The Risks of Buying Real Estate on Maui

What Are The Risks of Buying Real Estate on Maui?

Selling real estate on Maui, or anywhere for that matter, is rarely, if ever, as glamorous as the reality TV shows like Selling Sunset or Million Dollar Listing make it look.

My day-to-day life as a Realtor looks a lot more like early morning emails with 17 open tabs on my Chrome browser, hours a day in my car driving around the island for appointments or check-ins, often making the whole circuit from Upcountry to Kapalua to Wailea and back while making calls and texts, to return home, just to send a few more emails. 

The best part of my work day is when I’m with clients, either on the phone or in person. I spend the rest of my time in front of the soft glow of my iMac, moving deals forward and researching/creating the content here on my website.  

When I’m with clients, that’s when I really get to share what I’ve learned in the business and help guide them on their journey to buying or selling. 

And unlike Selling Sunset, we don’t spend all of our time oohing and ahhing over the incredible views and finishes of the properties (admittedly, we do spend some time doing this). 

We spend a lot of time discussing the risks, expenses, tax implications, legal land uses, and, honestly, looking for reasons not to make a purchase. 

This is a valuable exercise because how can we know what we want, unless we really know what we don’t want? We certainly don’t want to make a bad decision with such a significant acquisition as Maui real estate.

So, rather than write an article designed to sell you on Maui Real Estate, I’m going to dive into the risks associated with buying property here.

I will also discuss some ways to manage those risks in the purchase process by being educated and having a thorough due diligence period.

Let’s jump into it. 

Universal Risks of Buying Real Estate Anywhere

Ideally, from the moment we buy a piece of property, it starts to appreciate in value. However, that's not always the case. Real estate markets are cyclical, shifting slowly over time and not easy to time with our personal needs/reasons for wanting to make a purchase.

Maui real estate values are heavily influenced by the broader macroeconomic factors that move the national housing market. Mortgage interest rates are a key factor determining broader real estate market cycles. These cycles are very rate-sensitive and determine whether values will generally appreciate or depreciate.  

As a basic rule of thumb, as interest rates decrease, buyers jump into the market, demand increases, and values tend to rise; when interest rates increase, buyers get priced out, demand decreases, and real estate appreciation typically slows, stops, or we see depreciation. 

How much they rise or fall during these rate cycles depends on micro-market factors. Whether or not we are in a buyer's or seller's market with inventory is a local Maui real estate market factor (Maui is in a strong buyer's market in condos and a neutral buyer's market in residential properties). 

Other variables for values are associated ownership costs and the individual desirability of the property.

These factors include increasing property taxes, possible HOA fee increases or assessments, insurance premiums, if the property is a leasehold or fee simple, occupancy rates/rental market factors, and local government regulations. Maui is seeing increasing ownership costs in several categories, which I will circle back to in more detail. 

We are now at the beginning of a rate-easing cycle; however, the Fed is proceeding cautiously and slowly because of the lack of data about longer-term inflation impacts from tariffs and a declining job market. 

How quickly interest rates are reduced will determine the macro factor for the national and Maui real estate markets, and right now, it appears to be a slow path toward more rate decreases, meaning we should see a more neutral market in pricing nationally, with potential for improving values in 2026. 

Time in the Market >Timing the Market

Ken Fisher, founder of Fisher Investments, is famously credited for saying, “Time in the market beats timing the market- almost always.” This quote, of course, was referring to the stock market, where even the best investors are wrong ⅓ of the time. 

This principle applies equally well to real estate. It is very difficult to time the market. The people who thought it was too risky to buy in 2020 and were waiting for a ‘crash’ missed out on a historic run of real estate appreciation. Things didn’t look great, and when it seemed the market had turned, some thought the run would end and kept waiting until they were priced out.

Buying when it makes financial sense to you personally and then holding as long as possible is the most tried and true method of making good investment decisions in real estate. 

It’s rarely a good time to buy for everyone, but it only needs to be a good time to buy for you.

Environmental Risks of Buying Real Estate on Maui

This is where things get interesting. Being a tropical island in the middle of the Pacific Ocean, Maui is subject to tropical weather from time to time. Being surrounded by the ocean, Maui has areas that are also experiencing erosion. 

Considering Sea Level Rise Exposure

While there are different theories on why certain areas of the island are seeing significant erosion (Kahana, for example) and others are not (Wailea), either way, any oceanfront property or property near the ocean needs to consider sea level rise exposure. It is now a required disclosure from sellers who live near the ocean. 

You can visit the Hawaii Sea Level Rise Exposure Viewer here to see if a property is in the 3.2 ft of sea level rise expected by NOAA to occur in the next 50 years. During the purchase of any property on Maui, you will have time to review this possibility. 

Aging Seawalls

Sea level rise is an issue for the most desirable type of properties on Maui, oceanfront properties.

When oceanfront condo complexes and homes were being built on Maui en masse in the 70’s, 80’s, and 90’s, the use of heavily fortified seawalls was predominant.

New research has shown that seawalls can cause damage down the coast, and new regulations even prohibit the repair of existing seawalls and other measures we call coastal hardening on most properties.

It’s critical to evaluate any existing seawall on a property as if it cannot be repaired in the future, unless there is specific guidance from the state or county that repairs can be performed. We have experts who can analyze the existing structure and provide an assessment of its life expectancy when pursuing these properties. 

Beyond sea level rise, we shift to concerns around hurricanes, flooding, high winds, and fire related to drought.

Of course, these concerns aren’t limited to Maui; they affect coastal real estate across the United States, like Florida, as well as fire-prone areas like California. 

Hurricanes and Hurricane Insurance

Fortunately, Maui’s exposure to hurricanes has been minimal and doesn’t face the same annual threats as the Caribbean and Florida. No hurricanes have ever made a direct landfall on Maui (knocking on wood while I type this).

Condo complexes have hurricane coverage in their master policies. 

Residential homeowners should carry an additional hurricane policy supplemental to their home insurance policy. If you have a mortgage on your property here, the bank will require you to carry hurricane insurance (on my home, it's about 2k a year). 

A hurricane doesn’t need to make direct landfall to cause property damage.

When a hurricane warning or watch is issued by the National Weather Service, your home insurance policy is essentially nullified, and without hurricane insurance, your home won’t be covered for any damage caused during that event. 

Flooding and Flood Insurance

Flood insurance caused by excessive rain is not generally available on a residential property without an extraordinary premium.

Flooding from water fixtures in the home is covered in the standard home insurance policy, though. Ensuring the property you purchase is not in a flood plain is essential. 

There are very few properties built on Maui that are in a flood plain. Developments and zonings were done to allow for adequate drainage, in most cases.. 

Our weather on Maui is undoubtedly unique. Kihei is one of the driest areas in Hawaii, with 10 inches of annual rainfall.  Yet, it is subject to some of the most flooding, particularly in North Kihei, because of its location at the bottom of a 10,000-foot mountain.

Haleakala is massive and an incredible amount of rain can fall at higher elevations and in the rainforest areas of Haiku and Makawao.

The amount of water that needs to drain to the ocean is sometimes extraordinary and a few complexes near the drainages can see their first floors get flooded. 

It’s critical to do our due diligence as it relates to flood plains and this is always part of mandatory disclosures when purchasing property on Maui. 

Risks Associated with Fire

This is a new concern on Maui. After the Lahaina fires of August 8, 2023, the concern has been central to the risk assessment process for buying anywhere on the island, but particularly in the drier areas like West Maui. 

One of the things people love about our resort areas of South Maui and West Maui is that it rarely rains and we have that quintessential warm and sunny Hawaii weather. That weather comes with its risks and for years, we never thought what happened in Lahaina could have ever happened.

Now we know it can, and thankfully, much is being done in the rebuilding of Lahaina to prevent that from ever happening again.

Now, when looking at properties, we certainly want to always assess the risks it may face from fire and consider if the property is vulnerable or not. Condo complexes of wooden construction have faced skyrocketing insurance premiums and HOA fees, which have driven up costs of ownership and caused values to decrease. Concrete buildings and stucco construction with metal or ceramic roofing are less fire-prone and can mitigate some of those additional costs. 

A Massive Risk: Not Reviewing Condo Documents Properly and Assessments on Condo Complexes

Not knowing about an assessment on a condo complex while purchasing it is one of the biggest mistakes one can make in the purchase process.

An assessment can be as small as 5k per owner for new landscaping up to 400k per owner (like recently at the Montage Residences) to repair all of the exterior stucco of the buildings from spalling damage. 

It is the responsibility of the seller and of the managing association to disclose even the discussion of an upcoming assessment; however, this knowledge can often be buried in the association documents. 

Every buyer and buyer’s agent should carefully review the condo documents during the contingency period of the purchase contract known as M1.

Specifically, the RR105 is a lender’s disclosure, also known as the project information form, from the association that will reference a possible assessment. Some owners don’t read their quarterly board meeting minutes and may not know of the assessment to mark it properly on their seller's disclosure.  

So, we MUST carefully review the meeting minutes in the condo docs like detectives looking for a clue about a potential hidden cost that could turn a great purchase into a bad purchase. 

Local Government and Zoning Risks on Maui

If you’ve been watching Maui real estate since May of 2024, you’ll know that apartment-zoned short-term rental condos have been under siege from the Mayor’s misguided attempt to create affordable housing. Bill 9 seeks to unconstitutionally take away the vested property rights of owners of short-term rentals with apartment zoning. 

Recently, a list of condos that are recommended to be exempted from this was produced by the Temporary Investigative group of the Maui County Council, and the first reading of the Bill will happen in December, with a final vote expected early in 2026.

Whether or not the bill, if passed, will meet the legal litmus test when it eventually goes to court is up in the air; however, a similar effort was made on Oahu in 2022, and the Federal judge denied the county’s right to take away those short-term rental rights. 

Knowing What You Can and Can't Legally Develop on a Property

Beyond understanding emerging government and zoning issues on Maui, it's essential to understand what you can and cannot do with your property within the current zoning laws.

This is particularly true when developing agricultural properties on Maui, doing a CPR (condominium property regime), or operating a short-term rental within the rules.

Values of properties are greatly connected to their highest and best use, and understanding what those are legally is essential to correctly assessing value. 

Easiest Risk to Overcome: Hire a Professional Home Inspector

The easiest way to save money when buying a property on Maui is to hire a professional, licensed home inspector.

You wouldn't believe the things that these guys find that the average person would never see, and on almost every property, especially on new construction properties, the inspectors will save a new homeowner thousands, if not tens of thousands of dollars, in hidden defects in need of repair. 

In some instances, the inspectors find severe defects that can 'kill the deal' and my preferred inspection company is owned by a guy known affectionately in the business as ' the deal killer'. 

When we find items in need of repair as a buyer we can usually have the items repaired or negotaite a credit from the seller to cover the costs of repairs once the buyer takes possession. Never skip the inspection. 

STR/TVR Risks: Occupancy Rates and Rental Income Variances

When purchasing a short-term rental as an investment property, it is critical to find a unit that generates consistent revenue to support the ownership costs and to hopefully create positive cash flow.

When occupancy rates and nightly rates increase, prices rise; as they decrease, listing prices don’t always follow suit with decling returns in a timely manner, as sellers become reluctant to lower their asking prices. 

Maui has seen a decline of about 20% in annual revenue on the average short-term rental property since the Lahaina fire.

Part of this, early on, was the inconsistent messaging from the state and county about Maui being ‘open’ for tourism and not clarifying that sooner.

More recently, it's been inconsistent messaging about the short-term rental ban, making potential guests wonder if the unit they rent will be allowed as a rental when they arrive.

National economic factors impact tourism numbers in a noticeable way and with prolonged inflation and rising prices everywhere, travel becomes one of the first areas consumers pull back on. 

That being said, specific complexes and certain units will consistently outperform the market, and when considering this type of investment from an ROI perspective, it's important to manage this risk by knowing and seeking out which properties can outperform the market.

That’s where an experienced agent comes in handy. 

The Biggest Risk of Buying Property on Maui? Not Working with a Local Expert

Well, of course, if you have read this far, I have to include a call to action for my services! I do pride myself on not only knowing or being familiar with, but having expert-level subject matter command on every aspect of buying or selling ALL of the different types of properties in every area of Maui.

Having an educated, dedicated buyer's agent who is not focused on 'closing the deal', but rather ensuring the best outcome for their clients is invaluable. 

This is just what I love to do and am fortunate to have had a lot of success with.

I would be more than happy to help you avoid making any mistakes and to manage the risks as best we can during the purchase of your next property on Maui, so feel free to give me a call or text at 808-214-4799 or email me at evan@mauieliteproperty.com.

Get In Touch With Evan!

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.

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