Mistakes to Avoid When Buying Land in Hawaii

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Mistakes to Avoid When Buying Land in Hawaii
By

Bart Waldon

Hawaii is a paradise of islands located in the central Pacific Ocean. Known for its gorgeous beaches, lush forests, and aloha spirit, Hawaii is a dream destination to buy property and call home. However, purchasing land in Hawaii can be tricky if you're not prepared. Local laws, zoning regulations, hidden costs, and cultural practices should all factor into your real estate decision.

To help ensure your Hawaii land investment leaves you relaxation instead of regret, let’s explore some key mistakes to avoid when looking to buy property in the Aloha State.

Overview of Hawaii Property Market

Before jumping into common mistakes, let's ground ourselves in the current Hawaii real estate landscape.

The state of Hawaii is comprised of hundreds of islands, but main land masses locals refer to simply as "the islands" include Oʻahu, Maui, Lana'i, Moloka'i, Kaua'i, and the island of Hawai'i. Across these islands, you'll find diverse microclimates and lifestyles, all fueled by the state's tropical savanna climate that brings warm temperatures year-round.

Due to high demand from a growing population, foreign investment, and tourism, land values continue rising across Hawaii. In 2021, the median sales price for a single-family home reached $950,000. For just raw land, you can expect prices between $200,000 to $500,000 per acre depending on location and improvements.

Understanding the strengths of each island and region will help narrow your search and avoid overpaying. Work with a qualified local real estate professional to navigate unique regulations and property customs across Hawaii's islands.

Mistakes to Avoid

Mistake #1: Not Researching Local Zoning Laws

One major mistake when purchasing any property is not thoroughly researching zoning regulations on the land usage. This is especially critical for Hawaii, where complex zoning codes and special districts govern how you can develop and use land.

Hawaii's State Land Use Commission divides all islands into four districts:

  • Urban
  • Rural
  • Agricultural
  • Conservation

In addition, within the National Parks Service and State Parks system, conservation subzones carry additional protected status. Areas near the coast also fall under special management areas with development restrictions.

You must research how state and county zoning will impact any future housing or agriculture plans for your land. Be sure to work with an experienced real estate agent to request proper zoning documentation and review county codes covering:

  • Minimum lot sizes
  • Setbacks from property lines
  • Building heights and density
  • Permitted uses (residential, commercial, agricultural etc.)

In particular, pay attention to restrictions on subdividing lots in rural and agricultural areas. Without diligently studying zoning allowances, you risk major losses trying to split and sell smaller unusable parcels.

Mistake #2: Failing to Account for Hawaii’s High Cost of Living

Hawaii consistently ranks as one of the most expensive states for cost of living, with housing alone 65% higher than the national average. It’s critical to factor Hawaii’s high taxes and prices into financial projections before buying land.

On top of a 4-5% state income tax, you’ll pay the second highest property taxes in the country, along with elevated costs for utilities, food, gas, healthcare and other services.

If looking to develop land, material and labor expenses run 20-30% higher than the mainland U.S. due to Hawaii’s remote location. Even basic construction tasks like clearing land or running electricity can become complex projects across Hawaii’s rough terrain and isolated communities.

Without properly accounting for high operational expenses, taxes, and development costs down the line, Hawaii land that initially looks like a good value buy can quickly become a money pit. Consult experienced localized professionals to appropriately appraise expenses related to your land's location and plans.

Mistake #3: Not Vetting Property Condition and Access

Hawaii’s tropical climate rewards vibrant vegetation growth, but also extensive termite and pest populations that can compromise buildings. Older structures often show faster weathering than other states.

When evaluating land with current houses or buildings included, don't assume you can inhabit or remodel existing structures without extensive inspection. Be sure to thoroughly vet foundation integrity, wiring systems, roofing, plumbing, and other infrastructure. Prepare budgets for potential major remodels down the line.

Also validate legal access to the property through public roads or protected easements across neighboring lots. Some smaller subdivided parcels surrounded by private land may not guarantee future entry rights. If accessibility relies on informal trails or private owner approvals, ensure proper legal entitlements are recorded before closing any land purchase.

Mistake #4: Not Understanding Water Rights

Across Hawaii’s islands, balancing water allocation represents a delicate dance between agricultural interests, native water rights, urban development, sustainability groups and government regulators.

Rainwater collection serves as a primary fresh water source for many rural residents. However, drilling wells or tapping into Hawaii's underground aquifers requires extensive permitting along with pumping capacity monitoring.

Some properties, especially along coasts experiencing sea rise or salt contamination, deal with brackish groundwater requiring desalination for drinking and irrigation.

When reviewing any land purchase, thoroughly research included water rights, neighboring water usage, permitting needs to upgrade water access, and any conveyance limits on water quantities or waste water disposal.

Future prohibitions on local water collection or aquifer tapping could severely inhibit buildable potential for raw land purchases. Consult with civil engineers and environmental attorneys to fully validate water adequacy for your plans.

Mistake #5: Assuming Fast Profits from Raw Land

The allure of scooping up cheap raw land for fast profits serves as a common draw for out-of-state investors. However, practical realities of developing remote land into profitable ventures often proves more complex in Hawaii's tightly regulated environment.

As an extreme example, a three-acre agricultural lot listed for $550,000 in Maui recently triggered over 25 bids with the final sales price running upwards of $5 million - nearly 5X the asking rate! This bidding frenzy demonstrates demand for land outstripping supply.

However, economic concept of "highest and best use" shows that property value relies on realistic monetization potential. Despite high sale prices, Hawaiian property improvements often run into extensive permitting delays along with exorbitant development costs that strain profit generation estimates.

Meanwhile, approved projects for luxury second homes and hotels deal with multi-year construction timelines and sales ROIs subject to dips in tourism and luxury spending during economic downturns.

Instead of banking on quick flips from raw land purchases, vet property improvement plans with qualified Hawaii general contractors, county officials and financial analysts to accurately model investment payback schedules.

Key Tips to Buying Land Successfully in Hawaii

While we just covered several mistakes that can quickly turn a Hawaii land purchase into a money losing burden, plenty of smart real estate plays exist across Hawaii's islands. Here are some best practices to setup your ideal property investment:

Work with Local Real Estate Experts

The intricate patchwork of microclimates, remote locales and complex regulations make it essential to work with qualified Hawaii-specific agents and property teams. Local experts live and breathe regional zoning codes, geographic advantages for valuation, construction costs and local best practices. Leaning on seasoned local guidance will help avoid costly missteps.

Conduct Extensive Due Diligence

In addition to zoning laws, validate terrain, utility access, water rights, environmental impact and a litany of other legal and property factors before entering any deal. Prepare for extensive permitting needs that will extend project timelines. Model conservative budget estimates and avoid rosy profit projections that often popup with Hawaii land investments.

Focus on Cash Flow, Not Appreciation

While Hawaii development costs run high, rock solid market demand from tourism, rich transplants and international investors help buffer major pricing dips even during past economic turmoil. Instead of banking on risky appreciation plays, craft land improvement strategies that generate consistent cash flow to finance further regional expansion.

Live Local Before Committing

Before fully committing funds towards any Hawaii property, spend extensive time across different islands and neighborhoods to find the right lifestyle fit. Hawaii offers dramatically different experiences ranging from peaceful off-grid lots to vibrant urban Honolulu high rises. Map personal preferences to geography early to avoid future lifestyle letdowns.

Consider Alternative Ownership Structures

Given Hawaii’s high land values, explore alternative buying structures like purchasing shared land trusts or fractional ownership slices that allow pooling funds across multiple partners. Intentional co-ownership models can open doorways to owning a piece of paradise that perfectly aligns budget with envisioned usage.

Final Thoughts

For sunseekers, paradise chasers and savvy real estate investors alike, owning a slice of Hawaii property often tops bucket lists as the golden dream land investment. However, many complex practical factors determine if raw land actually delivers financial freedom instead of headaches. By avoiding key mistakes and leaning on trusted local guidance, your chances for Hawaii land buying success soar.

With mindful research, legal validation and tactical financial planning, you’ll be relaxing carefree on your own private oasis soon enough. Here’s to making a sound Hawaii land purchase that leaves nothing but smooth sailing and sunshine days ahead!

Frequently Asked Questions (FAQs)

What kind of land zoning restrictions should I be aware of in Hawaii?

You need to research each island county's zoning laws covering issues like minimum lot sizes, building densities, setbacks, permitted land uses, etc. Hawaii also has State Land Use Commission districts dividing land into Urban, Rural, Agricultural, and Conservation designations with their own development rules.

How much more expensive is property in Hawaii compared to the mainland US?

Hawaii property itself can be 2 to 5 times more expensive than comparable mainland lots. And ongoing costs for construction, utilities, supplies and even basic services run 25-50% higher across the islands. Make sure to use localized projections.

Are there issues around accessing water for Hawaii properties?

Yes, accessing fresh groundwater requires extensive permitting, monitoring and rights limitations in Hawaii. Some coastal areas also deal with brackish / salt contaminated water requiring expensive mitigation for drinking and irrigation. Vet all water access issues before buying land.

Can I quickly build and flip raw Hawaiian land for big profits?

Not likely, especially as an out-of-state investor unfamiliar with Hawaii’s demanding regulatory environment. Extensive permitting delays, exorbitant material costs, multi-year construction timelines and finicky luxury tourism demand all make fast raw land profits extremely difficult.

How important is working with local Hawaiian real estate experts?

Extremely! Hawaiian real estate dynamics involving microclimates, cultural regulations, remote locales and complex ordinances require specialized regional expertise. Attempting Hawaii land buys without seasoned local guidance frequently leads to disastrous financial outcomes for outside investors.

About The Author

Bart Waldon

Bart, co-founder of Land Boss with wife Dallas Waldon, boasts over half a decade in real estate. With 100+ successful land transactions nationwide, his expertise and hands-on approach solidify Land Boss as a leading player in land investment.

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