What to Do After Inheriting Land in Hawaii

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What to Do After Inheriting Land in Hawaii

Bart Waldon

Inheriting property across the scenic Hawaiian islands may sound idyllic at first yet comes with major decisions as a new land steward. As recent government data shows, roughly 1.47 million total acres currently occupy agricultural use for grazing livestock, cultivating tropical crops and more. Private families collectively own the vast majority of this acreage over time. With intergenerational transfers looming, Hawaiians getting bestowed land face various options - from preserving a legacy to liquidating for capital gains. 

Before charting the right course, get educated on key considerations regarding your inherited Hawaii property like location specifics, current market value and entitlements, latent tax implications and potential encumbrances tied to previous ownership interests. Visiting the land also gives indispensable perspective guiding choices balanced through an emotional lens. While the allure exists to retain paradise parcels, selling or repurposing Inherited Hawaii land ultimately requires due diligence and clarity around goals motivating next moves.

Get Organized and Review Legal Documents

Once you've inherited a property, step one is to get super organized. Dig up every document related to the land - the deed, tax records, mortgage info, insurance policies, bills, you name it. Comb through all the legal paperwork to fully understand what you've just become owner of. Map out the property boundaries, check for any easements or liens, and know your responsibilities. It's smart to consult a real estate attorney to ensure you have 100% clear title. This makes it much easier down the road if you want to rent out, sell or develop the land.

Assess the Property Condition

After getting your paperwork ducks in a row, make a visit to the property to scope things out. Is there a house, farm, or just vacant land? Look for any damage or disrepair issues that need fixing. Get estimates for necessary renovations or cleanup projects - it could be termite removal, mold remediation, electrical wiring repairs or more. It's also wise to get liability insurance in case of accidents. Document the property's condition thoroughly with photos and videos. Keep all records of expenses and repairs for tax purposes later.

Research Local Zoning Laws and Development Potential

Get up to speed on how the land is currently zoned and what you can legally build on it. Hawaii has strict zoning laws to preserve the natural environment and prevent overdevelopment. Any changes you want to make likely require lengthy approval processes. Talk to your county planning department to explore options like subdividing for multiple homes, building a vacation rental, or getting commercial/agricultural use permits. And investigate if water, sewer, electricity and other utilities are readily available on the lot.

Decide Whether to Keep, Rent Out or Sell the Property

Now comes the big choice - should you keep, rent or sell the inherited land?

  • Keeping the property lets you use it as a vacation home or eventually retire there. You can develop the land over time. However, you must pay all fees, taxes and upkeep costs.
  • Renting out the home or land provides regular income to cover expenses. But being an out-of-state landlord takes work, from finding tenants to handling maintenance issues. Property management companies can help but charge 25-30% of rent.
  • Selling the land can free you from the responsibilities of ownership and give a lump sum of cash. But it takes time to prepare the property, list it, market it, negotiate with buyers and close the sale. Real estate commissions typically cost 6% of the sale price. The market may also not be favorable for a quick sale.

Carefully weigh the pros and cons of each option based on your personal situation. Don't rush into a decision.

Estimate Costs of Ownership

Owning land in Hawaii costs more than many realize. Be prepared for expenses like:

  • Property taxes - These vary by county but often range from 0.27% to 0.32% of the assessed value. For a $500,000 property, that equates to $1,350 to $1,600 per year.
  • Insurance - Homeowner's insurance averages $1,500 per year. Additional liability coverage is wise if renting out the property.
  • Maintenance - Budget at least 1%-4% of property value annually for upkeep costs, including landscaping, repairs, pest control and more.
  • Association fees - If part of a homeowner's association, monthly dues often start around $100/month.
  • Utilities - Electricity, water, sewer, trash collection and other bills add up too.
  • Legal/accounting fees - You may incur lawyer and accountant costs for property taxes, estate planning, rental contracts and more.

Don't forget travel costs for periodic property inspections and management if living remotely.

Explore Financing Options if Needed

Depending on your financial situation, you may need a loan or refinancing to afford the inheritance costs. As the new property owner, you have financing options like:

  • Cash-out refinance - Taking out a larger mortgage to tap home equity, good for renovations.
  • Home equity loan or line of credit - Borrows against equity and offers flexible repayment.
  • Personal loans - Unsecured so higher rates but usable for any purpose.
  • HELOC - Home equity line of credit, revolving credit against home value.
  • Reverse mortgage - Allows seniors 62+ to convert equity to cash and delay repayment.

Compare rates, fees, loan amounts and other features when choosing the best loan for your needs. Consult a financial advisor and lender. Be conservative with borrowing to avoid taking on excessive debt.

Claim Available Tax Deductions

Owning a property in Hawaii comes with a range of potential tax deductions to help defray costs:

  • Property taxes - 100% deductible if itemizing on federal and state returns.
  • Mortgage interest - Up to $750k in mortgage interest can be deducted federally.
  • Insurance premiums - Deduct payments for homeowner's and title insurance.
  • Maintenance costs - Expenses for landscaping, house cleaning, repairs and improvements can qualify.
  • Management fees - If renting out the property, management fees are deductible.
  • Depreciation - Rental properties can be depreciated over 27.5 years for deductions.

Consult a tax professional to maximize write-offs and maintain accurate records. Deductions can significantly reduce your annual taxes owed.

Explore Installment Sale as an Exit Strategy

If selling the inherited land, an installment sale offers a useful exit strategy. The buyer pays a portion upfront and the remainder over several years. This provides regular income vs. one lump sum. Installment sales allow for a potentially higher sale price and spread out capital gains tax liability over time. You can also charge interest on the financing provided to the buyer. Just be sure to consult a tax pro and attorney to structure the deal properly. Require strong buyer credit checks too.

Market the Property Smartly When Selling

If putting the inherited Hawaiian property on the market, maximize its sales potential through smart marketing:

  • Hire a top local real estate agent familiar with the area and recent land sales. Avoid discount or part-time agents.
  • Make any necessary repairs and cleanup to showcase the property in its best light. Curb appeal matters.
  • Promote the listing online across real estate sites like Zillow and social media. Target Hawaii-specific platforms.
  • Leverage the agent’s network and contacts to find potential buyers faster.
  • Highlight aspects like ocean views, development potential and proximity to attractions.
  • Consider auctioning the property if needing a quick sale.
  • Be prepared to wait upwards of a year for the right buyer in a slow market. Set a realistic asking price.

Proper planning and patience is key to maximizing sale proceeds.

Consider an Investor Sale for a Fast, Simple Process

Rather than the lengthy open market route, selling to a real estate investor provides a fast and straightforward option. Investors like Land Boss buy properties in Hawaii at fair prices with all-cash offers.

The advantages of selling to an investor include:

  • Speed - The sale can close in as little as 7-10 days rather than waiting months.
  • Simplicity - Investors handle all the paperwork and there are no showings.
  • Cash sale - No need to provide financing or wait on banks.
  • No commissions - Investors buy properties as-is so you avoid realtor fees around 6%.
  • Flexibility - Investors work with any inheritance situation and property condition.
  • No repairs or cleanup - Investors take on any fixes needed so you avoid those costs.

If needing to sell inherited land quickly in Hawaii or realize its value sooner, connecting with investors is worth exploring. They will make fair cash offers based on recent area sales and market data.

Land Boss has been buying and selling Hawaii real estate for over 5 years. We purchase properties to add to our rental portfolio or develop. Contact us anytime for a no-obligation discussion of your inherited land. Our team can provide guidance on maximizing its value.

Get Support and Take Your Time Evaluating Options

Inheriting any property can be a daunting responsibility. Seek trusted advice from real estate attorneys, tax professionals, and financial advisors as you navigate decisions. Join local landlord or real estate investment groups to learn from others with experience. Take your time thoroughly evaluating all options - don't let the pressures of taxes, repairs and other obligations force you into quick decisions you'll regret. With careful planning and strategic moves, inheriting Hawaiian land can prove to be a true windfall over the long-term, allowing you to realize financial, lifestyle or legacy goals.

Final Thoughts

Inheriting land in Hawaii opens up a realm of possibilities, from keeping it as a vacation retreat to selling for a profit. Yet with great opportunity comes great responsibility as the new owner. Manage inheritance costs wisely, research your options thoroughly, and get experienced advisors on your side. With strategic planning, you can maximize the value of your inherited Hawaiian property for income, lifestyle enjoyment or a future windfall. Whether you become a landowner, landlord or liquidate into cash, let the property lead you toward your goals rather than become a burden. Inheriting land in paradise is a rare gift - handle it with care and make the most of this once-in-a-lifetime chance.

Frequently Asked Questions (FAQs)

Do I have to pay inheritance tax on land I receive in Hawaii?

No, Hawaii does not collect any inheritance tax, so land passed down to heirs is not taxed. However, the property's value may be subject to federal estate taxes.

Can I claim the homeowner's exemption on inherited property in Hawaii?

Yes, you can claim the homeowner's exemption on inherited property even if you do not live there. This provides savings on property taxes.

How long does probate take for inherited land in Hawaii?

Probate timelines vary, but expect 6-9 months on average in Hawaii. The process can be longer if there are any disputes among beneficiaries.

Can I transfer inherited property into a trust in Hawaii?

Yes, you can transfer inherited land into a living trust to avoid going through probate. Consult an estate planning attorney to create the trust.

If I inherit land jointly with siblings in Hawaii, do I have to split sale proceeds evenly?

Inherited property with multiple beneficiaries does not necessarily have to be divided equally. The will may stipulate different percentages. Consult an attorney to understand your share.

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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