UPDATED July 15, 2019
Mayor Caldwell signed into law a bill 89, which will have a broad sweeping effect on the vacation rental industry on Oahu.
Under the new law up to 1700, new short-term vacation units will be allowed on the island. They are a designated number in each major district. The limit is set at no more than 0.5% of the total number of dwelling units in a district.
The number of vacation units per District is as follows:
1. Honolulu (this includes Honolulu, Pearl City, Aiea, and Diamond Head): 907 units
2. Hawaii Kai: 92 units
3. Ko’olau Poko (which includes, Waimanalo, Lanikai, Kailua, and Kaneohe): 183 units.
4. Ko’olau Loa (which includes Kaaawa, Punaluu, Hauula, Laie, and Kahuku): 23 units.
5. North Shore: no more units will be allowed on the North Shore, which includes Waimea, Sunset, Pupukea, Haleiwa, Waialua, and Mokuleia)
6. Central Oahu (which included Mililani, Mililani Mauka, Waipio, Wahiawa): 256 units.
7. Ewa (Which includes Ewa, Kapolei, Ewa Beach): 171 units.
8. Waianae (Which includes Maili, Waianae, Makaha): 67 units.
These 1700 units would be classified as home shares or Bed and Breakfast in owner-occupied homes. A maximum of two rooms will be allowed to be rented under these permits.
The North Shore has a community-drafted sustainability plan that has outlawed the addition of any new short-term rentals. This is why no new units will be allowed there.
The new permits will not begin to be issued until October 2020.
Unpermitted Vacation rentals can face fines
For unpermitted Vacation rentals, the fines will be stiff. There is a $10,000 per day fine that will be levied. Currently, the predominant residential zoning on Oahu allows for a 30-day minimum rental period. If you are renting for shorter than this, you could be subject to a fine.
Vacation Rentals still can be possible:
It is still possible to have a vacation home that you rent out when not here and using Airbnb. Adhering to the zoning laws does allow for owners to rent their homes, but they must comply with the 30-day minimum. The times during the year when this is the easiest to achieve is during the Summer and Winter months. Some families wish to come for the entire Summer and others that want to have an extended stay here during the winter.
Hawaii investment properties can also benefit from the Airbnb effect.
Updated Feb 15, 2018
Without a doubt Airbnb is a big hit. As they venture into more and more areas around the globe, more news is written about the company. In real estate, it is showing a small but dramatic effect in my opinion. The platform has provided an incredibly easy way for people to manage their property as a Hawaii vacation rental. The short term market rents dramatically can increase an investment’s profitability.
I have clients visiting Hawaii to view properties that book Airbnb units. Other people I know rent properties out on Airbnb. The reports I receive on renting out properties in Hawaii on Airbnb are mostly positive. In general, I think people are excited about the possibilities of this platform for Hawaii investment properties.
In years past sites like VRBO and Homeaway seemed to dominate the space and now Airbnb is clearly taking over.
Hawaii investment properties such as Airbnb vaction rentals. Being aware of the market and local laws
Buying a Hawaii investment property in order to rent it out via Airbnb can bring in a higher return. There are many facets to consider in order to do so responsibly and understanding the associated risks.
1. Zoning in Hawaii.
If you have been around Hawaii for a while, you will become acquainted with how many properties seem to be chopped up and rented out separately. Many have turned a blind eye to this practice over the years because of our unbelievable housing shortage. It also goes back to how much real estate costs. From a homeowner’s stand point, if you can convert part of your home to a rental, it can mean affording a better home in a better location. For a tenant it can mean living in a better neighborhood for less cost. This symbiotic relationship has existed for decades across neighborhoods in Hawaii.
It is important to be aware that this frequently violates the zoning and building codes. Government officials and the neighbors have turned a blind eye to this because of the housing shortage. However, turn those extra units into an Airbnb that violates the zoning laws and if you have neighbors that are unhappy about it, watch out! George Atta, the new Director of the Department of Planning and Permitting has said he will crack down on illegal vacation rentals.
Therefore, make sure your property would not violate zoning laws or the building code. Most residential real estate in Hawaii allows for a 30-day minimum rental. There is nothing wrong with turning that home at Sunset Beach on Oahu’s North Shore into a short term rental on Airbnb, provided it is for 30 day periods.
2. Hawaii Condominiums:
Many condominium projects in Hawaii have instituted a minimum rental period. Some of the ones with the most teeth are the co-ops in Diamond Head. For example, the Diamond Head Apartments says that you can not rent the unit that you just purchased for at least a year after purchasing it. Then afterward there is 6-month minimum rental period.
People have tried to rent their units out quietly anyway and trying to not reveal which unit it actually is in the building. For some this has not worked out so well. Condos such as Kahala Beach Apartments actually has their assistant manager LOOK for illegal rentals online. Other building managers have reported to me that they have owners come to them and complaining that specific units are illegally renting out their units.
It is understandable to have the backlash because many of the owners do not want to feel like they are living in a hotel. As a contrast, there are some Hawaii condominium projects that openly flaunt the rules and because that is the condo’s culture, no one complains.
3. Hawaii State Laws:
There are 2 state laws to be aware of when renting out your Hawaii investment property on the short term. First is that rentals need to have a representative on-island. Either you need to be on island or you need to have someone on island for the tenant to contact in an emergency. Also, for short term rentals, the appropriate Transient Accommodation Tax number has to be shown on the rental ad. This is included on Airbnb. Transient Accommodation Taxes apply to any rental shorter than 6 months. So even if you rent by the month, then this number must be shown.
4. Hawaii Tourism Market:
Once relying on Airbnb income for your unit, owners are a bit at the whim of the tourism sector. This has had some bumps in the road in the past. The most notable one of late is when the Japan earthquake created a tsunami and the nuclear disaster at Fukushima. It was a sudden horrible shock to Japan and overnight, trips to Hawaii were canceled. Waikiki was empty. Economists expected to last for 9 months. We did see a meaningful recovery in about have that time. It is just to be aware that a short term rental can have much more risk that a long term tenant.
With all of these pitfalls, investors can still do well with buying Hawaii investment properties and renting them out on Airbnb. There is a way to do it legally and still do well. It is good to have good representation that can help show you what is or is not legal and the possibilities of earning money with a piece of real estate in Hawaii.
If you have a question about this article, Hawaii investment properties, Airbnb real estate investing, or looking for real estate in Hawaii, please do not hesitate to contact me at 808-394-9779 or use the form below. Mahalo!
5. What kind of returns do Buyer’s generally face in purchasing an investment property?
Traditionally many investors in (Hawaii) real estate look for a certain rate of return on their investment. Meaning that they expect to purchase a property for so much money and be able to rent it out for a nice profit year after year. In many markets, that is the ideal scenario. In Hawaii, it can work very differently.
Because we have a limit of size (being just islands) and the counties have strict building codes and extensive red tape which slows down the development process, we have a shortage of housing units. Honolulu County, which includes the entire island of Oahu, the most populated island, the lack of housing units is the most severe.
This sets this stage for people investing in Hawaii real estate , not necessarily to get a healthy rate of return on their invested dollars, but for price appreciation.
Looking at the history of the Oahu real estate market, prices of properties have risen dramatically over the decades. This is not always a straight line appreciation however, looking over the longer team, prices do rise. And it seems that investors of Hawaii real estate are willing to sacrifice return on investment for value increase.
6. Why do people invest in Hawaii Real estate?
If returns are not the best in Hawaii, why do people invest here? It is in part for the generally recognized increase in prices. Even during the near financial Armageddon that we faced during the financial crisis, prices on Oahu hardly declined and in many cases did not. Once a distressed property came available there was some body right there with cash. This resulted in prices not falling, unlike in many markets on the mainland USA.
Another reason people invest in Hawaii real estate is so that they can enjoy perhaps using the property for part of the year. It means that they can derive rental income to help in covering costs and then still be able to visit from time to time to enjoy the property for themselves.
Potential tax benefits arise that may be very attractive for the right situation. Of course, anyone looking at the tax implications should contact their tax specialist, accountant or tax attorney for guidance. For example, leasehold property may offer some distinct advantages in part because the entire amount of the purchase price can be depreciated. Also, certain countries, such as Japan have offered amazing depreciation on older buildings, or homes with a wood frame, which has made investing in Hawaii very attractive.