What's to know about a Condo?

Condominiums actually originated in Hawaii as a way to maximize real property - by building ownership vertically!  Because they continue to be a popular choice in purchasing for both residents and visitors, I decided to drill down a bit deeper into condominiums.

Condo Statistics

Here on Maui condominium purchases account for a majority of real estate transactions closed each month - averaging between 80-100 each month.  The median price has risen to $445,000 in 2017.  Over the course of the past few years, as the market continues to strengthen, we have experienced increasing volume and sales price for condo units.  

For anyone looking to purchase on Maui it is very important to get all of your facts straight and understand the market.  Hawaii condominiums can be a bit complicated especially if you are not from an area that has such a economic reliance on tourism.

Fee Simple or Leasehold

First of all, there are many different types of condominiums and those differences are critical factors when making a purchase decision.  Here on Maui we have condos that are Leasehold and Fee Simple.  Leasehold properties are in essence long term rentals.  You pay for the unit, but you do not have an ownership interest in the land and when the lease on the land expires so does your unit ownership.  I typically advise clients to look at only Fee Simple properties which fit the traditional description of condos.  You own the unit and have an interest in the common areas and land on which your condo sits.  For the purposes of this article, I am talking about fee simple only.

Now we need to explore the next level of condo classifications.  There are three types of condominiums and their distinctions can be very subtle but very important when it comes to purchasing.

Warrantable Condominiums

This is the most traditional type of condo.  Warrantable basically means that it can be financed through agency or federal sources - for example Freddie Mac or Fannie Mae.  There are many requirements, but one of the most important criteria is that the complex is at least 51% owner occupied.  That means either owners who live there full time as their primary residence, or owners who reside part time as their second home.   Because these properties are financeable through traditional and governmental sources, the downpayment requirements can be very small.  While this may sound very straightforward, this is not the most typical type of condominium on Maui.

Non-Warrantable Condominiums

Condominiums in this category may look exactly like the ones outlined above, but there are some important differences.  Most of the time it has do with the owner occupancy level falling beneath 50%.  With high real estate prices, there is a large and consistent demand for long term rentals.  Long term rentals are defined as six months or longer.  Short term (or vacation) rentals are also a common factor determining non-warrantable condominiums.  If the Homeowner's Association Rules allow for vacation rentals the complex will fall in to this category. Short term rentals are generally defined as rentals less than one month.  If you are buying a condo in this category and using financing, you can expect a slightly higher interest rate and a larger downpayment.

Condo-tels

In a vacation destination like Maui, condo-tels or Condo Hotels are relatively common.  What defines a condo-tel is the presence of some amenities that are commonly found in hotels. These can be things like a reception desk, concierge, activities desk, etc.  These types of condominiums are treated very differently by lenders.  Many mainland lenders are not familiar with this type of property and will not lend on them.  If you are looking for a condo of this category the best thing to do is contact a local lender who is acquainted with the various classifications of condos and can provide financing options.  As a note, condo-tels typically require a larger downpayment than traditional condo financing.

Get Informed

My best advice in this, and any considered purchase, is to gather all of the information you need to make an informed buying decision.  Your realtor will be able to help you identify properties that fit your needs and desires.  Realtors will also know the different classifications of condos.  You also need to obtain information from a lender.  Understanding your options and the financial requirements for each s is a critical piece when making a purchase decision.  You don't want to get in the middle of a transaction only to discover that your bank will not lend because of the condo classification. Especially for condominiums, I do recommend talking to a local company for financing.  They work every day with the three different types of condos.