Before you get your feet wet in Hawaii real estate market, you should get yourself familiar with some local real estate terms and laws.
First thing you need to know about Hawaii real estate is that you don’t always own the land when you buy a property.
Sound strange? Yes, it does.
Most people only know of one type of real estate ownership; fee simple, also known as freehold. There are only a handful of states (i.e. Hawaii, New York, Florida) that have another form of ownership known as leasehold.
It is important to know the difference between fee simple and leasehold property. The difference in these two types of land tenure can significantly affect the value of the real property.
Fee simple ownership is probably the most familiar form of ownership to buyers of residential real estate. Depending on where you are from, you may not know of any other way to own real estate.
Fee simple is sometimes called fee simple absolute because it is the most complete form of ownership. The titles of both the property and the land on which the property sits transfer to the new owner at time of closing. The fee simple owner has the right to own, use the land and dispose of the land as he wishes--sell it, give it away, trade it for other things, lease it to others, or pass it to others upon death.
On the other hand, in a leasehold property transaction, only the title of the property is transferred to the new owner at closing. The title of the land on which the property sits is not affected. What you’ll get as the new owner of the leasehold property is the leasehold interest as a “lessee”. This agreement gives you the right to use and enjoy the land as a fee simple owner ONLY for the duration of the lease. At the end of the lease, the land goes back to the land-owner.
Why buy leasehold properties?
Hawaii Property Tax
Honolulu has one of the lowest real property tax rate in the country. As of June 2013, Honolulu home owners pay $3.50 for every $1,000 of the taxable property value. Property taxes are assessed on 100% of the fair market value of the property and are administered by the counties, with each county having different property tax exemptions.
Besides, having the lowest real property tax rate. Hawaii homeowners also enjoy property tax exemption.
Who qualifies for home exemption? You are entitled to the home exemption if:
1. You own and occupy the property as your principal home (“real property owned and occupied as the owner’s principal home”) means occupancy of a home in the county with the intent to reside in the county. Intent to reside in the county may be evidenced by, but not limited to, the following indicia: occupancy of a home in the city for more than 270 calendar days of a calendar year; registering to vote in the county; being stationed in the county under military orders of the United States; and filing of an income tax return as a resident of the State of Hawaii, with a reported address in the county;
2. Your ownership is recorded at the Bureau of Conveyances, State Department of Land and Natural Resources, in Honolulu on or before December 31 preceding the tax years for which you claim the exemption. In the case of a lease, the document must indicate that the lessee has a lease for residential purposes for a term of five years or more and will pay all property taxes;
3. You file a claim for home exemption (Form P-3) with the Real Property Assessment Division on or before December 31 preceding the tax years for which you claim the exemption.
How much is your home exemption?
The standard home exemption on your principal residence in the county of Hawaii (Big Island) is $40,000. If you are age 60 to 69 the exemption is $80,000 and if you are 70 or older, the exemption is $100,000.
The home exemption in the city and county of Honolulu is $80,000. If you are 65 or older, the exemption is $120,000. If you have an existing home exemption on file, you do not need to re-apply. The exemption amount is automatically increased depending on your age. There are progressively higher exemptions if you are 75 or older and your household income is not more than the low-income limits established by the United States Department of Housing and Urban Development.
The basic home exemption in Kauai is $48,000. If you are age 60 to 69 you can claim a $96,000 exemption and if you are 70 or older the exemption increases to $120,000. If your adjusted gross income for the preceding year is less than $40,000 you qualify for an additional $55,000 exemption.
In Maui, the homeowner exemption on your principal residence is $300,000.
If your sight or hearing is impaired or you are totally disabled, you qualify for an additional exemption. This exemption also applies if you have Hansen's disease and are hospitalized or under temporary release. The disability exemption is $50,000 in the Counties of Hawaii and Kauai and $25,000 in Honolulu and Maui.
If you are a veteran and are totally disabled due to injuries while on active duty, your principal home is exempt from all property taxes except for special assessments and the annual minimum tax.
Widows or widowers of totally disabled veterans are also eligible for this exemption as long as they remain unmarried. Once you are granted a disability exemption you do not have to re-file each year as long as you meet the disability requirements.
Lanai is the sixth largest island in the Hawaiian Island chain. It is located in between Maui and Molokai.
In local language, Lanai also means balcony in Hawaii.