Information for Foreign Nationals

For many foreign nationals, purchasing properties in Hawaii is the perfect mix of business and pleasure: Buy an investment property in one of the best long-term equity markets in North America and enjoy basking in the sun on ‘trips’ (vacations) to perform due diligence on said investment.  A weak US dollar (compared to many foreign currencies, particularly the Canadian dollar) is resulting in great opportunities to buy Hawaii real estate.  But as always, there are a few key factors to consider:

* Tax liability – Under the Hawaii Real Property Tax Act (HARPTA), the buyer of a property in Hawaii is responsible for withholding and deducting a tax equal to 5% of the amount realized by the seller upon the transaction’s settlement. In addition, similar to HARPTA, under FIRPTA, the buyer of real estate in Hawaii (as well as elsewhere in the US) is responsible for withholding and deducting a tax equal to 10% of the amount realized by seller upon the settlement of the transaction. So although this is not critical to the purchase of real estate, potential buyers must keep it in mind as they will be liable for these taxes upon selling.

*  1031 Exchange – Owners of real estate in the US can delay taxes on real estate sales through a 1031 Exchange, which does not have equal counterparts in a number of other nations.  Put simply, a 1031 exchange permits that capital gains from the sale of property to be ‘rolled’ into the purchase of a similar type of property (i.e. a residential for a residential) if the transaction is completed within 180 days. This 1031 Exchange can be done multiple times in order to defer  capital gains until the property is finally sold and not replaced within the allotted time period prescribed.

*  Financing – In the US, purchasers of real estate enjoy a plethora of choices when it comes to financing, with banks and lending institutions competing with each other for business (who can offer the most attractive rates/terms).   As there may be penalties and costs which are not typical (or allowed) in your home country, it pays to be diligent when researching financing options.  Consider seeking a mortgage through a bank that operates in the US but is owned by larger corporation in country of origin  or dealing with a Hawaii lender who.

Purchasing Hawaii real estate can be an attractive investment vehicle for many, including foreigners, but diligence can pay dividends.