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Old 05-30-2013, 02:32 PM
 
Location: Portland, OR
1,082 posts, read 1,294,800 times
Reputation: 1215

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My wife and I are forming a long-term plan to move to her native Hawaii when she retires in a few years, assuming I still have a job from which I can telecommute (I'm a few years younger and will need to continue working). We're a fan of the HGTV show Income Property with Scott McGillivray, finding it to be one of the least-scripted HGTV shows. For those who don't watch it, he helps people buy homes that have an area that can be converted to a separate apartment. He then renovates it to make it an attractive, up-to-code apartment. The rental income, even with the renovation cost figured in, lowers the owner's portion of the mortgage, sometimes dramatically.

We're considering this as an option. We almost certainly would live on the Big Island, where most of her family is Ė either Hilo or Kona, although we like Waimea, too. She also has family on Oahu, and we'd gladly live there, but housing is out of our price range. Ideally, we'd like a house with an ohana suite that we could afford without needing to rent it out, that we could use to house visiting friends and relatives, rent out part-time to vacationers, and, if we did need the income, rent out full time as an apartment. Is this a common thing to do in Hawaii? Would some areas be better for this than others? (On the one hand, Kona gets more tourists than Hilo. On the other hand, Hilo seems to have fewer rental units available.) I've been reading up on the realities of being a landlord anywhere, but are there any Hawaii-specific things we need to consider, such as zoning laws determining where you can have rental units, and whether a vacation rental is classified differently from an apartment rental? Assuming we're up for the responsibilities that go with being a landlord, is this something that is financially advantageous in Hawaii? Are there many properties with existing ohana suites, or properties that could be converted relatively easily?

With my wife's Social Security, pension, and 401K savings, and my Mainland salary (and, eventually, SS, pension, and savings), we'd be able to living quite comfortably on the BI. There is, however, that period before I retire that could be a struggle if I lost my job, so we want to cushion ourselves with additional income sources such as rental, part-time jobs, or a side business. If my job remains stable, then this other income would be gravy.
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Old 05-30-2013, 05:07 PM
 
Location: Volcano
12,771 posts, read 10,814,722 times
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"Ohana means family" ~ Lilo & Stich

Ohanas are specific to Hawai'i, yes. The word is Hawaiian for "extended family," and in Hawaiian real estate law it applies to a second dwelling unit on a property, whether attached or unattached, whether studio or 4 bedroom structure, which is essentially an extension of the main residence. The key distinction is that a permitted ohana in this sense does not have a kitchen, because a family is expected to eat together. And the detail to this is that an ohana can have 2 out of 3 of the following, but not all three: sink, refrigerator, stove. In many areas ohanas cannot legally be rented, especially if they were built without a legal permit to begin with, so use some caution in evaluating your options. Don't assume an ohana unit is legally permitted, and even if it is built legally, don't assume that you can legally rent it.

Yeah, a lot of people cheat on this, putting in a microwave or a hot plate after the inspections are finalled out on their construction, advertising ohana rentals on CL, and enforcement is generally pretty lax on the rental issue, but I think it is important to know that the intent of the law seems pretty clear that ohana units not be used as rental units. And that means that if you do so, you could be in a vulnerable position legally if you have a dispute with a tenant or an unhappy neighbor decides to rat you out. One of the local web sites had a long, drawn out discussion not too long ago about the perils for both landlord and tenant when an ohana rental goes sour, and ultimately the landlord in that case, who was trying to evict the tenant so her son could move in, wound up under order to deconstruct the garage apartment/ohana conversion, restore the property to permitted status and to cease and desist renting it.

Here's an article about the general situation from a Honolulu perspective. They have some other factors such as converting ohana properties into condos that don't seem to apply on the BI.

http://the.honoluluadvertiser.com/ar.../ln/ln52a.html

There are also previous discussions on the topic here on CD which you can access with the search function.

Other factors to consider are that if you rent out property in Hawai'i while you are not a resident, you are required to hire a local property manager. You also have to declare and pay GET on rental income, and for vacation rentals you also are required to pay hotel tax.

Here is the website to find out about the State Residential Tenant-Landlord Code.

HRS Chapter 521 - Residential Landlord-Tenant Code — Department of Commerce & Consumer Affairs
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Old 05-30-2013, 05:43 PM
 
Location: Portland, OR
1,082 posts, read 1,294,800 times
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Thanks for the clarification and the other information, OpenD! We definitely would want a legal rental unit with a full kitchen. I had thought that "ohana suite" was just the Hawaiian equivalent of "mother-in-law suite," which typically is a full apartment attached to a house, so it's interesting to learn that it has a specific legal definition.

I did try searching the CD Hawaii forums on several key phrases. I found plenty of threads and posts by people wanting to rent, but none by people who own or want to own rental units. I did find some in other forums (particularly Real Estate, as expected), but I'm specifically interested in the situation in Hawaii (which might not be significantly different from anywhere else).
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Old 05-30-2013, 07:02 PM
 
Location: Volcano
12,771 posts, read 10,814,722 times
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Quote:
Originally Posted by HonuMan View Post
We definitely would want a legal rental unit with a full kitchen.
Your real estate agent can help you by checking the TMK tax maps to see what is permitted, but a quick check is to see if there is just one electric meter for both units. If so, it's probably not a legal rental unit, even if it is a permitted ohana. People looking for rentals often learn that "utilities included" indicates an illegal rental. Another problem tenants run into is an illegal rental will be denied a separate mail box by the Post Office, and they may not be able to get mail delivery.

So even though it's a fairly common "evasion" in these parts, and many consider it not to be a big deal, I personally wouldn't want the potential complications in my life.
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Old 05-30-2013, 07:29 PM
 
1,730 posts, read 1,531,957 times
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Some more things to think about as you do your research:

Some ohana units on Oahu (I don't know if it's the same on all islands) are "grandfathered in", which allows for ohana units where neighbors might not qualify for one. Also an owner can be "grandfathered in" for running on a single meter (both for electric and for water). In that situation, the landlord picks up the electric/water costs and cannot "divide it" up between tenants. [In the end, the tenant still pays because the landlord just jacks up the rental amount a bit to cover the usage.]

Some areas covered under HOAs forbid ohana units, converting garages, and having too many unrelated people living in a household. So that is something to check on before purchasing. This would be in addition to any county regulations.

You can have a "roommate" situation, which is legal, as long as you've not added things like a kitchen.

In an illegal rental unit vs landlord dispute, the tenant will usually prevail.

You might have the nicest neighbors in the world, but that does not mean they will be agreeable to a stream of tourists frequenting their neighborhood.

A knowledgeable realtor could be very helpful (although, I see ads and MLS postings by realtors that are blatantly breaking HOA rules, if not also county laws, which accentuates my point of having a knowledgeable realtor).

My advice: don't do anything illegal, and you won't need to worry about problems down the road.
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Old 05-30-2013, 08:36 PM
 
Location: Portland, OR
1,082 posts, read 1,294,800 times
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Thanks, both of you. Yes, we would only do something that's completely legal. We want as low-stress a lifestyle as possible, and being a legitimate landlord comes with enough hassles as it is; the primary question is whether the income would make it worthwhile. My first trip to Hawaii, in 1996, was at a charming B&B in Kapa'a, Kaua'i. (Actually, it was just a B at the time, because the owner was in Singapore on business and didn't cook for my friend and me.)

My wife and I recently got back from a stay at a B&B on Orcas Island, Washington. The owners and the other guests were wonderful -- it seemed to attract a certain type of like-minded guests. (Orcas reminds us very much of the BI in terms of the friendliness and attitudes of the locals). We wouldn't want to operate a B&B full time, because it's a huge amount of work, but doing it on a part-time basis, like the guy in Kapa'a did, might be fun.
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Old 05-31-2013, 04:17 PM
 
8,251 posts, read 6,792,891 times
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Not legal to rent them out, but many people do. Here's the problem that I can see:

For a long time, the government ignored unpermitted houses in Puna. If you got caught, you could get a permit and inspection retroactively. However, policy has now changed and the county is cracking down on unpermitted buildings and I have heard that they no longer issue the retroactive permit and inspection. (I did not verify about the permits)

So, say, they ignore the renting of the ohana this year. That does not mean there is no policy change coming in the near future. The government is in the mood to craack down on zoning and building permit violations.

Right now there is a multiple dwelling property for sale in Puna, which looks quite nice. I do not know if building permits were obtained. There is also a property in Hilo that is either a small hotel, or an apartment building of studios. Both might be worth looking at.

I saw both of them on Craigslist (I think, because I also read the multiple listings a couple of times every month)
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Old 05-31-2013, 05:17 PM
 
Location: Volcano
12,771 posts, read 10,814,722 times
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Quote:
Originally Posted by oregonwoodsmoke View Post
For a long time, the government ignored unpermitted houses in Puna. If you got caught, you could get a permit and inspection retroactively. However, policy has now changed and the county is cracking down on unpermitted buildings and I have heard that they no longer issue the retroactive permit and inspection. (I did not verify about the permits).
As I understand it they had an amnesty program for a while to try to encourage wider compliance with the codes and regs, and were issuing "As Built" permits that met certain standards. Some people took advantage of it, but I believe that ended several years ago.

Quote:
So, say, they ignore the renting of the ohana this year. That does not mean there is no policy change coming in the near future. The government is in the mood to craack down on zoning and building permit violations.
This is a key point, as far as I am concerned. Slowly, and gradually, but most definitely, things are tightening up in Puna... just as they are elsewhere in the state. The aerial photography that I posted about in another thread is just one of many new tools the County is using to sniff out illegal construction, both to get it brought up to code or into compliance, but also to increase the property tax base. And responsible property owners who pay full taxes are getting sick of non-contributing deadweight are beginning to file complaints, even lawsuits, to pressure government enforcement of the laws on the books.
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Old 05-31-2013, 06:30 PM
Status: "Brrrrr" (set 22 days ago)
 
Location: Springfield, VA
639 posts, read 438,868 times
Reputation: 532
In northern Virginia the counties were forced to reasses every year as a result of a lawsuit. That means everything permitted is reviewed every year and aerial photography is updated every two years to find everything else. The good part of doing it that way is you know how much your property is worth and no one skates on an old assessment, so taxes are appropriately spread around.

If you have are taking advantage of an out of date assessment, you might not like more frequent and harder looks at your property.
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Old 06-01-2013, 02:44 AM
 
Location: Moku Nui, Hawaii
5,975 posts, read 9,753,300 times
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The tax folks wander around once a year to keep things updated so there aren't any old assessments. Each year they send out a notice of what they estimate the value of your building to be. The tax folks don't talk to the Building Department folks, though.

An "as built" is a set of drawings done after the building is built. Hence the term "as built". And they are still being done. However, the building will have to be brought up to code before it will get it's permit approved. This was also true during the "amnesty" phase, too. All they did during the amnesty was omit the penalties and fees associated with an "as built". Since those penalties and fees were just paying double the permit fee and permit fees at that time were just a couple hundred dollars there was no real incentive for folks to get a permit before building if they were anxious to start construction. Which is one reason why we have so many un-permitted buildings around.

Relying on a Realtor to find you a legal rental unit is a risky business practice, IMHO. They don't usually look at that sort of thing very clearly and frequently you'll see listings where they claim you'll be able to build another residence on the property or that you'll be able to rent a part of it out when it's not legally true. You'd do best by doing your own research. Most of the information you'd need is all in the public domain and is fairly easy to find.
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