Moving to Hawaii is on many people’s bucket list, and sooner rather than later always sounds like a good plan. If you have a smaller budget of under $10K or $20K, the only real choice you have is to buy vacant land. Buying vacant land can be a little tricky and there are a few things you need to know to make sure it is the right choice for you.
We have lava zones in Hawaii and that can affect your future building plans. Most of the cheaper vacant land choices are in lava zones 1 and 2. According to the insurance company, this means that the risk is higher that lava may be present in the future or that you may be cut off from the main towns. Obviously, we can’t be sure of what nature will do, and there are lots of homes in both of these lava zones. Although you can get a loan in these zones for buying an existing home, most lenders won’t finance the construction of new homes in either of these zones. When you buy vacant land, you may have to build your home using your own cash rather than financing which could limit what you have planned for the future.
Buying vacant land with a budget under $10K doesn’t leave much money left for the actual land itself. There will be escrow fees of at least $500 and often double that. If you plan on building on it, you will need to add a septic system, which can also be costly. We have a fee from the power company on the Island called SSPPs. This is a fee that is given to each lot of vacant land by the power company that you must pay before they will bring temporary power to your lot. When the subdivisions were first laid out, the power company ran lines in anticipation of people moving here and buying lots. They split the initial cost per lot and when you hook up to the grid, this will have to be paid. This is usually about $1000-$2000 but can be much more depending on where the lot is. Many subdivisions have a transfer fee when you purchase your vacant lot of at least $200 as well. If these fees are a part of your $10K budget, your actual funding for the land has just gone down 1/3.
Another thing to keep in mind when buying vacant land on a budget is the resale value in the future. Although vacant land prices move up and down, the cost of selling the land is sometimes prohibitive with land under $10K to $20K. There is an escrow fee when you sell your lot and it can easily be $500-$1000. There is also a commission to both the buying and selling Brokerage which usually runs 10% plus the General Excise Tax of 0.4166% on that 10%. This means that a $10K vacant lot will cost you somewhere around $2000 minimum to sell just for starters. If you aren’t a Hawaii resident, add another 5% for what is called the HARPTA tax. Non-US resident adds an additional 10% called the FIRPTA tax. It doesn’t take long when you decide to sell your vacant land for it to be worth much less than you have into it.
Finally, you will notice that it is hard to find a Realtor to talk to and to take you out to look for vacant land under $10K to $20K. This is because Realtors only get paid on commission. Although the Brokerage receives 5%, this is split with the Realtor, and by the time the Realtor takes a day to drive around and pays for gas, writes up an offer and does all of the paperwork through the escrow process, it is not cost effective for them to even take the phone call. The way to get around this is to go directly to the selling agent. They not only may have inside information on the vacant land, if they write it up and work both sides, they may make enough to return your call and work through the process.
Buying vacant land on a budget is something that can be done, but make sure you understand all of the things that are working in the background so you don’t get caught up, in the end, owing more money than your land is worth. I don’t want to discourage your dream, I just want to make sure you are educated in the fees associated with purchasing vacant land with a budget under $10K to $20K. If you feel you understand the costs and are ready to push forward with your vacant land purchase, don’t forget to contact the listing agent. You will have a better chance of getting that call back. Aloha!