When it Quacks Like a Duck??

Ok, time to show my age again. If, like me, you can recall a time before residential condominiums existed, you’ll agree that for some time apartments looked like condos and rental units looked about like most condos. The concept that each unit could be individually owned was indeed quite creative.

Truth is, anyone born prior to 1961 predates the first condominium. I recall driving the Northeast Florida coast back in the early ’70s. Even sleepy little Crescent Beach was changing. Condos sprang up everywhere. Ownership caught on quickly. That period was critical to condominium development in Hilo as well. In fact, without notable exception, every condo building in East Hawaii was constructed during the ’70s.

Condominium ownership and occupancy is very different than either a single-family residence or an apartment building. Purchasing a condominium is very involved. There are condo docs noting covenants, conditions and restrictions, reserve evaluation, by-laws and minutes of recent meetings to consider. Remember, technically speaking condo ownership is really ownership of your own airspace with all else owned together with others. Overall maintenance plans are critical. Interestingly, Hawaii was the first in the nation to adopt condominium laws. We have several variations on the condominium ownership theme. Most do not apply to East Hawaii. To my knowledge, Co-op (Cooperative Apartment) ownership (technically a different “duck”) does not exist on Hawaii Island.

Condo-tels, resort condominiums and time shares are very common in West Hawaii but not East Hawaii. There are things you should know about each. Besides the documents and financial information, financing a purchase in a condo-tel or a resort property can prove challenging. Traditional lenders look for a predominance of owner-occupants. Condo-tels pool units renting them like a hotel. Time share units sell increments of time which means each could be owned by 52 (or more) different owners. And then there are those darn HOA (homeowner’s association) fees.

In both East and West Hawaii, these often run in excess of $800 per month. On the West side, resort fees increase the monthly cost of ownership. In East Hawaii, only townhome units are individually metered for power and water. Most condominium associations roll utility costs into the HOA. This means that utilities are not considered part of a buyer’s qualifying ratio for townhomes but will affect both a buyer’s ability to qualify and an investor’s ability to achieve positive cash flow when utilities are rolled into HOA fees.  Interestingly, the condo market seems unaffected by current market dynamics but the real take away is that if you are “duck-hunting”, be sure to choose an agent who knows which steps insure your condo “quacks” without any huge ownership surprises.