Sunday, August 03, 2014

Post Buying a lot in Kauai Post

A question/comment came from an old friend, Anonymous which asked:

Hi Johnny, I've been lurking on your blog for YEARS. I remember: "stay on target" lol. Anyway, wondering why you did a land loan at such a high interest rate to buy this lot? I've bought tons of lots over the years as my husband and I have a habit of liking to build our own homes, ourselves -- I've always gotten a HELOC on my current residence to finance a lot purchase to build a new home. Interest rates are ridiculously low, payment are interest-only like your land loan, but there is no balloon in 3 years? Just curious . . .

Hey Anonymous, long time no hear!   Stay on Target?  You're an oldie, but goodie!

I was going to answer your very valid questions, but decided the answer was as long as a blog a blog post.

Why did we take a 3 year balloon payment at a very high interest rate?

The short answer is that we did everything ass-backwards.  The more detailed answer is:

1) We didn't do our homework
  In my last job, I could tell that the company stock was about to crash.  So I cashed out 15 years of Mega-lo-corp stock.  I had told Wifey of this plan about a month earlier, and she was fine with me deciding the when and how.  And the plan was with "some capital", we would commence shopping for a lot on Kauai.  What we should have done was search the internet for people who had bought property in Kauai or Hawaii to understand that buying land in Hawaii was not the same as buying land in Texas.  Thus, we went into the initial bids on lots assuming very wrong facts about financing.  More on that later.

2) The realtor did not do a good job preparing us
  When we were physically in Kauai, we met with the brother (a realtor) of the realtor we spoke to on the Big Island the year before.  He was very pleasant.  But I assumed that since he lived up in Hanalei (North part of Kauai) and we were shopping in the South, that it would be better to work with a realtor who lived closer to the lot or actually in the South part of Kauai.  In the end, we ended up with a random realtor.  He feigned a bit of ignorance about the financing, but I found that to be VERY hard to believe.  He wanted a sale.  And he didn't want to scare us off by telling us what the financing would be.  He just gave me lists of builders, surveyors, and finance people to consult.  He should have spoken up and warned us.  I had to get my education about land financing from finance people - but a realtor should have done that!

3) The finance people have no incentive to get you the best loan possible at the smallest amount
  They get paid by the percentage of the overall transaction.  The bigger the loan, the bigger the payout.  We made enough money from the sale of stock that we could have taken something like a 30K loan instead of the $150K we took instead.  But then, Wifey played a part in that decision as well.

Now, let's go back a bit here.  First, we thought we would slowly work through a limited amount of options when it came to land searches.  However, it turned out there were a surprising amount of lots that fit our "under $300K" criteria.  As you read, we had many options that we discussed.  Often Wifey would glance at my options, and say, "I can't think of that right now.  I'm busy with work."  And it happened at that time she was overwhelmed with work.  And when Wifey doesn't want to look at it, she won't look at it.  Or when I force her to stand up, walk 5 feet to my computer screen and look, she's grumpy, annoyed and isn't thinking seriously at what I want to talk about.  So, there was a bit of waiting as I had to wait two or three days for her to get serious and look at the lots.

As I wrote earlier, when I asked a lender to send me what a draft loan agreement when we were pursuing the first lot, he said, "Let's hold off on that until you get a signed contract."  That should have been my first hint that I needed to dig deeper, but I didn't.  I have to tell you that, while Wifey decided Kauai was the place to retire to, I did 98% of the work.  I had to get her exasperated-ass to log into her computer (at the end of a frustrating day at work) and do electronic document signatures (which she bitched about over and over until she was numb about it).  So, you have to factor in putting getting a grumpy wife to look at lots and sign documents (I'll explain that later).

We spent like one week debating the first lot, which was almost half an acre, but no view before deciding to put a contract out on it - to find out that during the time we were mulling it over, someone came in ahead of us and got the land under contract.  So, I had to get a distracted Wifey to get "more enthusiastic" about making quicker decisions with me.

And then, when we found out about the 3-year notes, I turned to her and asked if she wanted to bail?


I then asked if we shouldn't take the entire amount from the stock sale and put that towards the land and take a much smaller 3 year loan?

No.  Let's just go with what we agreed to.

But, if we're not going to build for 8 years, that means we have to refinance in 3 years and then in 6 years.


But that's all interest!  We won't be building any equity!

We'll figure it out by the end of the 3 years.

In other words, she put on her blinders, didn't want to think of any other options and just wanted to get to closing.

What I didn't get into detail is that even the realtor had warned me that closings in Hawaii typically take longer to occur due to the fact that many transactions are occurring between Hawaii and the mainland.  So from a signed contract to closing it could take up to 6 weeks.  He agreed with us when we wrote into the contract that we could still bail 3 weeks from the moment the contract was signed instead of the typical 2 weeks since we had to give ourselves extra time for the inspection, which in this case was the land survey (and we needed it).  And even after we wrote the extra week into the contract, we had 12 hours to decide whether to continue or bail after we got the survey.

Also, by the time we realized what bad conditions we had for the loan, I did a mental calculation/guess.  The time it would take for us to find cash on "our" side (home equity or line of credit) it would have added 3 weeks to the closing and that would have overshot our 6 weeks of contract time.  The couple in CA were itchy about the time it would take to close the deal.  They sold at a loss and I think they needed the money soon.  Also in the end, even with going with local, Hawaiian financing, the contract had to be extended 3 days because the funding was late and by that time, everyone was willing to extend 3 days just to reach the goal line.

Now, a bit of Texas history.  Written into our Texas constitution was a statement that your home could not be repossessed by creditors, other than city/state entities.  What that meant was that, in a very extreme case, you could declare bankruptcy, quit paying your mortgage and as long as you kept paying your property taxes, your house could not be repossessed by the bank.  This was the old "A man's home is his castle" philosophy.  As a result, home equity loans were non-existant in Texas.  Of course, after many years when the population of Texas grew and many people who arrived from other states said, "This is ridiculous!  You need to allow home equity loans.  You need to change the constitution!".  The realtors were against this, the bankers were for this.  And in the end, the banking lobby won out. So about.....20(?) years ago, the constitution was changed, but very strict language was put in it's place that prevented us from going "crazy".  This strict language and the relatively short history of home equity loans in Texas is what kept (in my very humble opinion) the housing bubble that popped 4 years ago from hurting Texas as bad as it did the rest of the country.

But as a result of the strict rules, which finally allowed home equity loans, this has an odd effect on your future loans.  Here is what happened to us.  8 years ago, we decided to remodel the house.  So, we got a Home Equity Line of Credit (HELOC) and then started the major remodel.  After the remodeling was done, we then refinanced the home mortgage and paid off the HELOC and had a regular mortgage with fixed, lower interest rate.  But, when we opened the HELOC, at the "closing" of the HELOC, the bank (Bank of America) had to legally inform us, "By the regulations of the state of Texas, once you have a loan backed by the equity of your main residence, your Title will reflect that it is based on a home equity loan."  So since 2006, ALL titles we've held on our house (we have refinanced twice since then), have had the title:

(Fixed Rate - First Lien)

Okay bear with me here.  

So after we finished the closing of the lot, I gave Wifey 1 week to mentally be comfortable and I said, "Hey, why don't we get a home equity loan and pay off the 3 year note and then we can have a fixed interest that is tax deductable?" (the interest on a lot with no home on it can not be deducted from your federal income taxes - I checked with a CPA).

She said, "Sure."  And then I contacted our bank, Bank of America and asked for a home equity loan.  And that's when the wheels came off.  

"Sir, we show that your current title is a home equity and we are not allowed to give a second home equity loan on top of a first home equity loan."

No!  No!  The loan we have now is a conventional home mortgage loan.  It is not a home equity loan!

"Okay...well, then you'll have to get that fixed so that we can proceed.  Our rules prevent us from doing so in Texas"

And then the words from the closing many years came back to me:

"your Title will reflect that it is based on a home equity loan"


Then I called up my mortgage broker I've used for 5, 6(?) times.  I said, "Hey, I want to refinance.  I want money out of the house to pay off this lot in Kauai.  I want it to be no cost closing."  She said, "Sure, no problem.  10 year or 15 year?"

And the beauty of this is that documents needed for a refinance?  They're the same documents I had gathered for the high interest 3-year note for Kauai.  So, I had 95% of the documents already scanned into PDF format.  I just bombarded her loan processor with email and we closed in 3 weeks.  We walked to the title company, wrote no checks for closing and 3 days later got a big chunk of money landing in our savings account and then we turned around and paid off the Kauai lot.  

But wait, I had indicated that we only needed something around $30K if we threw in the stock sales money.  Well, Wifey wanted a "mental" financial cushion.  So 50% of the money from the stock sales went into paying of the Kauai lot along with the refinance.  And 50% went into beefing up our "rainy day"fund.  Yes, I could have spent more time talking her (maybe) into doing the full 100%.  But even if we did that and paid off the lot in 2 years, we still have to wait 8 years for the Boy to head to college before we can start building.  With the new note, our house and the extra money used to pay off Kauai will be paid off in 7 years.

When you're married and your names are both on the land and the mortgages, you have to both agree to the money.  You understand.

 But yeah, basically we did everything ass-backwards.

Friday, June 20, 2014

Buying a lot in Kaui - End

The various questions asked by friends about our lot purchase:

When are you going to retire, build a house and move out there?
Sometime in the next 6 to 8 years.  The main issue is the kids and their school.  The Boy is 9 and the Girl is 11.  She's got a better chance of getting into a higher ranking college than the Boy (sorry, gotta call a Spade a Spade).  And, the educational system in Hawaii....errr...isn't the greatest.  If the Girl ends up at Stanford or Princeton, then great.  But if she ends up at our flagship state colleges in Texas, then great as well.  But by staying in Texas, she has a chance for a much lower tuition.  To be frank, if she started high school in Hawaii....I'm not sure her SAT scores would be as good as if she stayed in Texas.  As for the Boy.....well, that's the 6 or 8 year question.  It's a matter of the "school pool".  There are a lot of lower tier colleges in Texas he could qualify for and the benefit is the lower Texas resident tuition.  If we drag him with us to Hawaii when he's in the middle of high school, he/we would lose out on the lower Texas tuition.  It's still a work in progress.

Why not build a house and rent it out as longterm rental or vacation rental?
First, we're not too excited about the prospect of being landlords.  My parents had two rental houses as we were growing up.  I've had to spend time cleaning out the backyards of houses where people just took off on us one weekend and left all their junk behind.  No thank you.  As far as vacation rentals, we spoke to a realtor and if you hire a really good management company, they eat into 40% of your gross rental.  And then you get a beat up house and furniture by the time you decide it's time to move there permanently.  So, we're not landlord material.

Why buy a lot now if you're not going to start building for 8 years?
Well, I usually have done well with land.  However, that's all relative to our part of Texas.  As mentioned earlier, the couple we bought the lot from sold it at a loss of almost $100K.  Will that happen to us?  My experience with land in Texas has been:

a) bought my current lot in 1994 for $45K.  Everyone, including my parents who helped finance the loan, thought I was crazy.  The neighboring lot, which had an easier build for the driveway was going for $48K.

b) built on the lot in 1998.

c) in 2004, bought the neighboring lot for $95K.  We were going to either build a pool and pool house or build a new house and just move next door.  Decided in 2006 that it was a better option to remodel and expand our current house. 

d) sold the neighboring lot in 2006 for $165K and used the profits of that sale to finance the remodel of the house.  By the way, interesting fact.  The remodel of the house in 2006 cost $2K more than the original cost of building the house in 1998!

e) the lot across the street that finally sold for $326K?  In 1994, it was probably listed in the $51K-$58K range (it has a view of narrow slice of the lake - really the bend of the river).  BUT, houses across the street that sit above the street are considered "view lots" and they get to pay a "view tax" in their year tax assessment.  Fun!

So, the moral of the story is that I've done pretty good on buying property and sitting on it for the short term.

But you say you work remotely, couldn't you work for the Mega-lo-corp in Hawaii?
Yes, but the kids (see above) and Wifey couldn't be doing the same job in Hawaii as she does in Texas.  She's getting paid the highest salary she's ever had working for this firm and she's enjoying the work.  The key thing is she's a Professional Engineer (PE) and she has a "stamp" she affixes to official design drawings.  That also means she (personally) and the company are liable for the work they do (she can be personally sued for missing something on a drawing that leads to a disaster).  However along with that responsibility is a much higher salary than the non-PE engineers in her firm.  She was "grandfathered" into her PE after years as an engineer.  Current PEs must take a brutal engineering test (like the Bar for lawyers) where most engineers don't pass the first time they take it.  But since she was grandfathered in, she can't work in Hawaii as a PE.  If she had taken the test and gotten the PE that way, then Hawaii has a reciprocal agreement to recognize Texas PEs.  (whew!)

Do you get any benefit from the lot?
Since there is no house on the property and it is just land, then we can not claim it as a second house and deduct any interest off our yearly taxes (I consulted with a CPA on this....although someone, and I won't mention who, may have written off the interest on land he bought many, many, many years ago).

Are you going to visit it?
Duh.  March 2015, already have a house rented on Kauai.

What kind of house are you going to build?
Our current house is 4 bedroom / 3 baths and one attached study.  It's BIG.   The house in Hawaii will have 3 bedrooms and 2.5 baths.  Wifey looked at me like I was crazy when I said 3 bedrooms, but I said, "Duh, where do you think we're going to have our office?  Where are we going to have our computers?"  So it's 2 bedrooms and 1 converted to a study.  We're thinking about 1800 sq ft.

Is it going to cost more to build in Hawaii?
Oh yeah.  Current prices to build in our area is about $150 sq/ft.  In Hawaii, it's about $200 sq/ft.  So an 1800 sq ft house will run $360K PLUS the land.  And if we have the land paid off by the time we start home construction, we'll be okay.

Aren't you kinda going to miss your friends and family by moving so far away?
Yes.  But, we start over and make new friends.  I've always shook my head at people too scared to move away from all that they know.  My friends talk about leaving.  They talk about our town getting too crowded and wanting the slower life.  But all they do is talk because they don't want to leave their circle of friends and start over with nothing.  Me?  I'm they guy who has worked at the same company for 25 years.  I like the familiar.  But, I'm tired of baking in the heat.  My friends can visit us if they want, but we're outta here.

Aren't you supposed to take care of your parents in their old age?
Yup, the males are expected to take care of the elderly Asian parents.  I hope they like pineapple.  If they reach the age or the infirmity that requires us to live in the same town, then I'm selling all their stuff and moving them to Kauai.  They'll just live on the other end of the island.

What did our parents think?
Mom was not pleased.  But then, she wasn't pleased that we were going to adopt kids from evil, Commie China.  See how much that mattered?

If you have additional questions, just post them in comments.

Thursday, June 19, 2014

Buying a lot in Kauai - Pt 9

So, we finally settled on the Corner Lot.  It's the cheapest of all the lots, might be a little tricky to build on (I won't be tossing frisbees to a dog in the backyard), but it will be fine as a retirement house for us.

A few more emails exchanged asking for additional information or copies of receipts (since I paid for a topo from the surveyor, they don't have to do another survey).  We knew we were getting close as the wheels of financial paperwork grinded.

Last week, we went out for Tex-Mex and I had two frozen margaritas.  As we were leaving, I get a call and I look at the caller id and it's my realtor.

Hmmm, not good if he's calling me.

Realtor: Aloha Johnny.  I was wondering if you had seen the email that Keith sent out?
Me: Ummm, no.  We're just finishing up with dinner.
Realtor: Oh, sorry about that [to him it's 1:30 in the afternoon in Kauai]
Me: No big deal.  What's up?
Realtor: The appraisal came back at $200K
Me: Hmmmm.  [gears spinning]
Realtor: What would you like to do about that? [It's implied that the bank is not going to loan more money than what the land appraises for]
Me: Tell the sellers we'll split the difference.  We'll bring an extra $2500 to the table at closing and they drop their selling price by $2500 and we'll me in the middle.
Realtor: Okay, sounds good.  I'll talk to their agent and get back to you.
By then Wifey and the kids were already ahead of me waiting at the car.  I was thinking to myself, "Well, it could have been two margaritas or it could be that we've gone through so many ups and downs, but I didn't even check with Wifey on what we wanted to do."

I just knew in my gut what the answer would be.  I could have been a big jerk and told them to drop the price to $200K and made them eat the difference.  I know they've invested a lot into this process and if we walk, they'll have to start over again.  And the next people who find out that they're asking $205K when it will only appraise for $200K will have them over a barrel as well. 

On the car ride back home, I told Wifey about the decision I made.  She agreed with it.

The next day, I got an email that said the sellers agreed to the terms, but it took a bit of convincing by their realtor (hey, everyone wants to get paid for all this effort).

And, we had given them a carrot - we didn't make them eat the entire $5000 drop in price.

It's really odd that the appraiser was that exact on the pricing.  Most of the time, they know what the property is under contract for.  And they usually make it oh-so-conveniently fall right around the required price.  However, this guy was pretty stringent.  I read the report when I got home and I saw one of the comps was the lot next to the pool parking lot that we had considered.

The sellers must need the money bad - or, other deals had fallen through.  By the way, during the panic of thinking the lot was too steep to build in, I went back to some of the other possible lots we had considered before settling on the Corner Lot.  Three of the five other candidates were already under contract and so we couldn't have used them as a backup plan.

Now, let's talk money and taxes.

During the process of exchanging papers, the title company sent a note asking for the last 4 digits of our SSN so they could fill out a form required by Hawaii.

Whenever someone asks you for your SSN or even part of it, I get suspicious.  So, I searched the net for the form number and "Hawaii" and I learned what this request was about.  Since property in Hawaii is often used for investment, Hawaii kept getting burned.  People would invest in land or houses, own them a few years, and then sell the property for a gain.  When the state of Hawaii went to these people (from out of state) and said, "Ahem.  You made profit from selling something in Hawaii, we'd like you to pay your share of the Hawaiian income tax please."  As you would expect, the sellers said, "Ha-ha-ha.  I'm a resident of [any of the other 49 states] good luck trying to get me to pay Hawaiian income tax!"

So, the passed a law that says when any property is sold in Hawaii and the sellers are not Hawaiian residents, the Title company withholds 5% of the gross sales amount and holds it in escrow until tax filing season next year.  You want your cash or part of it?  You're going to have to fill out a form for Hawaiian income tax.

However, there is an exception.  If you are selling at a loss and can prove it, then you fill out a form in which the buyers provide the last 4 digits of their SSN and the Title company will not withhold the 5% in potential tax.  The couple selling the lot live in CA and they wanted their money now.

Now about taxes.

I was reading a quick list of the top 5 places and the bottom 5 places for retirement in the USA.  In the bottom 5 list was Hawaii - which I can understand cause it's so frickin expensive.  However, there is one aspect that in my mind counterbalances that...the dreaded property tax.

The business folks in Texas like to brag about how we have no personal income tax.  And I know as well other big states, such as Florida, don't have personal income tax as well.  However, being an engineer, I know you don't get something for nothing.  They're going to get it from you one way or the other.  In Texas, it's your property taxes.

Let's look at the tax bill for 2013 for the property we we're about to buy in Kauai:

 For an assessed value of $191K, their tax bill was $989.

Also in Hawaii, they have a graded exemption.  All houses get an automatic exemption of $160,000.  If you are between the ages of 60 and 70, that exemption is $180,000.  And if you are above 70, the exemption becomes $200,000.  It's a way to try to prevent seniors from being priced out of their homes.

Hmmm, what is Johnny's and Wifey's potential tax bill in their current house for this year?

Yes, we live without personal income tax, but they take us to the cleaners in our property taxes each year.

Our house is assessed with "exemptions" at $576K.  Written into the Texas constitution is a law that your home assessment can not rise from year-to-year more than 10%.  So, guess how much it rises each year?

I have a company that automatically disputes my taxes each year (of course, this company are made up of former officials in the tax assessor's office).  They get 40% of whatever they save me.  They save me $1,000 in tax payments, I write them a check for $400.  The last time I protested my taxes in person, I was _this_far_ from leaping across the table and choking the a$$hole who was assessing me.  Better pay a professional to do your bitching.

Wednesday, June 18, 2014

Buying a lot in Kauai - Pt 8

You know me, while waiting for the topo map to show up, the habit I picked up working for Dragon-Lady-Engineer was to have as many pokers in the fire.

[And for some odd reason, I wouldn't get off my butt and call the planning commission and find out the setbacks for once and all]

I started searching for other lots.  I went back and looked at the "Costco" lot.  And then I expanded and changed some of the search criteria.  I found two lots in Lihue (main town) and they were very suspiciously cheap - I mean something had to be wrong with it.  One lot was probably 1 mile from the end of the runway of the airport.  Hmmm, having jumbo planes landing and taking off late in the night?  Nope.  Another one was listed as "recent agricultural" which I don't know if that means it was zoned as agricultural or not.

As an aside, there was this CRAZY listing for a lot that was only $100K.  However, it spelled it out in the listing (they had to) that this lot had no road access.  In other words, it was a nice, large flat lot, but it was boxed in by neighbors and they had never made provisions for a small strip of land to reach the lot from the road.  And of course, the neighbors get this large chunk of land they surround that no one could ever build on because they won't provide road access to the lot.  Even if you bought the land, if the neighbors post "No Trespassing" signs, you can never reach your lot except by helicopter.  Crazy.  Of course the lot had been listed for years.

And then I had to calm myself down a bit and use logic.  Our lot was $205K with mountain and partial ocean view.  Even if we were to spend an extra $20K-$30K on piers because of the steep slope, it would still be cheaper than the $269K Costco lot (which faces....Costco!).

And then on Friday afternoon, a PDF of the topo finally arrived.  We had until the end of day (Hawaii time?) on Saturday to walk away from the deal or not.

Looking at the topo, and my heart partially sunk:

That dashed line 1/3 from the top?  That means that no permanent structure can be built there.  You can build a fence on top of it because a fence is removable.  But, you can't build a slab or piers on or over it because that's considered a permanent structure.  Essentially, it means that we can't build any part of our hose on the last 1/3 of the lot. 

Maybe this was the reason this lot is selling for $205K when all the other lots in the neighborhood have been sold and built long ago.


Now (my fault) my delay in not finding out the official front and side setbacks has come to bite me in the butt.

I start calling builders and I left a message with the county planning office.  With the time difference, I may have called them at 12:30 pm.  No callback.  Grrrr.

I spoke to two builders.  Both didn't know what the setback was for Kauai county.  The first one said, "40 feet?  Well to be honest, I build for people who want their houses not to be able to be seen from the road.  So, I've never had to know because I've had it waaay back anyway."


The second guy said, "Well, it depends.  Are you on a county road?  Are you on a city road?  If you're on a county road, they probably have made assurances that one day if they expand from two lane to four lane, they won't be in your front yard.  Again, it depends on where you are.  You really need to call the county planning commission."

I told them they hadn't returned a previous call.  He chuckled and said, "Well, yeah that happens.  You just have to keep calling."

In the meantime, my BIL called.  He's the very high end architect that designs houses for rich guys and pro athletes in his city.  He's not a builder, but he's been in the business a long time.  He NEVER calls me.  I'd texted him the previous week warning that I'd like his opinion if the topo ever showed up.  And when it did arrive, I did email it to him.  So for him to call me, I was even more crazed as he said, "You know, I went ahead and sketched out what your footprint of a house would look like...and you don't have much to work with."


But then I flipped it around and asked him what his assumption was.  He said, he made an assumption of the front setback was 25 feet...but then he wasn't sure.  He was being conservative.  I told him I need to make more calls to Kauai county.

So, I sucked it up.   I started cold-calling the county again.  This time, I was put through to the planning department, and the guy promptly, accidentally hung up on me right after he said hello.  Okay, ring-ring-ring again and this guy listened to my story and said, "Okay, what's the TMK number?  I'll go look it up."


He came back like 90 seconds later and said, "Well, it says here for that lot....the front setback is 10 feet and the sides are 5 feet."


And once I double-checked I heard him correct and it was for the correct lot (he knew I was talking about a corner not, so I was sure he looked up the right property), I thanked him and hung up.

I was starting to calm down.  A bit later that day, I took a blown up printout of the top map and took the original drawings of our current house and I measured the footprint of our current huge house and put it onto the topo of the Kauai lot with a 15 ft setback from the street (to be conservative):

It barely fits and it doesn't hit the back setback.  And you have to consider our current house is like 3,200 sq feet.  When we retire to Kauai, we're building a house that's going to be half that size.

With that, we sent email to the realtor Saturday morning saying we would proceed with the contract.  i.e. we weren't walking from the deal.

Tuesday, June 17, 2014

Buying a lot in Kauai - Pt 7

The reason this picture:

Freaked me out was we hadn't realized the extent of the steepness for the neighbor's house.  Using Google street views, we had "driven" down the street and saw this:

You can see our lot to the left on this house.  And the house to the far left?  The realtor told us that the valuation on that house was $999K (shrug - okay). 

We thought, okay, the garage can be below street level, like the neighbor's house which we saw

But holy cow!  I didn't realize how much of the back "yard" had to be artificially built up:

I think the window in the far right is part of the garage and that the window to the left may be a laundry room(?).  But look at the masonary involved in building up a wall, just to hold dirt to have grass on there?  That is an expensive luxury.  Why do they have that?  A pet?  To shore up the back and prevent erosion?  I asked Wifey, "Do you think that's where they put the septic tank?"  She said "No way!"  Then thought about it and wasn't sure.

And see that little ledge behind the back wall?  Why is that there?  What does that do?

Wifey showed this to some guys in the office.  A structural engineer she trusts said, 'Whoa.  That's (your future house) going to run an extra $20K in piers"


And still, no topo map and I don't know what the setbacks for the house are.

Monday, June 16, 2014

Buying a lot in Kauai - Pt 6

When we were first investigating the "Garden" lot, I had tried Yelp to find a surveyor in Kauai.  Sadly, no one finds a burning desire to go to Yelp to rate a surveyor!

So, I stumbled across one and sent him email.  Surprisingly, he emailed back on the weekend and we exchanged a few emails.  Even before telling the agent to contact the agent for the seller of the Garden lot, I started asking the surveyor for bids to do a topo map.  And then, when we found out that the Garden lot was already under contract to someone else, I stopped the surveyor before he could go out there to take a look to give me a bid.

And then when we were under (cough, cough) negotiation with the owners of the Corner lot, my realtor mailed me names of multiple builders and surveyors he had jotted down somewhere.  The original surveyor I contacted wasn't on there.  Okay, let's go with this list since my realtor recommended them.

I sent 5 of them emails.  One had a robot response thanking me for contacting and saying someone would get back to me.  They didn't.

Two had DNS problems.  The robot message said it wasn't my fault, but that they had a problem locating the mail server to receive the email (not a good sign).  I think those emails never got delivered.

And then the last two never responded.

Why didn't I call them?  My feeling is that if they can't handle email and they are people who only deal on the phone, then when I ask them to mail me a DWG file (it's the file format for a common commercial 3D drawing program that architects and construction companies use), they might not respond with email.

Finally, I went back to my original guy and sent him on his way to give me a bid.  He came back with $850 (which is about right) and said that when he got a deposit check from me, it would be put in order of reception.  The one thing you have to know about mail to Hawaii is that it averages 3 days.  A piece of mail goes from one end to the other of Texas in 1 day.  A piece of mail from Texas to most of the US might take 2 days, maybe 3.  But the fastest from Texas to Hawaii is typically 3 days.

I was steadfast in that I would not buy a lot without seeing the topo.  Think $20,000 driveway.

So built into our contract was that the inspection would take 3 weeks instead of the standard 2 weeks of a contract.  The "inspection" was the topo map.  We had to have it in time to look at it, talk to builder friends of ours and see if it was a feasible lot to build on.  If not, we walk away, losing our good faith money and the cost of the topo.

And then we waited and waited.  The deadline for the inspection to be done was Saturday and as of Tuesday we hadn't heard from the surveyor.  I emailed him and explained we had to have it soon.  He was a bit grumpy and said, it'll be done when it's done - probably Friday.


One of the things that had worried me was the setbacks.  A setback is how far building codes say that your house must be from the property line - and how far from the sides and back as well.  It varies by county and by subdivision.  The subdivision the lot is in didn't have formal setbacks.  That's good news.  The bad news is that it then defaults to the county's rules.  What bothered me was that as part of the disclosure documents by the sellers, I saw a curved line that said "Back setback and drainage".

Uh-oh.  Does that mean we can't build that far back?  But wait, we don't know what the front setback was.  The realtor sorta guessed it was 15 feet.  But he said, "You know, you might want to check with the county planning commission."

Grrrrrr.  Isn't that what you're supposed to do for me.

Now, the one thing is that Hawaii is 5 hours back from Texas.  This can be good and bad.  The bad is that you get bad news late in your (Texas) day.  The good news is that when you get that bad news at 6:00 pm, you think, "Aww crap, everyone is gone for the say."

But wait!

Hawaii is 5 hours behind.  So although you got bad news around dinner time, you still have until 10:00 pm to get it fixed up on your end.  They're in the middle of the their day when you've just finished your job.

Late Wednesday, our realtor sent us email that was "Hey, I stopped by the lot and snapped some pictures of your lot.  It's a great deal! And a beauty!  Enjoy!"

I took a look at the pictures and immediate went into panic mode (look very carefully at the back of the neighbor's house and "yard"):

Sunday, June 15, 2014

Buying a lot in Kauai - Pt 5

When we were starting the negotiations with the seller for the Corner Lot, I sent email to the banker who wrote us the very basic "qualification" letter (stating they might lend us up to $300K).  I asked him what the terms of the loan might be.  He responded with, "Let's not get into that until you have a signed contract."

Okay, so when we finally had a signed contract (90% all done with electronic signatures), I said, "Okay, now what do you have to offer?"

He came back with these rates:

-Interest Rate:  6.75% fixed for 3 years.
-Points: None.
-Payments: Monthly, Interest-Only payments.
-Down Payment: 25% of purchase price or appraised value, whichever is less (for improved property – utilities and/or roadways to the lot); 35% of purchase price or appraised value, whichever is less (for unimproved property – utilities and/or roadways not to lot).
-Estimated out of pocket closing costs (for $70,000 loan): $3,000.

Wait, something is wrong with this picture.  Why is he talking about a 3 year loan.

Oh CRAP.  Wait.  We assumed that a lot loan might be 10 or 15 or 20 years.  I had bought a lot before (my current house) so we didn't dive too deep into that.

Okay, the first thing to do is to learn more about this from someone NOT the banker we're going to use.  That way, we don't sound too stupid when dealing with him.

I then just looked up Bank of Hawaii's web site and found the one contact on Kauai they list for mortgages.  I called him, and surprised to find him there in the office.  I start by saying in a vague way that I'm thinking of buying a lot, and saying "Is it my understanding that lot loans run 3 years?"

He then answered back the following:
  • Their bank used to do 5 year lot loans
  • And then it became 4 year lot loans
  • And then they became 3 year lot loans
  • And now, BoH no longer does lot loans.  In this new era of closer focus on banks and their debts, lot loans are something their bank doesn't want to do for now
  • But hey, I can give you the number to Sean of Fianance Factors and he might be able to help you out
So, I called Sean and he was very friendly and explained
  • Yes, lot loans in Hawaii are 3 years in length
  • These are not loans for investment, these are loans to help bridge you while you are hunting for an architect, a builder, and then a new construction loan
  • During the downturn in the economy, people who had home mortgages and lot loans would always pay their home mortgage and may let their lot loans run to default - better to have a roof over your head in tough times
  • It's easier to repossess a house on land than just a blank piece of land.  You can get something out of a house.  Trying to sell foreclosed land to get back your loan is much harder
  • Yes, they occasionally refinance, but it's not something they like to do
  • Oh no!  The loan is not amortized over 3 years (that would be insane), it is amortized over 30 years
  • But at the end of 3 years, you are expected to pay up the principal or find re-financing
Crap! Crap!

I called the realtor and told him this was the first time I heard that lot loans in Hawaii were 3 year loans.  I said, "You should kinda tell people like me who don't know anything about real estate in Hawaii looking for lots that the loans are 3 year notes."

His response, "Oh, I figured the banker would have told you about this."


I then said, "I don't know.  I'm not sure we can proceed with this.  We do have money....but we don't like to be rushed into a 3 year payoff."

He said, "I have another contact, give Keith a call."

Well....why didn't you give me Keith's number in the first place?

So I called Keith and we went through the same things I spoke to with Shawn.  Keith is just a loan broker.  He bundles up packages and then just sells them to the true banks.  The thing Keith said was, "Oh no.  I refinance all the time.  These guys know me.  If I say that someone is good for re-finance, it should be a problem.  In fact, I just re-financed two lots at a million each this month."

But, in three years, we could come back to you for a re-finance and you might tell us that the market won't support us getting re-financed right?  I mean, YOU (Keith) might not even be there?

True, he said.  But, then it might be okay.

Hmmm, well that is the way business is done in gotta play by their rules.

Okay, so Keith we want to put down....maybe $130K and then get a loan for $75K.

He then cut me off.

"Why would you want to sink all the money into land?  My personal opinion is that you should put the least amount of cash into land.  Putting cash into a home on land, yes that's good.  But don't put your money all into land.  If, God forbid, something were to happen to you or your family and you needed cash, it would be all in your land and you can't just pull it out if you need it.  Just put it somewhere where it can earn some money and let you be more liquid."

Hmmm, that does make sense.  I know that when he's telling me that, it helps HIM as he's bundling together a much bigger loan, makes more money off the points, and so forth.  But it makes me think back to the couple selling us this lot.  They put $300K into the lot and now they're only getting $205K out of the lot.  They've lost cash on the land.  If something were happen to Wifey or the kids....maybe we do need a more liquid solution than a piece of land in Kauai we might visit 2 or 3 times in the next 8 years before we build.

And talking it over with Wifey, she agreed.  On to the next steps.