Best cities in Hawaii to invest in short term rentals?

Question

I am targeting Hawaii and would like to know the best places to buy a place I can put on Airbnb.

Is it more profitable to get a condo in a hotel? Outside a hotel? A house?

Any regulations against Airbnb?

Jeremy Baker · Answer

Of course this can be somewhat subjective, but I believe Kihei, Maui is one of the best cities in Hawaii to invest.  We own 2 vacation rental condos there and have been very successful.  We love Kihei and visit at least once a year, so for us Kihei was the best "city" in Hawaii to invest.

As others have mentioned above, most houses and ohanas in HI are going to be illegal to rent short term.  Even if you were to get a permit to do so, it can take up to a year to get approved by the state.  However, most of the condos in Kihei are zoned to allow short term rentals, then it's up to the HOA (or AOAO as it's called there) whether or not to allow short term rentals.  Most in Kihei do allow it and over the past few years, some of the ones that didn't allow it changed to allow short term rentals.

So are there lots of restrictions, yes, but really not much more (and sometimes less) than most places and many places that have less restrictions are starting to pass laws regarding short term rentals.

If your condo is zoned to allow short term rentals and the AOAO allows it, the only thing you need to do is get your general excise tax ID and transient accommodations tax ID, follow a couple of simple short term rental laws and your good to go.  The process of getting these IDs is very easy and it's easy to pay these taxes online.

Hope this helps.  If you don't mind owning property long distance and like to visit Hawaii often, then I highly recommend investing in a vacation rental there.  If you have any questions about investing in Hawaii, particularly Maui, let me know!

Loren Clive · Answer

I can only speak to Maui. You cannot rent homes as vacation rentals without a special permit. Most condos are zoned for vacation rental, however. I think the 90% illegal rental figure is high, but how would you be able to measure anyway? Yes, people do get away with it, but why risk a $350k plus investment when you can easily do it legally?

Ma'alaea 96793, Kihei/Wailea 96753 and Lahaina/Kapalua/Ka'anapali/Honokowai 96761 are prime vacation rental areas. Count on 80% occupancy year-round.

Choose a well-maintained complex with low maintenance fees. Some condos (Island Surf, Maui Banyan, Mana Kai) offer lockoff options that allow you to rent 2br condos as 1br hotel rooms and 1br suites, nice flexible option especially if you want to use it yourself sometimes.

I've sold and managed many vacation rentals as well as owning one myself.

Mark Waite · Answer

@Jeremy Baker is correct for Maui. There are condo units whose CCR's do not allow for short term rentals, and then there are those who are. Your realtor can easily find out which ones can be used for short term, vacation rentals. It is much harder to get approval to turn a home or ohana into a short term rental.

And, it is really important that you get your general excise tax and transient tax ID's. The state is trying to push the platforms (airbnb, vrbo, etc.) to require the owner to provide those numbers before the property is listed on the site. Better to be safe than sorry!

That being said, it is a great place for a rental property. Feel free to reach out if you have any questions.

Ryan M. · Answer

@Tommy Sowell, when you say 90% of condos are not zoned for vacation rentals, do people get away with it or is it enforced? Is it the same for SFH?

Corryn Ault · Answer

I clean/manage 3 vacation rentals in Kailua on Oahu and I barely have a house empty for 3 days in a row in the off season. Yes they pay taxes, well the guests are charged and the owners pay but are all illegal. Actually almost 90% of the houses along Kalaheo avenue are vacation rentals and all illegal. The owners send the guests a little introduction telling guests during there stay to say they are friends of the family if anyone Asks them questions. People are quick to try to scare you off of Oahu in general because it is such a ideal place.

Mark Waite · Answer

@Duarte Silverio one other comment about something Loren said regarding 80% occupancy. That is not the norm but what you can strive for on the high end. It takes a lot of work and marketing to get to 80%. Done correctly, a safe assumption would be around 60%.

Mark Waite · Answer

@Duarte Silverio You are correct that property taxes are very favorable, even if you do not intend to live in the property.

When you sell, Hawaii has two taxes you need to be aware of - HARPTA and FIRPTA. They are essentially capital gains taxes to ensure that sellers pay capital gains if they are foreigners. It is handled at escrow and taken out of the closing proceeds by escrow.

In the interim, if you intend to use your property as a vacation rental, you will at a minimum have to pay general excise tax (aka GET), which is essentially a sales tax on revenues generated by your property as Hawaii does not have a sales tax. GET is assessed on all business activities. GET is assessed at 4.16%.

Also, if you intend it to be a short term rental (vacation rental), you will also need to collect transient accommodation tax. The TAT is based on gross rental or gross rental proceeds derived from the furnishing of transient accommodations at 9.25%. It is applicable only to rental of such accommodations for less than 180 days.

If you are considering short term rental investing, then I would definitely say condos are a better option. The county is making it very challenging for someone to make their home a vacation rental. The only challenge with condos is to ensure you buy in a community that permits them.

You will have to hire a property management firm as the law requires owners who live off island to have a point of contact on island. Most buyers will hire a property management firm to act in that capacity as well as cleaning, managing rental, etc.

Kihei, Lahaina and Kaanapali are great rental areas. Let me know if I can be of service.

Warmest Aloha,

Mark

Duarte Silverio · Answer

@Mark Waite How does it work for foreigners? I know that property tax is not too bad in HI, but what's all those additional taxes?

Also, I'd think condo's definitely do better than SFH's?

@Loren Clive 80% is a great number. Got any offers available? Condo's > Condo-Hotels? Exit strategy, financing, etc?

@Jeremy Baker Thanks!

Jeremy Baker · Answer

@Duarte Silverio sure, just private message me and I'll be happy to share some numbers with you.

Duarte Silverio · Answer

@Jeremy Baker @Loren Clive Very interesting, do you guys mind sharing ROI numbers?

How much does it cost you to outsource the management?

Best cities in Hawaii to invest in short term rentals?

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