Tips for buying land on the Big Island
In 2021, land sales on the Big Island exploded, especially in Hilo and Hamakua. In fact in Hamakua, land sales increased by 74%, and in North Hilo, land sales increased by 400%! For more information on the market in 2021, see my post on 2021 market report here.
Many buyers gravitate towards buying land with the idea or building their dream home or becoming self-sufficient. However, there are many considerations when purchasing land.
The first consideration when it comes to buying land is your purpose. What do you plan to do with the land? Do you want to farm the land or are you just looking to build a home? If you are planning on buying land to farm, some good advice would be to get a soil test to see the quality of the land you are buying. Also, what is the average rainfall of the area you are purchasing? Likewise, make sure you are aware of your zoning, which will dictate what you can build on your land. Is it residential zoning or ag? Are there CC&Rs that restrict specific types of homes? These are all questions your Realtor should be able to answer based on the TMK of the property.
2. Secondly, how will you purchase the land? If you don’t have the cash to pay for the land, you will need to get financing. Getting financing for land requires a higher down payment than purchasing a home, in which typically, a down payment of 25-30% is required. There are programs through Hawaii Farm Loans and the USDA which require a lower down payment, however, there are quite a bit of hoops to jump through to qualify. There is also an option of a construction loan, however, there are some prerequisites for that, which include the necessity of architectural plans completed and permits pulled. The process for a construction loan takes at least 90 days, which can complicate an offer in a competitive market. Another option could be owner-financing, which does happen pretty commonly in Hawaii. The owner of the property acts as a “bank” and once the house is built, the new owner refinances with a traditional bank and pays off the seller. However, again a large down payment is usually required as some security for the seller.
3. Another consideration when it comes to buying land is what utilities are available. Many of the vacant land sold requires catchment tanks and cannot get a water meter. Insurance companies require at least a 6000 -8000 gallon catchment tank to be installed. Likewise, is there power available? If so, what is the cost to hook up to HELCO? Many properties in the South Hilo and Puna area have an SSPP fee, which is an assessment that the power companies charge to install and hook up to the electrical grid. This can cost $3000-$5000. Lastly, wastewater. Cesspools are no longer permissible on the Big Island, and hook up to the sewers is not common, so a septic tank will be required to be installed. This starts at $10,000, however, there are many considerations that can raise that price.
4. Lastly, what is the process for obtaining permits and the costs associated with building? The Big Island is steep and many of the properties have large lava rocks, so you most likely will need to grade the property. Then there is the cost for building, which is currently is around $160 if you go the do-it-yourself route, however hiring a contractor will cost you a minimum of $50 extra per square foot. You will want to have plans drawn up by an architect, or you can purchase pre-drawn plans from places like HPM. You will then apply for the building permits, which approval can take anywhere from 4 months to a year, depending on how busy and backlogged the permitting department is. Once plans are approved, you may start your building process either with a contractor or as an owner-builder. As an owner-builder, a homeowner acts as their own contractor. However, all electrical and plumbing work must be performed by contractors licensed to perform that work. In the second phase, inspections occur and continue throughout each stage of construction. The inspector will close out the permits at the end of the build.
As you see, there are many considerations one should look into in regards to buying vacant land. If you have any further questions or want to know what land is available on the Big Island, please feel free to contact me below.