Thinking of keeping your property here as a rental when it comes time to leave island? Here are a few important things to consider when it comes to owning an investment property in Hawaii—as you can imagine, it’s not quite the same as on the Mainland!
Appreciation is the Name of the Game
Investing in real estate can take two primary approaches: focusing on cashflow or appreciation. When investors prioritize cashflow, they seek properties that generate consistent rental income, providing a steady stream of money that can cover expenses and yield a profit. On the other hand, investing for appreciation emphasizes the long-term increase in a property's value. This strategy often involves buying properties in markets with a history of strong, sustained price appreciation, such as Hawaii. Hawaii is considered an appreciation-based investment market because of its limited land availability, high demand from tourists and second-home buyers, and a thriving luxury real estate sector. Properties in Hawaii tend to appreciate over time due to these factors, making it an attractive market for investors looking to build wealth through property value growth, although it may not always yield high cashflow.
Hawaii Specific Costs to Consider with Investment Properties
Investing in property in Hawaii comes with specific costs and requirements that investors need to be aware of. First, there's the General Excise (GE) tax, which is a general sales tax imposed on business activities in Hawaii, including rental income. This tax can add to the operational expenses of your investment property. Additionally, Hawaii law mandates that non-resident property owners must have a property manager located on the island. This requirement ensures that someone is locally available to handle property-related issues. Furthermore, the Hawaii Real Property Tax Act (HARPTA) is another notable aspect of property ownership in Hawaii. HARPTA withholds a percentage of the sales price of a property when it's sold by a non-resident owner, essentially acting as a form of capital gains tax. These unique costs and regulations are important considerations for investors interested in the Hawaiian real estate market.
So Why Keep a Property as an Investment Here?
Despite the additional taxes and unique costs associated with owning an investment property in Hawaii, there are several compelling benefits that make it an attractive choice. Hawaii's real estate market has a long history of strong appreciation, making it a potentially lucrative investment. The high demand for rentals for military and DOD employees stationed on the island, and second homes due to the state's natural beauty and thriving tourism industry can lead to consistent rental income. Furthermore, the tax regulations in Hawaii may be offset by various deductions and exemptions available to property owners, making the tax burden more manageable. The beautiful scenery, pleasant climate, and the chance to enjoy your own property in a tropical paradise also offer a lifestyle benefit that's hard to put a price on. Investing in Hawaii real estate can be a financially sound decision, even with the additional taxes, due to its potential for long-term growth and the quality of life it can provide for owners.