Canadians Must Be Diligent When Purchasing Hawaii Real Estate

Hawaii House by Savageblackout
Hawaii House by Savageblackout

For many Canadians, the opportunity to invest in Hawaii real estate is the perfect mixture of business with pleasure. Although Hawaii is not known as a strong short-term cash flow market, its reputation as a stalwart long-term equity market has made it a perennial favorite among those with a comparatively patient investment strategy.

However, it is critical that buyers (regardless of their nationality) perform due diligence and are well aware of any material facts that could reasonably affect their investment. As such, any potential buyer of Hawaii real estate whose goal is to use their property as a vacation rental should be knowledgeable of the legislation that was introduced at the state level earlier this year.

Changes in legislation

Hawaii House by Matt Sims
Hawaii House by Matt Sims

Click here to view the evolution (through various iterations) of HB 2078 to HB 2078 HD2 SD2 CD1, the measure which was passed final reading on 05/01/2012 and is scheduled to become effective on 07/01/2012.  The Bill, in its early iterations, would have required all off-island owners to have an on-island property manager to handle their rental matters, which due to the high costs of those services would have put many investors into a cash-flow negative situation and possibly down the path of foreclosure. Due to the high level of opposition, by very vocal/eloquent Canadian groups, the Hawaii Association of Realtors, and others, the Bill morphed to its current state under which off-island owners would be required to display their GET license number on all online advertisements/solicitations (to aid the appropriate tax agency in enforcing tax collection) and to designate an on-island contact. The requirement of forcing owners into using property managers to handle their rental affairs and submit the appropriate taxes was dropped, thankfully.

However, a potential buyer should keep in mind that it is not outside the realm of possibility that similar proposals could be presented in future legislative sessions. Canadian buyers launched the development of South Maui in the early 1980's and for those who held on, the rewards were handsome. The point of this post is not to be an alarmist (far from it), but to remind buyers that due diligence is important, to include being informed with current/proposed legislation.

With today's current market conditions, there are opportunities to invest in Hawaii real estate but it is incumbent upon buyers to be prudent and account for possible scenarios that could potentially hinder their profit margin. Aloha.

This guest post was contributed by Alex Cortez, a Realtor with Island Sotheby's. Visit his Maui Blog for current information and news.

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