Have you thought about buying some land on Oahu?
Well, it might not be as easy as you think. Today we're gonna talk about three things to consider when you're buying vacant land on Oahu. And if you stick around to the very end, I'm going to share some bonus tips as well. And a little bit about myself, my name is David Buck. I'm the Principal Broker of Harcourts Island Real Estate here on Oahu. And over the past decade or so, if you go to Google, "Vacant land for sale on Oahu," my website shows up normally the top couple results outside of like the national portals. And so what's good is you have someone with boots on the ground here. And so often I get someone with that big dream and ambition and what they wanna do. They want to build their own home. So we're gonna talk about three things to know and consider when you're thinking about buying land on Oahu.
1. Financing
The first item, it has to do with financing. Not everyone is aware of this, but banks aren't as keen to lend on land as it would be improved property, like a condo or an existing single family home. And the reason why is they see it a little more risky in the sense that it's not a roof over someone's head. So if they're going to lend someone money to buy a plot of dirt and to build something on it, they're not living there every day. It's not a roof over their heads. So if things go haywire during the permitting and our construction or they run into money issues, the bank is gonna be holding that land. And they're gonna have a hard time with foreclosure and it's gonna carrying costs, etc. So that's the first thing you want to consider and I'm gonna elaborate on this because another item during that first consideration is not just financing in general, but VA loans.
I can't tell you how often we get called from a veteran and we love our veterans, by the way, but they have to be aware if you're a veteran and you're listening to this, that you can't get a, excuse me, a vacant land loan with a VA loan. One of the beautiful things about VA financing is that you can do 100% financing. That's what I love about it and I wish I had that opportunity. With that said, you can't get a loan on vacant land for the reasons I talked about earlier, but not just that. When you do a VA loan, it has to be your primary residence. Like the government's not gonna let you get a VA loan for an investment property or something that you're a second home. It has to be, once again, a roof over your head. So with that said, there are some new construction opportunities on the island where you can actually get a VA loan on. Some local developers work with veterans on that. If you want, or if you're interested in that, feel free to drop me a message, david@hoaihomelessthings.com. But that's some of the single family home developers primarily on the west side of Oahu, but a lot of the condo builders in town, you can't really get a VA loan unless you're a veteran, you've got a bunch of cash as a down payment.
I'm going off at a tangent right now, this is all about land, but I'm just talking about the financing aspect for our veterans and that if you're gonna get a condo, a lot of those developers do what's called like a 5/5/10, they want 5% deposit and then another 5% after the public report and then additional 10%. So you gotta have at least 20% down if you're gonna be buying like say a new condo in town. So back to vacant land.
2. Logistic and Costs of Building
The number two item I'd like to cover today is that in addition to financing, we do live in an island in the middle of the Pacific. So it can be very challenging on several factors seeing a home to a fruition. First off, labor is gonna be probably one of the highest in the country, materials is gonna be one of the highest in the country. And our permitting process, I don't wanna talk smack here, but a few years back, our building department was actually raided by the feds because that's how corrupt they were, they were not issuing permits, they're taking envelopes of cash under the table from Chinese contractors, et cetera, et cetera. So it's tricky to get a permit, you wanna have a good builder and architect and the cost of not just the acquisition, but everything else.
If you're a cash buyer, it's gonna be a lot easier 'cause then you won't have to finance a land and then getting a construction loan on top of that is gonna be tricky. So that all has to do with the logistics of the actual build. So number one, we've got financing. Number two, we have logistics and costs of build. And the third item we're gonna talk about today is how not all land is created equal.
3. Not All Land is Created Equal
We are an island in what keeps Hawaii beautiful and why we don't look like Hong Kong, I tell people, is that 93% of the lands in Hawaii are zoned either agriculture or conservation. So with that said, the amount that's left for urban development is just literally like 7% of the lands. We're going have a lot more of that here on Oahu than you do on the neighbor islands. But with that said, you're gonna have all types of zonings like if you're acquiring land and wanna build, but I'm going probably doing things backwards, but the most restrictive is gonna be what we call P1, which is a preservation one. And that what happens there is that's a city and county zoning and that kicks over the state conservation district. So if you see something online that's zone preservation and kind of looks too good to be true, there's normally it's going to be really difficult to build on that land.
Just for a little bit of historical reference, I sold 80 acres years back in Aiea for only $200,000. And I sold the entire ridge between Aina Haina Valley and Hawaii Loa Ridge for just over $300,000 for 75 acres. So they typically go for a discount. You just have to be patient in the permitting process there. I do, however, have oceanfront parcel of P1 on the North Shore. That's a beautiful two acres on the ocean that's zoned preservation. So it's gonna be a little bit trickier to get a building permit. Then you have P2, which is also kind of quote unquote conservation. There's different restrictions on that. I won't dive into them all now. And then we've got all the different ag types of zoning, the most prevalent being Ag 1 and Ag 2.
If you're really looking to build a house, what you really want to be looking for is something that's zone residential. But just to break it down and keep things kind of simple here, on this island, we have R-3.5, R-5, R-7.5, R-10 and R-20. The easy way to decipher those codes, R is for residential and then those like R-3.5, or R-5, or R-7.5, those are just abbreviations for the minimum amount of land you need in order to build a house. For instance, R-5, you're going to need a minimum of 5,000 square feet per dwelling. For R-10, you're going to need a minimum of 10,000 square feet per dwelling. R-20, 20,000 square feet per dwelling. A lot of urban Honolulu has a lot of R-5. Some of the suburbs going to have more of the R-10s. Some of the valleys are R-7.5. If you have any questions about any of this, once again, feel free to reach out and give me a shout.
Bonus Info: Have a Realistic Budget or Creative Financing
Then we're gonna go into the bonus round of what not everyone's aware of. Being in the business since 2001, I can't tell you how often it is that (I don't wanna be the dream shatterer) I have someone that says "I want to build and get a piece of land". I just got a call this past week, and a sweet lady said "I wanna get a tiny house and put on a piece of land". I'm like, "what's your budget"? She says "It's $100,000". And then ai say "I hate to say it and be the bearer of bad news, but that ship has sailed, gosh, at least 15 or more, 20 years ago. You're not gonna find a plot of land where you could build a house on this island for $100,000". So if that's something you're looking for, I do have like a switch property in a sense. So that's gonna be the east side of the Big Island. That's going to be the only place really in the state where you could still buy something to build a house, like say under $100,000. And unfortunately, some of them are lava fields, don't have utilities, etc. So there's normally a reason why or catch, you know, you get what you pay for.
Then, once in a blue moon, when someone's selling land, I've done some deals like this too, the seller might consider seller financing. Not every seller will, but you know, if it's tricky or troublesome to get a loan on a property, sometimes a seller will offer financing. That's another kind of "secret". Then, last but not least, when you're acquiring land back to financing again, is maybe a bank might not lend you money, but maybe you have other assets. It might not be cash right away, but it can be a contingent sale. It can be pulling money, like with a HELOC or, which for those that don't know, Home Equity Line of Credit, or pulling money out of an existing property. That's an issue with sometimes buyers from overseas, say like from Canada, we get lots of people looking here. And some of the foreigners, they have trouble getting a loan here without credit established in the states. So, often what they'll do is pull money out of a property they already own elsewhere. Speaking of Canadians and land, I've got a listing coming up. It's down the pipe, I have a Canadian owner that has some land to sell. Let me know if you have any interest in that.
Need More Real Estate Help?
In the meantime, I hope you found value in this. If you have any questions about raw land here on Oahu or other parts of the state, I have great connections with other brokers on the neighbor islands, or you're just looking for a house or VA financing, etc., this is what I do for a living. I can be reached at 808-371-3509. Mahalo and have a great day!