Real Estate on Kauai
Buying real estate on Kauai follows very much the same process as buying real estate anywhere else in the United States, despite the fact that a large percentage of the real estate on Kauai is purchased as a second home. Whether the home you are seeking to purchase is intended to be your primary home or a vacation home, follow these steps and you will find yourself very well prepared for the process.
What’s Your Credit?
Most people have no idea. Unless you’re going to pay all cash for your new home, you need to get a credit report and make sure that everything is in order. If it isn’t, you should work to fix any problems you encounter before you consider speaking to any lenders about a loan.
Can You Really Afford It?
The general rule for a primary home purchase is that you should aim for something that is about 2 or 3 times your annual salary, though many buyers often find themselves paying 4 to 5 times their annual salary. If you are considering real estate on Kauai as a second home, will you be renting it out to cover the costs of ownership? Either way, you need to be fully aware of what the costs will be for taxes, insurance, maintenance, association dues and other mandatory dues and assessments, all in addition to your mortgage expense, and make sure you either have that amount covered in your personal budget or feel comfortable that the property can generate enough income to cover it.
Get Educated About the Buying Process
Buying real estate on Kauai is a very exciting prospect, but also a very serious one. If you are unfamiliar with any parts of the buying process, look for resources that can help you get better educated. One option you can consider is picking up a copy of my free 65-page Buyer’s Guide that covers topics like: 7 Steps to Becoming a Homeowner, What a Buyer’s Agent Should be Doing for You, Flow Chart of the Life Cycle of a Real Estate Transaction, Rent vs. Buy Considerations, The Closing Process, Why You Need Title Insurance, and more. You can request a copy HERE.
Learn About the Market
Learn as much as you can about the market for real estate on Kauai before you start identifying properties. Knowing what the macro market trends are will help you get your bearings and see the bigger picture as to whether or not this is a good time to buy, what type of market cycle you are in, and help to set expectations regarding where the market may be heading. Pick up a copy of my comprehensive, 20-page Kauai Real Estate Market Report to get the process started; you can request a copy HERE.
Buy to Hold
When buying real estate on Kauai, or anywhere else, you really need to make sure that you can commit to owning it for some time – preferably at least 3-5 years – unless you have a very strategic plan to buy it and sell it quickly as a “flip”. If you end up selling sooner than 3-5 years down the road, even if the market is strong, it is possible that you may still end up losing money when you add up all of the transaction costs associated with the purchase and sale.
You Don’t Need a 20% Down Payment
Although it’s hard to get a loan if you haven’t saved much money, there are both public and private lenders who, given the right credit and qualifications, may offer low interest mortgages that require less than 20% for primary home purchases. However, if you don’t have 20% saved anyway, you may want to consider whether you are ready to incur the financial risks associated with owning property.
Points and Rate on a Mortgage
When choosing a mortgage, you’re usually given the option to pay additional “points”. Essentially, you’re buying a lower interest rate when you pay points. The interest rate is a big factor in your monthly payment, so a lower interest rate means a lower monthly payment. However, be careful because when you buy down an interest rate, that money that you use to buy it down is gone for good. If you expect to own your real estate on Kauai for a while, it may very well make sense for you to consider paying the points to buy down the rate.
Location, Location, Location
You don’t like to swim and you don’t have any kids; does that mean you shouldn’t buy a beautiful beachfront home in a great school district if you can find a great deal on it? These may not be required criteria when you’re looking to buy, but when the time come to sell, it can make a difference. Above all, if you want to ensure good resale value, make sure that your real estate on Kauai is in generally good repair, is located in a decent school district, is not adversely affected by local ordinances, and is probably not located directly along a main road or intersection (or other noisy area).
Get Pre-Approved, First
A lot of buyers of real estate on Kauai decide to go searching for homes before obtaining “pre-approval”. This is not the same thing as “pre-qualification”, (which most people won’t take seriously since it’s based on what you say your finances are). A pre-approval is based on actual income, credit, and debt history, and will let you and your agent know exactly what you can afford. It will also put you in a better position to make a strong offer when you do find the right house, and have that offer taken more seriously. If you would like a short list of active local Kauai lenders to get the process started, you can request a contact list HERE.
Get a Home Inspection
A home inspector will come in and identify potential problems that you may encounter down the road. This is crucial, as it may affect how much you are really willing to pay, or whether you even want to buy the property at all.
Consider Title Insurance
When it comes to real estate on Kauai, what you don’t know really can hurt you. After the sales contract is accepted, a public records search will be conducted to ensure the home has a ‘clear’ title. However, in many cases, this search can still fail to turn up potential issues that can arise down the road, which can lead to litigation in court and possibly even loss of your property. Title insurance will protect you if these issues arise.