Which Hawaii islands allow short term rentals of houses?

Question

I know Kauaii only allows it in Princeville.

About Maui, I found that the county is trying to ban it since recently, but not sure under what conditions and if any regions are exempt.

We are thinking about living in the house part time, so it will be nice to be able to rent it out the rest of the time.

Paul Winchell · Answer

Aloha @Mihail Iotov,

As @Christian Cramer and you have noted, each county has it's own rules.  Here on the Big Island, STVR's are possible only if the property is in a Resort zoned area (most condos fit this criteria, but only few houses) OR if the house was in use as an STVR before the law changed in 2018 and the owners applied for both a Non-conforming Use Certificate (to get an exemption to the zoning laws) AND a STVR permit (required regardless of zoning, but easy to get).  The NUC and STVR permits are renewed every year and are transferable with sale so your best option in Hawaii county is to look for a house with the permits in place.  Those properties tend to sell at a bit of a premium, but with COVID bringing tourism on the island to record low levels, I'm noticing that more of these properties are starting to hit the market as people without adequate reserves are feeling the pinch.

As a side note, hosted STVRs are still allowed regardless of zoning.  In other words, if you live on the property, then you can rent out additional rooms, an ohana, etc. without the NUC (still requires the STVR permit though).

Hope this helps!

--Paul

Paul Winchell · Answer

@Aaron Wisch with an owner/builder permit in Hawaii you can do everything except plumbing and electrical.  But there are some additional rules, including that you can't sell or lease the property for one year after the permit is closed.  Here is a link to a short informational brochure on owner/builder rules.

http://cca.hawaii.gov/rico/fil...

Nearly all work is supposed be done with a permit, but getting permits is slow and expensive.  As an example -- a friend just got a split a/c system installed in her condo.  They had it installed by licensed HVAC contractors but without a permit.  It cost $8000 to install, but to get the permit would have cost about $3000-4000 more plus a 6 month wait on the application because the permit requires drawings by electrical engineers, etc.  Probably 3/4 of the condos in that development have had AC installed, and maybe 1 in 10 of them actually got permits.

A lot of work here is done unpermitted because the permitting process is so onerous -- but that comes with risks as well when selling the property (unpermitted additions and renovations generally cannot be insured, cannot be appraised, and therefor cannot be mortgaged).  You can sometimes find cash deals on houses that were built or gutted/remodeled without permits.  Because the banks won't touch them, they can be had for steep discounts -- but only for cash.

In general, you can get away with a lot without permits here.  The usual surface remodel stuff you'll have no problems with (painting, new fixtures, appliances, flooring, cabinets, etc.) but once you start altering floorplans or moving electric or plumbing, it's generally smarter to get the permit (unless it's for your own house and you don't care about the resale value and are comfortable with the risk).

Also remember that while this stuff pertains to the county and state rules, individual HOA's also have their own rules and some require that all work be done permitted and/or by licensed contractors.  A lot of properties here, especially on Kona side, fall under HOAs.  So make sure to check out the HOA bylaws for any property you are thinking about buying too.

--Paul

Paul Winchell · Answer

@Aaron Wisch

Good contractors are hard to find everywhere, but especially in Hawaii, and even more so on the Big Island.  Many work on "Hawaii time".  If the surf is up in the morning they may show up late or not at all.  Many will leave early to drink beers on the beach at sunset, regardless of how much work is done.  Even if the contractor is good, they struggle to find reliable workers for the same reasons.  There are good contractors on the island, even great ones; but they are hard to find and the good ones are usually booked well in advance and can afford to be picky with the jobs they take.  Good and bad both charge high rates since they are in scarce supply.  In my experience the contractors on Kona side tend to be a bit more professional than the ones on Hilo side.  Kona is where a more of the money is at, with more mainland investors who are more demanding.

There is money to be made on rehabs on both sides.  Hilo side has a lower cost of entry, so is easier for cash buys.  Kona side has higher demand and higher potential values, but also plenty of competition.  Kona is nearly impossible to cash flow but has stellar appreciation.  Hilo a little less appreciation but cash flow is possible (still difficult).  STR's are in much higher demand on Kona side.

You could even consider splitting your efforts -- a long term multi in Hilo and residence / STR on Kona side.  Depends what your finances are and your long term goals.

Do your homework and you can make money in either market.  Just don't expect it to be easy!  Best of luck!

--Paul

Christian Cramer · Answer

Each county has their own rules in relation to the permitting process for vacation rental homes.

In Maui county, if the property is not a grandfathered-in STR condo, then you either will get a Short-Term rental permit, or a Bed and Breakfast permit. There is a cap on the number of permits allowed per area in each class. The new Maui rule you are talking about, says you must wait 5 years to apply for the Short-term rental permit after purchasing a single family home that is in an eligible area. This 5 year wait does not apply to Bed and Breakfast permits, but for that permit you must be living on the property. Both types of permits are not transferable upon a sale.

What normally ends up happening for buyers in your situation, is that they look for a single family short term rental, and realize it will not be possible unless they can spend the big bucks buying a house that is extremely obvious vacation rental candidate (ie beachfront). Most buyers end up just getting a STR grandfathered condo, because it ticks the same boxes. You can stay in it in HI and then rent it out when you leave, get cash flow, and have the maintenance handled by an hoa. You will also likely get an ocean view or be beach front, which would set you back at least 1m+ normally here.

Chris Piel · Answer

@Aaron Wisch you might consider putting all your eggs in one basket on the kona side depending on what you want out of your lifestyle. For the cost of one property on the west side you may be able to do a hosted STR that appreciates well and keeps your cost of living low re rent savings. The demand for STR and appreciation will be quite different between the two markets.

Paul Winchell · Answer

Aloha @Aaron Wisch,

Please check with your realtor to make sure of the specifics for whatever property you choose.  But in general, getting permits for HOSTED short term rentals is much easier than unhosted.  I know some people here who are doing it with no problem.  Just be careful of HOA's -- many properties in HOA's have more strict rules banning all forms of vacation rentals.  HOA's tend to be less of an issue on Hilo side than Kona, but make sure you check before making any offers.

Also be warned that my understanding is that hosted rental truly means hosted -- you must be actively living at the residence.  Even if you go on vacation for a week to the mainland -- you cannot rent during that time.

Hilo side is a good place to start.  Much more reasonable entry prices.  Less tourist demand than Kona side, but significantly less competition.  Make sure you get a good agent if you don't know the area well.  Hilo area is very neighborhood dependent.  Big differences between good neighborhoods and bad.Best of luck!  Feel free to shoot me a message next time you're on-island.

--Paul

JD McKelvey · Answer

@Paul Winchell all great information to think about, thank you!

Dillan Stoor · Answer

@Paul Winchell great advise and info. As mentioned above there are a lot of flip opportunities Hilo side but I believe that is for a reason and what you have explained is a very big part of that. In a market as hot as Hawaii's if there is availability or opportunity there often is a reason why... but someone could still make big bucks!

Aaron Wisch · Answer

@Paul Winchell do you know what trade work is mandated by law that has to be done by a licensed contractor? I've heard it's a thing over there. Is it just plumbing & electrical or other trades as well?

Aaron Wisch · Answer

@Chris Piel It's definitely something I'm considering. Keeping my options open right now & gathering information. There's so many bad houses in Hilo that are begging for a cash buy & rehab, which is why it's so much more interesting than Kona. I've heard that contractors can be very challenging to get ahold of there though.

Which Hawaii islands allow short term rentals of houses?

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