hawaiian luxury collection: volume iii, number 1

w w w . H a w a i i a n L u x u r y C o l l e c t i o n . c o m

Homes

and Estates

From Around

Hawaii

Volume III, Number 1

HAWAIIANLuxury Collection

Volume III, Number 1

Homes

and Estates

From Around

Hawaii


Cover Property

Located in one of Wailea Resort’s premier gated communities, this single-level, custom constructed three bedroom, two bath residence overlooks Wailea’s “Blue” course onto dramatic ocean and mountain views. Attention to detail is evident throughout, with finishes of travertine, granite, bold crown molding, recessed lighting, coffered ceilings, electric solar screens and surround sound system. Visit www.WaileaLuxuryEstates.com or call Brad MacArthur, BIC, for more details, 808-357-5000.

Wailea Golf VistasWailea, Maui, HaWaii

The Shops at Wailea3750 Wailea Alanui, Suite B-51Wailea, Maui, HI 96753t: 800-879-1991 • f: 808-879-6481www.WaileaRealty.com

Published by Real Property Marketing Group, Ltd.4212 San Felipe, #449Houston, Texas 77027713-622-5551www.HawaiianLuxuryCollection.com

INTHISISSUE

Featured articlea First look at a second Home 2

luxury real estateHawaii 4

© Copyright 2011 Hawaiian Luxury Collection. All rights reserved. No part of this publication may be reproduced without written permission from the publisher. Printed in the U.S.A. The publisher will not be responsible for any omissions, errors, typographical mistakes or misinformation within this publication.

GeorGe H. laneChairman

dick lewisPresident

robert s. HodGdonmarketing

bonnie mcFerrenadministrative assistant

sHay tidwellProduCtion manager

roxanne l. PattersonProduCtion direCtor


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In the current economy, home prices have dropped and mortgage interest rates have been lingering in record-low territory since midway through the second quarter. These

conditions have presented opportunities for many who have been hesitant to purchase a vacation home or investment property in the past, when costs were much higher. For those who are able to pay the additional mortgage, taxes, insurance, repairs and maintenance on an additional property over the long term, there are many benefits to be gained, financial and otherwise.

In addition to the profits obtained from selling the home in the future, vacation homes are a lure for family and friends. Hosting family gatherings at your beachfront property or a ski trip with friends at your mountain retreat will create memories for you and your loved ones that will never depreciate in value.

A large number of buyers also purchase a vacation home with the intent to use it as their personal residence in the future. The appeal of retiring to a beloved vacation spot is obvious. However, it can also save on taxes when the house is sold. To qualify for the exclusion of up to $500,000 of gain on the sale of a principal residence, the home must be used as a primary

residence for two of the last five consecutive years. This exclusion applies to one sale every two years.

Also, while home prices have dropped, rental costs have remained relatively stable in many areas. While those who purchased property in 2005 or 2006 may have trouble using rental income to cover the ongoing expenses of owning a second home, recent buyers may find the extra money from renting their vacation home when they’re not using it can pay for a larger proportion of their costs. However, this takes planning, patience and effort to make it work.

In fact, before making a purchase decision on a vacation home or investment property, there are many considerations you should be aware of. It’s imperative you fully understand the homeownership costs that come with owning a second home.

How Much Home Can You Afford?If you don’t have enough to pay off your second home with cash, you’ll need a mortgage. Your Loan Officer can help you determine the type of financing for which you qualify. You can usually prequalify by visiting your Loan Officer’s website, giving you a good idea of what you can afford.

It’s not necessarily the best idea to go with the most expensive property you can manage, and it’s important to factor in additional costs, such as maintenance, utilities, taxes, furniture and other expenses. Your homeowner’s insurance may cost more than you’re used to, depending on the area in which the property is located.

You should also make sure you have cash reserves set aside for extra expenses, many of them unexpected, especially if you plan on renting out your home. When you’re a landlord, you don’t have the luxury of making repairs “whenever you get around to it.”

Be prepared to cover your mortgage payments for periods in which your property is not rented. Many vacation spots have off seasons, and renting out a vacation home is a lot of work. Even if you’re able to cover the home loan costs with your rent income, you should be prepared to pay the full mortgage if the property is vacant.

Before You BuyBe aware that requirements for mortgages on a second home are higher than those for your first mortgage. Depending on the loan programs for which you qualify, banks may require anywhere between 10 and 50 percent of the total home cost for a down payment.

A First Look at a Second Home

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• Hawaiian Luxury CoLLeCtion •

Interest rates also tend to be higher on a second mortgage.

Your debt-to-income ratio (DTI) will also be taken into account. Your DTI is determined by adding all debts, including your projected future monthly payment for your second home, and comparing it to your monthly pre-tax income. As a general rule, lenders are looking for a DTI of 36 percent or less. However, your lender can help you determine what DTI works best for you, and if you are planning on renting out your second home, the possible income from that may be taken into account.

Your lender may also require a higher credit score than they did for your principal residence. A score below 660 could make it difficult to obtain a loan for a second home.

Vacation Home vs. Investment PropertyThere may not seem to be much difference between a vacation home and an investment property, but the IRS has rules as to the income and deductions that are available for both. If you own a vacation home and it is leased out for less than 14 days a year, you may deduct the mortgage interest expense (subject to mortgage indebtedness limits) and taxes as an itemized deduction. Any rental income does not need to be reported.

If your vacation home is used by you for more than 14 days as well as rented out, the income from rental is reported on Schedule E and the portion of interest and taxes allocable to the rental use is deducted on Schedule E against the income. The personal use portion is deducted as an itemized deduction. Direct and other rental expenses can be deducted against income, but these expenses cannot create a net loss.

If you use the home for personal use for less than 14 days a year and receive rental income, the home is considered a rental property and all expenses, including depreciation of the

home, and income are reported on Schedule E. Losses are subject to the passive loss rules and may be limited.

It is best to consult with a tax professional to learn exactly what deductions can be claimed before you purchase your second home.

Renting Out Your Second HomeWhile renting out your second home as a means to have your vacation property pay for itself is difficult, you can at least offset the costs with the income. It is best to rent it out as often as possible, as vacation rentals can take a high weekly rent, especially if located in a prime area. Consider a vacation home in a popular vacation area with low home prices to increase your potential for profit, even if it’s not your home state.

Once you’ve bought your home, the next step is to find renters. Paid websites such as www.Rentalo.com, www.VacationRentals.com, www.VRBO.com (Vacation Rental By Owner) and www.CyberRentals.com are vacation booking companies that are searchable by a number of features and are a good way to advertise to prospective renters. www.HomeAway.com is an owner community that lists paid listings on several websites, including some of those above. Homeowners pay $329 a year to list on www.HomeAway.com, while www.VRBO.com costs $279 a year.

To be competitive in the rental market, distinctive features are necessary. When purchasing your home, aim for an area with amenities available in the community, such as neighborhood pools, public beaches, ski resorts and golf courses.

Make the property attractive to families by adding features like pool tables, board games and TVs. Keep the house stocked with toys so that children will be occupied.

Some rental owners spring for the VIP treatment, offering weekly maid service, limousine transport and private chefs. If it’s in your budget, your home could be that much more attractive to renters with elegant tastes.

Don’t be afraid to accept less for a last-minute deal. Offering a stay-for-four-nights, get-the-fifth-free special would lure previously hesitant renters, and you’ll still be getting more than you would have if the home had been empty for a full week. It is also a good way to occupy the home during the off season.

Comply with Rules, Regulations and LawsBefore you start renting out your property, make sure you research the many rules for renting out properties. Fines for noncompliance can be steep. These rules vary by region, and a good place to start is the U.S. Department of Housing and Urban Development’s website, www.hud.gov. You might also consult with an attorney to be sure you are fully aware of the local laws and have all the proper forms required.

You will also want to have a rental agreement signed by both you and the tenant, identifying both parties, the property, the terms of the rental and the amount to be paid. You may also consider hiring a property management company to handle the care of the day-to-day operations and tenant needs. You may make less profit, but you will have less hands-on responsibility.

Your Home Away From HomeRegardless of whether you choose to use the home as an investment property or solely as a vacation home, the benefits of having a retreat for you and your family are many. And if you can use rental income to pay for all or some of the costs related to purchase, the rewards become financial in addition to sentimental.

Experts say there is a short window of opportunity for people to purchase the best property possible before home prices and mortgage rates increase. The economy will recover, and as it does, your chance to make the most out of less will slowly disappear.

This article was submitted by Cornerstone Mortgage Company, a full-service mortgage banker operating more than 75 offices in Texas, Georgia, Minnesota, Oklahoma, Louisiana, Arizona, Colorado, California, Mississippi, Nevada, North Carolina, Utah and Washington. Corporate Office/Houston, 713.621.4663, 1177 West Loop South, Suite 200, Houston, Texas 77027.



Ho’olei Wailea

Wailea, Maui, HaWaiiThese elegant three bedroom, three and one-half bath Wailea Townhomes have striking ocean views from both upper and lower floors. Premium finishes throughout including granite countertops, travertine limestone flooring, Wolf and Sub-Zero appliances, custom cabinetry and a private elevator. Ho’olei offers world-class amenities including pool/spa, professional fitness center and on-site front desk/concierge services. Prices start at $2,498,000. Call Brad MacArthur, BIC, for more details, 808-357-5000.

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Wailea Golf Vistas

Wailea, Maui, HaWaiiLocated in one of Wailea Resort’s premier gated communities, this single-level, custom constructed three bedroom, two bath residence overlooks Wailea’s “Blue” course onto dramatic ocean and mountain views. Attention to detail is evident throughout, with finishes of travertine, granite, bold crown molding, recessed lighting, coffered ceilings, electric solar screens and surround sound system. Visit www.WaileaLuxuryEstates.com or call Brad MacArthur, BIC, for more details, 808-357-5000.

Wailea Golf Estates

Wailea, Maui, HaWaiiThis exceptional, ocean view four bedroom, four bath luxury estate has spacious living areas, expansive lanais, a large well-manicured lawn and a sparkling blue tile pool. Located in the heart of Wailea, the gated community of Wailea Golf Estates is just minutes away from all the luxury amenities the Resort has to offer. For more information call Brad MacArthur, BIC, 808-357-5000, [email protected]


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Waterfront Bay

Maui, HawaiiThis property resides at the end of a very private drive that wraps the south end of the island, and includes a gentle building site at the crest of the property. The tropical breeze is soothing and siting opportunities are numerous for that perfect design. Offered at $1,500,000.

Waterfront Site

Maui, HawaiiThis waterfront site is distinguished by gradual changes in elevation. Among all of the homesites, this property offers abundant locations for a residential compound that will nestle into the fall of the hillsides that converge at the cliffside edge of the property. The siting on the cove is captivating. Offered at $1,350,000.

For information on this property, please call 310-906-6777. [email protected]

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hawaiian luxury collection: volume iii, number 1

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