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You Are From Canada and Want to Buy on Maui? Here's What You Should Know
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Maui has been an extremely popular destination for Canadians for decades and during that time they have done their fair share of buying and selling of property on the island. In 2021, Canadians collectively purchased approximately $61,000,000 of property in Kihei and Wailea. By far, Canadians most desired part of the island is South Maui.
Canadians also spent $24,000,000 on homes and condos in West Maui. These two areas are, of course, the main areas where short-term rentable condos exist on the island affording the owners to generate significant revenue when they aren’t using the condo for their own enjoyment. While most of our buyers from Canada are from British Columbia and Alberta, there are a few from further east, but not very many.
Having helped several clients from Canada on their path to purchasing property on Maui, I thought it would be useful to put together a short list of a few key considerations about the process of buying a home or condo on Maui specifically for Canadians.
1. Ask Yourself, Vacation Rentable Condo or Single-Family Home?
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It is important to consider how frequently you plan to visit the island and how long you intend to stay for each visit. Many travelers have exciting plans to spend months at a time on the island, and others may plan to travel back and forth frequently. However, with busy lives back home, this may not always pan out. A short-term rentable condo has the potential to generate significant revenue for you and offset most, if not all, of the ownership costs in the process.
You understandably want to get the most use out of your vacation condo or second home on Maui. With this in mind, you should consider factors like remote work capabilities, the cost to travel back and forth, and personal responsibilities in Canada that you may not be able to tend to while you are vacationing on the island. Since the maximum amount of time you can spend in Hawaii is 6 months a year, being able to rent out your home or condo while you’re gone makes a lot of financial sense.
2. Fee Simple vs. Leasehold
There are two primary types of property ownership on the island, fee simple and leasehold. You may be most familiar with fee simple ownership. This type of ownership conveys both the land rights and all of its structures and fixtures to you at closing. You are able to own the full property until you are ready to surrender it, such as by selling it to an interested buyer. You can do as you wish with the property within the constraints of local zoning requirements and community-specific usage restrictions.
The other type of ownership is a leasehold. This is more common on Maui, but many Canadians are unfamiliar with it. With a leasehold, you purchase the full rights to the structure. However, you will lease the land that the structure sits on. These leases are generally extensive, and they may cover a period of 30 years or more. The lease carries with the property. This means that you may purchase a leasehold property that only has 10 years remaining on the lease, or you may have only a few years remaining on the lease when you sell the property.
This can make financing a leasehold property challenging in some cases. At the end of the lease, the landowner has the ability to retake possession of the entire property. I generally steer my clients away from leasehold properties if the lease term is less than 30 years unless there is evidence from the lessor that the term is going to be extended.
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3. An Overview of the Process, Fees, and Taxes
There are some aspects of buying real estate in the United States that differ from the process in Canada. For example, the transfer of the property and deed is completed through the service of a title company and an escrow officer. The escrow officer will communicate any identified issues related to the property’s title history and other relevant matters prior to closing. This process may take several weeks to complete, so the title process usually begins as soon as a property is placed under contract in Hawaii.
There are also taxes and fees that you may not be familiar with through your previous real estate experiences in Canada. When you buy property in the United States, you will be responsible for escrow fees and title insurance. You may also need to pay for the appraisal, attorney’s fees, and inspection either before or at closing. If you've purchased a property in Canada with a company like Precondo, then you have likely already encountered this.
We also have HOA fees in all condo communities and in most residential subdivisions. These are known as Strata Fees in Canada but are essentially the same thing. They will typically cover a lot of inherent costs of ownership such as exterior insurance, water, landscaping, trash, sewer, etc.
4. Working with a Local Maui Lender
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Do you plan to purchase your new home or condo on Maui with a mortgage? You will need to work with a local Maui lender licensed to work in Hawaii to complete the process. Be aware that mortgages in the United States are available for up to 30 years.
While you do not necessarily need to have U.S.-based credit to qualify for some loan programs, having a credit history in this country may create a smoother overall process. Most loan programs available for foreign nationals purchasing U.S. property require at least 30% to 35% down. In addition, foreign nationals may have a loan rate that is .5% to .75% higher than what U.S. citizens may qualify for.
5. HARPTA and FIRPTA When You Sell
There are also a few factors to consider when you are ready to sell your Maui property as a foreign national, specifically HARPTA and FIRPTA. For example, you will need a TIN number to sell the property. This is also needed if you plan to rent out the home or condo for part of the year. HARPTA, which is also known as the Hawaii Real Estate Property Tax Act, requires sellers to pay 7.25% of the sales price at closing.
Foreign sellers are also required to comply with FIRPTA, which is the Foreign Investment in Real Property Tax Act. Under this law, up to 15% of the sales price must be withheld from the seller at closing. This is to ensure that the seller pays all required capital gains on the sale.
Explore the Options Today
Are you dreaming about buying property on Maui as a Canadian? The island offers a laid-back vibe along with a tropical paradise setting that is easy to fall in love with. Maui is popular among Canadian vacationers, so it is not surprising that many travelers decide to buy a second home on the island. Whether you are trying to decide if this is the right real estate move for you to make or you have already finalized your decision, there are a few things that you should be aware of before you start your search for an amazing property on the island.
Have you decided that buying property on Maui as a Canadian is the right move for you to make? Both single-family homes and condos on the island turn over quickly. With this in mind, it makes sense to be prepared to act quickly once you start searching for your new property. After you get prequalified for your mortgage with a local Maui lender and find the right Maui real estate agent to work with, you will be ready to get serious about your property search.
Get In Touch With Evan!
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Evan Harlow ranks among the best real estate agents on Maui annually and is in the top 1% of Coldwell Banker agents worldwide in production. Evan has the expertise, experience, and work ethic to help you achieve your real estate buying and selling goals. We promise exceptional service and support from the beginning of the process through closing and beyond. See what Evan's clients are saying on Google.
Posted by Evan Harlow R(S) on
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