Is That HOA Fee Really High? How to Evaluate Hawaiʻi Resort Fees

For many buyers considering a condominium or resort property on Hawaiʻi Island, the monthly HOA or maintenance fee is one of the first numbers that jumps off the listing.

$1,000 a month. $1,500. $2,000. Sometimes considerably more.

It is tempting to compare that number with a single-family home that has little or no monthly association fee and conclude that the condominium is much more expensive to own.

But that comparison can be misleading.

A monthly association fee isn't simply an additional housing expense. Depending on the property, it may consolidate expenses that a single-family homeowner would otherwise pay separately—and it may also fund future repairs and replacements that a homeowner needs to plan for independently.

So the useful question isn't simply “How high is the HOA fee?”

It is “What am I getting for it, what isn't included, and is the association financially prepared for the future?”

First, a word about HOA and AOUO

You'll hear several terms used when looking at Hawaiʻi properties.

For a condominium, the legal entity representing the owners is the Association of Unit Owners, or AOUO. Buyers, sellers and even real estate listings frequently use “HOA” more generally to describe an association or its monthly fees.

They're not necessarily the same thing. A property can even be subject to more than one association—for example, a condominium AOUO plus a separate resort or community association.

For practical purposes, what matters during a purchase is identifying every association affecting the property, every fee you will be required to pay, and what each one covers.

Hawaiʻi condominiums are principally governed by Chapter 514B of the Hawaiʻi Revised Statutes. DCCA Hawaii

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What does the monthly fee actually pay for?

There is no standard answer, even among neighboring condominium communities.

Depending on the development, monthly fees may pay for some combination of:

• master property insurance
• contributions to replacement reserves
• exterior building maintenance, including roofs and painting
• landscaping and irrigation
• pools, spas, fitness facilities and other amenities
• security or gated entry
• water and/or wastewater
• refuse collection
• pest or termite control
• private roads and other common infrastructure
• professional management and administration
• and, in some communities, bulk cable television and/or Internet service

That last distinction is worth noting. Some Hawaiʻi Island condominium associations include cable and Internet in their fees; many do not. The same is true of water, wastewater and refuse service. Never assume an expense is included simply because another development includes it.

This is why I don't find a bare comparison such as “Condo A is $1,400 per month and Condo B is $1,900” particularly useful.

I want to know what the extra $500 buys.

Don't compare an HOA fee with zero

This is probably the most important point.

Imagine a resort condominium with a substantial monthly maintenance fee and a detached home with no comparable monthly fee.

The difference in ownership cost is not the amount of the condominium fee.

The detached homeowner may be paying separately for homeowners insurance, landscaping, irrigation repairs, pool maintenance, pest and termite treatment, exterior painting, roof maintenance and replacement, water, wastewater, refuse collection, Internet and cable, private infrastructure, and other maintenance.

And those expenses don't arrive conveniently in one monthly bill.

Some occur every month. Others come every few years. A roof or major exterior project might not cost anything this year but eventually require a very large check.

The condominium association effectively bundles some of these expenses and, ideally, sets money aside for predictable future work.

The correct comparison is therefore total cost of ownership versus total cost of ownership, not HOA fee versus no HOA fee.

Hawaiʻi can be hard on buildings

This becomes particularly relevant in Hawaiʻi.

The conditions that make the islands such a wonderful place to live can also be demanding on property. Salt air can accelerate corrosion near the coast. Strong ultraviolet exposure affects exterior finishes and materials. Warm temperatures and rainfall encourage rapid vegetation growth. Termites and other pests require ongoing attention. Pools and landscaping operate year-round.

Properties along the Kohala Coast experience very different rainfall and vegetation conditions from properties on the windward side of the island, but nowhere does maintenance simply stop for the winter.

Resort communities add another factor: expectations.

Landscaping, pools, common areas, roads and building exteriors are generally maintained to a standard appropriate to the community. A homeowner can decide to postpone repainting a detached house or do the landscaping personally. An association maintaining an entire resort development has much less latitude.

That professional level of maintenance has a cost.

Part of today’s fee may be paying for tomorrow’s roof

One of the least intuitive components of condominium fees is the contribution to replacement reserves.

That isn't money being spent on today’s landscaping or pool service. It is money accumulated for future major expenditures.

Hawaiʻi condominium law requires associations to address estimated replacement reserves. Reserve calculations are based on the estimated useful life and anticipated capital expenditure or major maintenance associated with components for which the association is responsible. DCCA Hawaii

The Hawaiʻi Real Estate Commission describes reserves as money collected regularly from owners to pay for large future expenses caused by deterioration of the project—for example, repairing or replacing roofs, elevators and other common elements. DCCA Hawaii

That distinction is enormously important when evaluating fees.

Consider two otherwise similar condominium communities.

One has a noticeably lower monthly maintenance fee.

The other charges more but has been systematically accumulating money for future roofs, paving, plumbing, exterior work and other capital projects.

The first property isn't necessarily cheaper.

It may simply be collecting the bill later.

A low HOA fee isn't automatically good news

The Hawaiʻi Real Estate Commission makes essentially this point in its guidance on reserves.

If adequate funds aren't accumulated, an association may eventually need to impose a special assessment, borrow money or defer necessary repairs. The Commission also notes that an association that historically kept maintenance fees artificially low by failing to fund reserves wasn't eliminating the true cost of maintaining the project—it was postponing it. DCCA Hawaii

That is why I would never recommend choosing between two properties on monthly fees alone.

A $900 monthly fee can be expensive if it is accompanied by deferred maintenance and an approaching special assessment.

A $1,500 fee can represent better value if it pays for considerably more and supports a well-maintained, financially sound association.

And the reverse can certainly be true. A high fee isn't proof of good management either.

You have to investigate what is behind the number.

Insurance makes the comparison more complicated

Insurance is another reason that simple comparisons can fail.

A condominium association generally carries master insurance applicable to property for which the association is responsible. An individual condominium owner typically also carries an HO-6 policy appropriate to the unit and the owner’s particular exposures.

The cost of the association’s master coverage ultimately comes from the owners, generally through association expenses.

A detached homeowner, meanwhile, normally purchases insurance for the entire home directly.

So it doesn't make sense to compare an individual condominium owner’s HO-6 premium with the full homeowners policy on a detached house and conclude that the condo costs dramatically less to insure. Some of the condominium’s insurance expense may simply be appearing elsewhere—in the association budget and therefore in the monthly fee.

The governing documents, insurance information and current association financials tell you far more than the monthly assessment alone.

The “lock-and-leave” factor has value, too

Not every benefit can be captured neatly in a spreadsheet.

Many Kohala Coast properties are second homes. Their owners may spend significant periods on the mainland or elsewhere.

For those owners, there is real value in knowing that someone else is arranging landscaping, maintaining the pool, caring for common areas, dealing with the exterior of buildings, overseeing common infrastructure and managing the development while they are away.

With a detached residence, the owner either handles those responsibilities personally or hires people to do them.

Neither approach is inherently better. Some people want the autonomy of a single-family home. Others specifically want to arrive in Hawaiʻi, unlock the door and begin their vacation.

In that case, part of what the owner is buying with the monthly fee is convenience and professional management.

That benefit is difficult to price, but it isn't worth zero.

What I want to see before deciding whether a fee is “high”

When I'm evaluating a condominium for a buyer, the monthly assessment is just the beginning of the analysis.

I want to understand the association’s current budget and financial statements, its reserve study and reserve funding, master insurance coverage and deductibles, maintenance history, recent and anticipated capital projects, history of special assessments, recent fee increases, meeting minutes, pending litigation or significant disputes, and the physical condition of the buildings and common areas.

I also want a clear accounting of exactly what the owner receives for the monthly payment.

Does it include water? Wastewater? Refuse? Cable? Internet? Landscaping around the individual unit? Exterior pest control? Certain utilities? Resort or recreational privileges?

And just as importantly: what doesn't it include?

Two communities with similar monthly fees can produce substantially different owner expenses once those details are considered.

The Hawaiʻi Real Estate Commission provides extensive educational material for condominium owners and prospective buyers covering budgeting, reserves, governance, insurance, maintenance fees and special assessments. DCCA Hawaii

Look beyond this year’s budget

The reserve study deserves particular attention because it shifts the analysis from “What does this property cost this month?” to “What is this association preparing to spend over the coming years?”

A reserve study considers which components are the association’s responsibility, their remaining useful lives and the anticipated cost of maintaining, repairing or replacing them. Hawaiʻi law also provides specific requirements for reserve funding and periodic independent review of reserve studies in applicable circumstances. DCCA Hawaii

That makes the reserve study one of the more revealing documents in condominium due diligence.

A healthy bank balance by itself isn't enough. You need some idea of the obligations that balance is intended to meet.

Ten million dollars in reserves might sound extraordinary until you discover that the association is responsible for roofs, roads, plumbing, wastewater infrastructure, pools and dozens of buildings approaching major maintenance cycles.

Numbers require context.

What about vacation-rental income?

Some resort properties can legally be operated as short-term vacation rentals, and buyers sometimes reason that rental income will offset the monthly association fee.

It may.

But I would keep those two analyses separate.

First determine whether the property makes sense as a property you want to own and whether its ongoing expenses are reasonable. Then, if rental use is part of your plan, analyze the potential rental operation separately—including eligibility for short-term rental use, management expenses, taxes, occupancy assumptions, maintenance, furnishings and other operating costs.

Potential rental income shouldn't turn an otherwise questionable ownership proposition into a good one on paper.

So, is that HOA fee really high?

Sometimes it is.

A large monthly fee may reflect expensive amenities you don't value, inefficient operations, unusually high insurance expenses, aging infrastructure or simply a property that is costly to maintain.

But the dollar amount alone doesn't tell you that.

Likewise, a low monthly fee isn't necessarily evidence of efficient management or inexpensive ownership. It can be perfectly legitimate—or it can reflect inadequate reserves, deferred maintenance or expenses that owners simply pay separately.

For a Hawaiʻi resort buyer, I think there are three much better questions:

What does the fee pay for?

What will I still have to pay myself?

Is the association adequately preparing for the expenses that are coming?

Answer those questions, and the monthly fee begins to mean something.

Until then, it's just a number.

With aloha,
Carol Porter
REALTOR® · RS-87584 · HI · Better Homes and Gardens Real Estate Island Lifestyle