currently or in the near future? Can you please share the history of special assessments and what projects have been completed?
6) Is the property fee-simple or leasehold?
If it's leasehold, when is the next rate increase? How often is the lease re-negotiated? When does it expire? Who or what entity is the leaseholder? Is any of the property currently in fee simple that converted from leasehold? May I see a copy of the lease? What happens if the lease is not successfully re-negotiated? How many other properties does the leaseholder own? Is the original leaseholder still alive or has it been transferred to the next generation? If so, how many parties are in authority over the lease?
7) Ask for a 3 year history of ALL utility bills and repair bills? Does this include running the AC? How many months is AC needed? Is the AC central or window? If the unit does not have AC is it legal to add. If so, what size and location? Does the unit have high speed internet? If so, what speed? Who is the service provider? What is the cost and who pays that bill? Are there other providers? Who provides television/entertainment services? May I add satellite (Dish or Direct TV)
8) Is the property in a flash flood or tsunami zone? Is hurricane insurance provided by the HOA? May I see a copy of the policy? Is water damage or flooding included? Have their been any claims for hurricane or floods or water damage in the last 20 years? Any storm damage of any kind (wind, hail, rain, etc.)?
9) Is local crime an issue? May I see a map of local sex offenders. I would goto the local police station and ask about the police blotter report for that area. Any problems with stealing from the local population (homeless) Is there a crime watch in the area? If so, who is the leader?
10) Very important to thoroughly research so-called "sound pollution" Things like road/traffic noise near bedroom window(s) (ask to see the unit in the evening hours around bedtime) proximity to a dumpster (trash pick up in Hawaii tends to be very early in the morning) and/or loading and unloading areas for businesses and restaurants. Proximity to the pool and or children play areas (you can only take so much marco-polo in a given day!) Also check if the unit is close to evening night life....these places usually have loud music and various intoxicated patrons having fun into all hours of the night! Your potential short term vacation clients will be very much in tune with these noises and how they affect the quiet and pleasant enjoyment during their vacation stay in your condo.
11) The wind and sun....the way/angle and time that it "hits" your condo is HUGE! The location of the Lanai and windows and doors. The lanai for example (this is your back porch in mainland terms)...believe it or not, they can vary from one that is right next to the other one! In terms of trade wind activity, sun exposure, privacy to neighbors or others wandering in the complex. Some of these conditions can render a lanai totally un-useable to absolute perfection. It's very important to know your lanai. Trade winds blow in Hawaii and thankfully keep things cool and less humid. If your condo is facing the wrong direction, you could be miserable, while the guy next door is in total comfort. Most buildings will have a quiet side, a cool side a hot side, some are even known to have poor ventilation. Good to know before you sign the closing papers.
12) Ask to see a list of recently sold comparable units (last two years). This is absolutely critical! And you must compare the comps! If someone says the one "next door" just sold for X amount, be sure it has the same level of upgrades (or lack thereof) before concluding the asking price on your condo is within reason! Look back a few years as well, and see the trend. Also, look at similar size units in buildings near by. What accounts for the differences in asking and selling prices? What is the "average days on market" ADOM, what is the % of list price to sales price.
13) Most condos in Hawaii were built prior to 1990's. What type of upgrades and maintenance have been done to the building (the infrastructure - plumbing, electrical, roof, walls, exterior paint and or termite damage) May I see a schedule of that work and what is planned for the future? Who pays for these projects. What is funded by normal assessment versus special assessment? Some condos in Hawaii are actually shut down for many, many months while these plumbing and sewer project are facilitated. During this time frame, the owners and guests are not even allowed access to the unit. Thus rendering all income to zero. I would want to know if this has ever happened and what type of inspections have been done to assess current condition of the "guts" of the building.
Next of course of the interior remodeling. How many times has it been remodeled? When was the last time? Was it done by a licensed contractor(s)? If so who? Were the county permits pulled? If so, may I see them? Have the been "closed out "and finaled? What about any improvements or changes that were done that are NOT in compliance with current zoning or permitting? Are there any warranty's in place? May I take ownership of them or extend them? Who has been handling the maintenance of the unit? CanI get there name and number? May I see invoices for the last 10 service calls and/or repairs? I would strongly consider purchasing a home warranty program like Home Shield. Something is going to break in your condo (and usually sooner than later and right in the middle of someone's vacation) Now is a good time to make a plan!
14) Which units have an automatic ice-maker with a water line? What about lines to wash machines? If and when they leak, where is the water going and who is going to pay the bill for water damage? Is anyone checking these lines for damage, break down or small leaks?
15) How "buggy" is the property. Cockroaches? Ants? Scorpions? Spiders? When is the last time the building(s) were sprayed/tented for termites? May I see a report for the last termite damage assessment. What is the schedule for tenting. Who pays? What about internal and grounds spraying for pests.
16) Mold. Wow is this over-looked. Hawaii is a tropical environment with high moisture content. Old buildings can have mold. This can affect people who are sensitive and/or allergic. Ask about this issue and have it inspected, especially if you have areas subject to mold....lower levels, dry wall, areas where rain runoff is evident into and near the structure.
17) Photo-voltaic or Solar. Does the property have plans to install? Is it legal for just ONE unit to get the PV? Can it be or will it be a full system or just for the hot water? Has it been budgeted or will there be a special assessment? This a great way to save money and it's very helpful to the environment.
18) May I see a copy of the full rules and regulations for the property (prior to making an offer!) May I also have the phone number for HOA manager, the board members, the last two Presidents and the most "active" full time residents that live on the property. These are your REAL sources for finding out the TRUTH! Get in touch with them to ferret out the real issues and see what the "vibe" feels like. These are the people you will be dealing with in the future. They can be great, or they can be your worst nightmare. I have known people who are selling their condo in Hawaii just to get "away" from the HOA, management or grouchy/unreasonable neighbors. Good to know this before you sign on the bottom line.
19) Parking. Wow is this a big one. Will your unit have it's own parking space? Is it one or two? How is reserved or permitted? Is it deeded with the unit. How is it monitored or enforced? How many spaces per unit? Is off street parking near-by? How will your guest get access to the parking without being towed? Who issues tickets for violators. Can you leave a car in your spot when you are off-island? Are you allowed to cover it? What if your license plate expires? Are you allowed to have additional items like mopeds or bicycles? Some condos don't actually "own" the parking lot (they lease from a land owner) and you/your guests are charged an extra annual, monthly or nightly fee.
20) Where can I store my additional personal items? Does the unit have a lock-off closet? Are there additional storage areas for things like surf boards, body boards, chairs, beach gear? What about keeping items on the lanai? Most complexes have strict rules about what you can and can't have on your front porch / back lanai. It's good to know these rules ahead of of time and make sure you can live with them.
21) OK, one bonus area of questioning! Amenities. It's one thing to say your complex has a pool, a hot tub and a set of barbeque's. But why not ask about the quality and use! Is the pool salt water or chlorinated? Either way, how often is it cleaned (on-site or contractor) Be sure to jump in and test the water! Does it feel good to you, your spouse and kids? You may not like the way the salt water feels or tastes on your lips.
How about the temperature. Sure, it should be heated, but are they heating it enough in the winter to make sure you are comfortable? What about the hot tub? Is it really hot? Is it really clean? What kind of use it is getting. Probably a good idea to see the level of use during both peak season and during the evening hours. I have found many complexes have pools and hot tubs that are just too small and or cold.
How often do they clean the barbeques. Are they in good working order? Gas piped in, or tanks that need refilling? Does the clicker lighter work? Adequate number of barbeques for the amount of people grilling every night. Also good to know during peak season. Unless you like the smell of smoke and the sound of loud conversation, it's probably a good idea to make sure your bedroom window is not too close to this natural gathering place.
And finally the infamous "fitness" area. Would you actually work out in there? Is it clean? Has the equipment been changed since the era of Nautilus?
Many of these questions may lead you to discovering areas of opportunity or in some cases, dead end deal killers. Hopefully the answers you find are the ones you are looking for and all of your boxes will eventually get checked YES! Owning a condo in Hawaii is like owning your own slice of paradise...can be one of the greatest pleasure and financial rewards in the Hawaii real estate market today.
For more information please call Eric West at 808-298-2030