What’s the difference between a condo/residential condo community and a vacation rentable condo or condotel?
This is a question that comes up often with our clients who are considering a condo as their Maui home or second home.
There are a few distinctions to keep in mind with condos here on Maui; a “Residential Condo” is what we typically call a community where Vacation Rentals are not allowed. They will not allow day to day or “transient” rentals within these type communities. If the units are rented, there is usually a six-month minimum for every lease. Many of our clients who are purchasing these Residential Condos are using them as second homes or vacation homes for themselves and their family.
In the properties that allow “Vacation Rentals”, also known as “transient rentals”, they may allow leasing by the day or a minimum number of days. These are many times managed by property managers that are onsite or from offices elsewhere on Maui. There are even properties that have additional restrictions, so we will discuss each community on a case by case basis. These may operate as a “condotel” and have a front desk which functions very similarly to a regular hotel, where guests can check in or lease an available unit.
Condo communities can vary from one to the next on various aspects concerning your new mortgage if you are not planning to pay cash, so this is another good reason to consider using a local, reputable Maui lender. A local Maui lender should be familiar with each community’s guidelines as far as what may be the amount of down payment required, available interest rates and which mortgage products are available in each case.
The communities or the County of Maui may have zoning rules or regulations that apply to usage of these Vacation Rentable properties. The user may be allowed or governed by these zoning rules or grandfathered in from previous rulings. There is a lot to consider when investing in a Vacation Rental property, but it can also be the best way to defer some of your expenses involved in ownership. You can let some of the other vacationers help you with the expense of ownership by leasing it out through the rental pool whenever you are not personally using the property. Be sure to consult your CPA or tax professional for all the details of your personal use and how to best utilize any tax advantages or other investment questions.
We may be able to acquire previous rental histories or income and expense information on any Vacation Rental properties that interest you, or perhaps other units with comparable information, for you to review and consider with your purchase.
We have property managers that we can recommend on a case by case basis and those may vary from community to community or in different areas of the island.
There are many great possibilities for your consideration here on Maui, so whether you are looking for a wonderful second home in paradise or you want something that can be used as a Vacation Rental whenever you are not here on Maui, we can help you find the perfect condo to fit your needs and lifestyle!
What is an “ohana”?
A separate livings quarters that typically has its own private entrance is usually what we are referring to on Maui when we discuss an “ohana”. On the mainland, these type units may be referred to as a cottage, garage apartment, caretakers cottage, guest quarters or mother-in-law suite. By whatever name you may know it, an ohana may provide additional living space or the opportunity to lease the ohana to a tenant for additional income possibilities. This last dimension typically adds value to homes that have legal or “conforming” ohanas.
You may hear the terms “conforming” and “non-conforming” when considering Maui properties with additional living spaces. These terms are usually used to distinguish the fact concerning County permits which may or may not be in place for any of these type improvements. Another aspect of a “non-conforming” situation is that an appraiser most likely may not be allowed to take any improvements in this category into consideration when calculating values on a particular piece of property.
Having an Ohana can be a great bonus to an already great possibility when considering the right Maui home for you. Together, we will check out the many facets and considerations which may be involved in each case, so that you will be able to make an informed decision on which Maui property will be right for you!
How much do property managers charge on Maui?
These rates are going to vary widely, based on how much of their services you decide to utilize. Some on-site property managers may be among the most expensive and others may offer smaller service packages at more competitive rates. Typically, we hear of rates being somewhere in the 20-50% range, but that doesn’t mean you should strictly judge by the rate on which property management company will be the best for you.
We will suggest that you interview at least two or more, and our recommendations may vary from community to community, so it is definitely not just a one size fits all answer. Having a vacation rental property is like having your own business, so different owners may choose to handle it in different ways.
You may just want an accounting and your check at the end of each month, or you may wish to be more involved. Some property managers may allow you to advertise and book your own condo when you can on VRBO or some similar site, at either a reduced or without a fee. So, if this is something that you are considering, you will want to bring that up during the interview process as you select the right property manager for your situation.
What is leasehold ownership on Maui?
Here on Maui and in Hawaii in general, there is a type of ownership known as “leasehold” that you may or may not be familiar with. It happens more often with commercial properties, but it can affect residential real estate as well. You may consider a purchase in a condo that is on leasehold property, and that means that while you are buying the structure itself, you do not own the land underneath. There is typically an additional payment each month for the “lease” of the land.
This is very different from the traditional “fee simple” type ownership that you may be more accustomed to in real estate ownership. “Fee simple” indicates that your purchase and ownership is both the structure, bricks, and mortar of the building plus the land it occupies.
This arrangement works out for some owners, because you may be able to buy a unit at a price that is attractive enough to make up for the additional payments, so this is not to say that you should never buy leasehold because it happens whenever it is right for the individual owners. Someone owns every leasehold condo here on Maui, so it obviously is the right situation for those homeowners. We run across it more often on some West Maui condo communities than in South Maui, but it is something to be aware of and that we can help educate you about when making your decision to purchase.
However, someone else or another entity actually does own the land under your home/condo. There will be a term to the lease, and at the end of that term, the terms can be re-negotiated, changing the lease amount – or in extreme and rare instances, the landowner decides that he wants the land back.
Whatever the case may be, we can help you to find the right property and consider all the variables that may be involved with Maui ownership, and leasehold ownership is just one of the possibilities and considerations that we can help you understand during your Maui home search.
Why are only certain condo communities allowed to have Vacation Rentals?
This gets back to what we had discussed earlier in the first question; County of Maui zoning and restrictions or “grandfathering in” of certain communities is what primarily designates which condo communities have the option of having Vacation (or transient) Rentals. Some condo communities will have further restrictions on exactly how those vacation Rentals may be utilized.
In certain areas, Airbnb may be allowed to operate short-term rentals in single-family homes or other types of properties. In Wailea, where our offices are located, none of the gated communities for single-family homes allows any type of short-term rentals. Many single family-communities that have more modern homeowners association restrictions and regulations may not allow any type of transient rental accommodations within their respective communities.
Bottom line, we can help you to find the right Maui home or condo based on your criteria and what your planned usage is for your Maui property.
Is it important to use a local Maui lender for my new mortgage on my purchase?
While you may certainly choose any lender that you would like when obtaining a mortgage for your Maui home purchase, there are many advantages to seriously considering a local Maui lender. Hawaii and Maui, in particular, is very different from anywhere else in the country – or in the world for that matter.
There are some differences in the types of properties and in the types of ownership here that a great Maui lender will be able to anticipate and advise you on when choosing your new mortgage product. The requirements such as an amount of down payment required, your personal ratios, and what types of loans that may be available, can vary from community to community. There are some pitfalls that a lender who is not local may not even be aware of, and we know of instances when there are “surprises” that come up at the last minute in the closing process – and not the “fun” kind of surprises – and things like down payment changes, interest rate changes, or other scenarios can play out.
So our advice is definitely interviewing local, knowledgeable Mortgage Officers who have experience with dealing with exactly the type of Maui purchase that you have in mind so that you have all the facts when you decide which lender and loan type is right for your situation.
What about signing, closing and recording?
In many places in the country, all of the parties involved may sit down together at the title or escrow company or at an attorney’s office to sign and close on real estate purchases. On Maui, it is a little different, and a little slower of a process because we are on an island, and the recorder’s office is over on Oahu, in Honolulu. So, when we have a purchase contract for your property, the time designated as the actual “closing date” will need to include the extra time required to “record” the sale here on Maui. Usually, this is a 48-hour process, so we will be working with the Escrow company to have all of the necessary documentation and all of the necessary funds at Escrow, two days ahead of the contract “closing date”.
For example, if your closing date happens to be on a Friday which also happens to be the 10th of the month, all of the necessary documentation along with all of the buyers funds and loans must be delivered to Escrow by no later than Wednesday the 8th (of our imaginary closing date example/scenario). We can expect to receive word early on that day of recording, usually in about the 8:00 AM hour, provided everything was in place and on time.
So, when we represent you in the sale of your home here on Maui, or in the purchase of your next Maui home here, we will advise and keep you informed or all of the dates within the timeline of the contract, including the closing date. We will also help you plan those dates and timeframes in advance, then help you to stay on schedule to keep up with your obligations under the purchase contract, while also tracking the performance and timing of the other party in the contract. We will advise and inform you of all the possibilities that pertain to your contract and situation, to help ensure the smoothest and most stress-free experience possible.
What are the property tax rates on Maui?
Glad you asked! There are various rates determined by the County depending on the usage of the property, so feel free to call us anytime to discuss your particular property situation and the potential tax implications.
You can see the current Maui County tax rates by visiting our Maui Tax Info page on this site.