Aloha. Does this scenario seem familiar? Your grandfather or other close ohana member recently passed away and you inherited the house after going through the lengthy Hawaii probate process. You have mixed emotions right now. Of course, you’re sad from the loss but you might also have inherited some sizable assets, house included. The truth hurts, but you need to know that inheriting a house in Hawaii may be more of a liability than an asset.
Why is this, you’re wondering? There a few items you must consider…
For one thing, estate taxes are no small matter. They can be absolutely crippling in Hawaii where it’s not uncommon for a single family house to be worth over $1 million. Furthermore, the estate tax rate and exemption caps are ambiguous in Hawaii, seemingly dependent on whichever law is currently on the lawmakers’ desks. This means you may get hit for a higher amount than you planned on. Talk to a few local probate attorneys, and they’ll likely concur.
You might also have inherited a house that needs significant repairs — again, not unusual in Hawaii. Many homes here built in the 1970s or earlier have significant wood and/or termite problems and are in general disrepair. Do you have the cash to bring it up to modern standards? To convert an ‘old Hawaiian’ style home where bedrooms lead to more bedrooms? To fix an old roof, paint the exterior or finally get the wood rot fixed for incoming tenants?
Tenants, you say? Well, if you aren’t planning on moving in yourself, then someone has to live there, right? Are you ready to be a landlord? Not everyone is. Many people dread the thought. Hawaii certainly has its share of evictions brought on by unruly or non-paying tenants — think areas like Waikiki, UH or HPU students, etc.
Along these same lines will be continued maintenance costs even after the initial renovations and upgrades. Add these to property taxes, greater insurance bills and Hawaii’s skyrocketing electric utility rates, and you have a significant endeavor on your hands.
Are you ready for all of these costs and requirements? Or would a direct CASH sale putting money in your pocket right away be an easier solution? But before we get to that…
The previously noted taxes are entailed in the Hawaii probate process. This is one of the most common yet least understood types of legal proceedings because it encompasses financial matters and settlement which pertain to an individual’s estate after death. All real estate property in Hawaii valued over $100,000 must pass through probate, except in rare circumstances. As noted above, this includes paying tax liability or debts, collecting amounts due to the estate and identifying the legality of the last will and testament of the decedent. If there is no will found, the process of probate usually includes an equitable asset division among the deceased person’s heirs. You can contact the Oahu First Circuit Court directly at (808) 539-4399 for more information on the schedule of proceedings or visit their site here. You may also click here for the Hawaii uniform probate code.
The probate process is a very lengthy one, possibly lasting months, a year or even longer to completely inventory and evaluate all of the assets that belong to the estate. This usually includes life insurance policies, investments, bank accounts and real estate. Some assets such as real estate holdings, motor vehicles, antiques and others may require professional appraisal of their real value before they are added to the estate’s total worth. The process can be further delayed when there are heirs both in Hawaii and on the mainland, especially when there is infighting among inheritors, an unfortunate yet common situation.
See? Inheriting a house in Hawaii could really be more of a liability than an asset due to the taxes which need to be paid as entailed in the Hawaii probate process as well as the timeframe and headaches attached to the event. The sheer price point of Hawaii real estate props up the asset value but also the potential costs — such is the nature of one of the most expensive states in America.
How to Sell an Inherited House for CASH
If your inherited property should require probate, then your options when it’s completed include:
- Selling to a Hawaii real estate investor for quick cash
- Renting out the property for cash flow
- Moving in yourself
If you decide to sell an inherited house to an investor, you will have several possible benefits such as:
- Selling direct without paying any realtor fees
- Closing in 30 days or less instead of a lengthy MLS listing
- Not having to make any repairs
- Having immediate cash to pay off the estate taxes
- Having the property pulled out of the probate case (by your attorney) for immediate liquidation
Selling your house in Hawaii direct to an investor buyer is often the quickest way to get cash while sparing yourself the delays and frustration of a typical sale and the continued emotional stress of handling a loved one’s estate.
If this is the route you want to take, then here are the steps you need to follow:
- Locate a Hawaii real estate investor. You can find them and others on Google or Facebook.
- Discuss with them the nature of your property and sale. The most important details are: condition of the property, remaining debt on the property, current status of any probate, and what you expect or need to profit from the sale. Location is also important as some investors will not be interested in areas far from Honolulu where buyers are fewer, such as the windward stretch between Kaneohe and Kahuku or the west side from Nanakuli to Makaha (Oahu). On the Big Island, as of this writing, parts of Hilo are tough as the market is depressed. Parts of west Maui might also have fewer buyers. However, you never know until you discuss it with them.
- Arrange a property visit and/or inspection with the investor. They will assess their renovation costs, either on their own or with a local handyman or general contractor. Keep in mind that renovation costs in Hawaii are normally higher than on the mainland.
- Do your own research on what you feel the property is worth in today’s marketplace. Lookup online sales in your neighborhood of similar properties in comparable conditions. The investor will do the same before preparing a CASH offer.
- Negotiate with the investor on final price and terms. Seller financing in Hawaii is often popular in probate scenarios as it gives the inheriting party a chance to net more funds on the large price points than in a traditional sale.
- If a probate attorney is already involved, then inform the attorney you have a cash offer. They should be able to help you and the investor expedite the sale for the benefit of all parties.
- Sign the purchase contract, open escrow and proceed towards closing.
- Get paid. Congratulations! You’ve just sold your inherited house in Hawaii. Aloha!