All Forum Posts by: Paul Winchell

@Victor Sine

Leaving all discussion of location aside, you would not legally be able to use this property as a STR. Hawaii county law has some pretty strict zoning restrictions in place for un-hosted STRs (ones where the owner does not actively live on the property), and in fact there is new legislation set to pass within the next year to severely restrict hosted STRs as well. As @Charlene Acosta mentioned, there are people who do it still and get away with it, but many who get caught and heavily fined.  I can tell you that this is a hot-button issue that they are actively enforcing.  The fines can spiral too.  If you try to pay taxes on your income from an illegal rental, they've got you there, and if you don't pay the taxes, then when they catch you they've got you for tax evasion as well. In my opinion it's not worth the risk.  Buy a STR zoned condo if you really want to AirBNB on the island.  Otherwise do long term rentals.

--Paul

@Rob Hilton 

There are two preliminaries to running a STR in Kona (or anywhere on the Big Island). First, is the Hawaii STVR license. This is mainly just a taxation thing. If your property is legally allowed as an STR, then it's just a simple form to get the permit and pay the taxes (not only General Excise Tax as mentioned above but also Transient Accommodation Taxes for both the county and state).

The second is a bit trickier and that's making sure that the property is legally allowed as an STR. The zoning laws are what determines this. Anything zoned as Vacation/Resort zoning automatically qualifies for the permit. This includes most (but not all) of the major condo complexes and a few limited communities. If the property is zoned residential, then a Non-Conforming Use Certificate (NUC) is required. These are only available to properties that were already operated as STRs and grandfathered in when the law changed in 2018. If the property has an NUC, it is transferrable with the sale. If it doesn't already have one, then it doesn't qualify and using it for an STR is illegal (and yes, they do enforce). No other zoning types have a legal route to an STR license. Your realtor can help point you to properties that do qualify if you're still interested.

Best of luck!

--Paul

You can also talk to Marcelle Loren with Island Mortgage.  She's a small broker but investor friendly and very savvy.

As for volcano insurance - it's usually not worth it.  For lava zones 1 and 2, the property sold there tends to be quite cheap because of the threat of lava - and extra insurance is quite expensive.  Most homeowners policies in those areas are carefully written to exclude damage caused by volcanic activity (not just lava but earthquakes, ash, etc.)  Because these areas are cheap and remote, they also tend to have pretty high crime rates. For investments these areas are extremely high risk and I would much rather avoid them altogether.  If you decide to buy in these areas, understand the risk involved and be prepared to write it off if you get unlucky.

In lower risk lava zones, getting coverage isn't nearly so difficult or expensive with standard homeowners insurance.

@Chris Hicks

There are three separate Hawaii state taxes you will be responsible for when operating a rental in Hawaii.  First, General Excise Tax, which as you stated is required of all businesses in Hawaii.  It is Hawaii's version of a sales tax, only it applies to all business transactions.  Then there is the Transient Accommodation Tax which is applied to all rentals of less than 180 days (pay close attention to this if renting short term).  Both of these are business taxes and applied to gross income regardless of profit.  The state will take their cut regardless of whether your business is profitable.  It is standard practice to pass these taxes on to the consumer -- For instance, if you stayed at a hotel in Waikiki for $200/night, your actual bill might come to $250 as these taxes and other hotel surcharges get added on top of the nightly rate. If you rent an apartment for 1 year at $2000/mo it is common that the actual cost will be $2000 plus GET.  Be clear in your lease about how those taxes are being collected (included vs additional charge).

And finally you will have to pay state income taxes on personal income generated in the state (minus deductions).  

In all you will pay (up to) three different taxes, but they should all be considered separately and none of them will be collected twice.  Make sure to consider all of them when you calculate your bottom line for operating a rental in Hawaii.

I am not a tax professional and this should in no way be considered tax advice.  It is always a good idea to consult a tax professional to fully understand your liabilities.

Hope this helps.

--Paul Winchell

Aloha @Andrew Meikle

Allow me to throw a few ideas out as a resident of the Big Island.  You mentioned in your first post an intent to move to the Big Island specifically.  Others have mentioned Oahu, but Big Island is pretty unique among the islands and has a number of differences from the other islands.  Are you set on Big Island as your destination?  Just curious why you chose this island as you commented that you've not spent any time here?  

Do you have a place in mind to purchase?  Based on your estimate of $300k you are almost certainly looking at Hilo side, unless you would consider a smallish condo in Kona or Waikoloa Village.  As many have noted, Hawaii is a tourism-based economy and your juice truck would do much better catering to the tourists.  However the vast majority of tourism on this island takes place on the Kona side, which is a minimum hour and a half or so drive depending on where Hilo side you are coming from (if you plan to live in Puna district, like in Keaau or Pahoa area where the cheapest housing prices are, add another hour onto that commute).  So my first suggestion as you consider the Big Island is to get more familiar with the geography.  There are farmer's markets all over the island, but some cater more towards tourists and wealthy transplants, rather than the working class locals.  You will be able to charge a much better premium selling to the first group.

As for others' suggesting the Japanese wedding business, just putting it out there that it would not be nearly as profitable on the Big Island.  There are far fewer Japanese tourists on this island than Oahu or Maui.  Not to say there are none, but where I can relate to seeing multiple Japanese couples posing for wedding pictures every day at Ala Moana when I lived in Honolulu, here on the big island it is much less common.  This is more a general comment as it sounds more like you are looking for a way to make enough to enjoy your passion of juicing rather than searching for other opportunities.

As for your camper van business idea -- I would suggest against it.  Similar concepts have been tried by others and failed.  While there are many excellent places to camp on the island, there are actually very few proper campgrounds.  Most camping is done by setting up tents on secluded beaches or down 4wd tracks.  Plus nearly everything is viewable via a day trip from the major resort areas. Those who want more of an outdoorsy camping experience tend to stay at Airbnbs with tiny houses, tree houses, cabins, etc. that cater to that experience.  Camper vans would cater to a very small, very niche audience of tourists and I think you would have a very hard time recovering your costs.

As to the juicing business I can't say much about regulations and such since I have no experience in the field.  But I do have some close friends who own a small family business selling shave ice, smoothies, fruit bowls, etc. to tourists near Pololu Valley at the north end of the island.  They run their business out of a trailer, but permanently parked on their own private land.  I can tell you that during busy tourist seasons they have a very hard time getting enough fruit to keep up with their sales.  They grow a lot of their own and also purchase from several local farmers and even from Costco but still struggle to find enough when peak season hits.  So make sure to take the time to research your supply chain too.  Remember, we are on a small island a couple thousand miles away from most everything else.  Expect supplies to be limited at times and always more expensive than you're used to now.

One final comment on the real estate side.  While rentals properties can be profitable on island, those opportunities are few and far between.  House hacking is an excellent option to keep your living costs down -- whether you just have a roommate helping with expenses as you mentioned or if you buy a house with an Ohana unit or even a duplex, tri or quadplex (harder to find on this island because of zoning, but not impossible) and rent out the extra units.  But don't expect great cash flow from a pure investment standpoint.  You can find cashflowing properties here, but not the kind of cashflow that exists in a lot of cheaper markets on the mainland.  In Hawaii, you're mostly having to gamble on appreciation, which is just that -- A GAMBLE.  Historically, it's a safe bet long-term, but markets fluctuate a lot so you could find yourself stuck sitting on something waiting for it to appreciate while other opportunities pass you by.

Also right now like nearly everywhere else, the RE market on the Big Island is INSANE.  Extremely low inventory, tons of competition especially from mainland buyers (the California exodus is real and a lot of them are coming here with piles of cash to buy a home sight-unseen).  Nearly every property hitting the market is getting multiple offers, and most are going for over asking price -- many with cash offers.  There's plenty of debate out there about what will happen with the market in the future and I'll let you read the many other posts about that and decide for yourself, but I just want to remind you what you are up against buying right now on the Big Island.

I hope this wasn't too discouraging as I didn't intend it to be.  Just wanted to help give you a few more things to think about as you make your plans. Feel free to get in touch when you make it out here.  I'd be happy to talk story and I'll certainly buy a cold pressed juice shave ice from you if/when you get set up.  Best of luck.

--Paul

@Michael H. There have been a couple threads recently that discuss the topic of hosted STVRs on Hawaii Island.  I'm not sure how to link them here but you can find my replies through my profile.  In short, hosted STVRs are a bit of a grey area -- not specifically defined by the new county code.  My local agent knows a number of people who are doing it currently, and have not had any problems with the county.  But calling the planning department would still be the safest way to go, especially if you are spending most of your time away from the property.  My understanding of a "hosted" STVR is that you must be physically living at the property during the time that any rental occurs.

@Dillan Stoor We've responded to a few topics together but let me officially welcome you back to the Big Island.  I live in Kona currently and am much more knowledgeable about the west side of the island, but I'm happy to help however I can.

--Paul

@Dillan Stoor

I'd suggest giving Marcelle Loren at Island Mortgage a call.  She's a local broker based out of Hawi.  She uses national banks for funding, but has the local knowledge to understand the Hawaii Island market.  She's extremely well known and respected on the big island, and her signature on an approval letter carries some weight with agents and escrow companies.  Plus she's an active RE investor on the island herself, so she knows the particulars of investing on the Big Island very well.

Best of luck,

--Paul

I just spoke to my agent again about this.  She knows at least half a dozen people doing exactly this right now on the Kona side of the island.  Ohana (mother-in-law style) studio units are extremely common and it is common practice to live in the main house and rent the ohana (short or long term).  She thinks it's a bit of a grey area -- not specifically defined by the new code and thus left to interpretation.  So perhaps the agents you spoke to are just erring on the side of caution.  There would seem to be some risk to consider that even if it is not restricted now, that the county could step in at some point and redefine the rule, specifically ruling out "hosted" STVRs.

My agent does a lot of business in Waikoloa -- both the village and the resort area. She says the Waikoloa Village Association is currently taking steps to write their own code in the CCRs to disallow hosted STVRs, which also lends credibility to the idea that the county itself is not enforcing against hosted rentals currently (if the county was restricting them, there would be no need for the HOA to write their own code). Always check to make sure your property isn't governed by any CCRs that restrict use, and that aren't managed by active HOA's that are likely to change the rules after you buy.

Of course, if you want to be sure, you could always call the County of Hawaii Planning Department directly.  If you do, I'd love to hear what they have to say.

--Paul

@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

@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

@Aaron Wisch