Buying Multi-Units and Investment Property in Hawaii

[Eric Doe]

Good Afternoon! I am hoping someone can help me answer a few questions or offer some experience with properties in Hawaii. We are seeking a multi-unit, potentially to owner-occupy with an available VA loan, but may just settle on fully renting it out.

First, many homes in Honolulu County seem to have a very high assessed (taxed) value - regardless of what the asking price is or recent sales.  Is this common or is this an inflated rate that needs to be formally argued and reduced?  Do you have any experience contesting these assessed values?    

I notice the opposite happens with assessor/market value in other states since the assessed is typically only a percentage of the market value - but there is not rhyme or reason with Hawaii's!   

Also, the Big Island has many properties with multiple units or detached dwellings.  However, the listings frequently state they are not permitted .   Does this mean we will have issues with the county, assessor or bank if we decide to purchase?  Or if we want rent out the attached dwelling or second house?   

I appreciate any input you can offer! 

[Isi Nau]

Aloha Eric.

For most areas and properties on Oahu the assessed value is below the market/appraised value.  Which is good for the owner (less taxes).  There are some properties (value add) and areas (West) in which the assessed value is above the market value, but this is only a small percentage of the market.  In the multi-unit sphere there are even fewer properties selling below assessed value.

The C&C will reassess the values each year.  The formula for doing so is definitely not perfect and often works out in favor of the home owner.  

I have never contested the assessed value for our properties because in every case it would have hurt us by actually raising the assessed value/taxes.  During the recent recession there would have been more reason to have the assessed value adjusted, but the result would have been minimal  For example, if the assessed value was $100k over the market value, and the owner was successful in getting the tax department to close this gap, it would result in an annual savings of $350 (assuming it is owner occupied).  For most people it's not worth the trouble.  Also by the time the C&C got around to making the adjustment, the property values would have probably increased, closing the $100k gap, making the petition even less appealing to the owner.

As a side note, the county tax rates (not assessed values) were recently adjusted higher.  Oahu has the highest increase and now has a two tiered system, effecting only nonowner-occupant homes.

For nonconforming properties on Oahu, the biggest issue will be financing.  Banks will only appraise the home for it's legal configuration.  For example if a 1200 sq ft home had an addition built on without permits, and the home is now 2500 sq ft, the bank will only look at the original 1200 sq ft and base your loan off of that value.  If the zoning does not allow for multi-unit/family living and you're renting out multiple units, the county could step in, but it rarely seems to happen.