Cesspools are relatively common in certain areas of Hawaii. I have a fix & flip property with a cesspool and the wastewater department will not approve/sign off on our building permit until the cesspool is upgraded to a septic system. If anyone has experience with this process I’d love to hear from you.

Some questions:

1. Is it possible to sell a house with septic plans drawn up by a licensed engineer but pass the tank installation onto the buyer? (Sell the house with an open permit)

2. Does it make more sense to pay the $20k to get the tank installed and then increase the list price to recoup that money? I’m just not sure how much a septic increases the value of a home that was previously on cesspool.

Any and all advice welcome. I’d be curious if any Hawaii real estate agents have thoughts on this.

Aloha Cassie,

Depends alot on your target buyer for the sale. Personally, I would advise you look into the Cesspool Conversion Financing grants available. Last I checked, they were giving grants of 80% of the cost to convert the cesspool. I'll find the link and post it in here. 

If you don't end up converting it, the house should still be sellable, assuming the cesspool is in working condition. I represent mostly VA buyers and sellers, so I can speak to the VA guidlelines on cesspool vs septic. Leaving it as cesspool would generally be okay for a VA buyer, assuming the cesspool is in good working order and is:

Cesspools – Existing cesspools may be acceptable for VA Lending Purposes if the following conditions are met:

-Was properly permitted when installed (Can be found with the Wastewater Branch (known as Cesspool Registration Card)).

-Depending on the scope of improvements made, the cesspool may need to be re certified (this is for major improvements, such as additions to the home that add more strain on the cesspool)

-The cesspool is normal for the area of the home. 

Either way you go, I'd be interested to hear updates on your project!

https://health.hawaii.gov/wastewater/files/2019/10/FinancingConversions.pdf

@Michael Duncan

Good to know! Thank you for the information.

@Cassie Chun  

No problem!

I had to go through one of these last year in Ewa Beach. Cost me about 30k. If you can, just get it done yourself and tack into the resale price - there's value in a newly installed septic system over an old cesspool - as long as you're still not pricing it above ARV (check the comps to see if they're also cesspool or septic).

This seems like a lot of hard work all to get taxes at the highest rate (active income).

Its these non de minimis transactions that get categorized as Capex and need to amortized over a long time are really hard to make your effective tax rate between 10-20% for those who AGI is 100-300k.

@Michael Borger

Thanks for the insight!