Buying a Vacation (Short-Term) Rental Property on Maui
Investing in a short-term rental property in Maui can be an ideal way to enjoy your favorite vacation spot and possibly generate income for yourself. The key is finding a property that allows short-term rental and also has good short-term rental potential. Also it needs to fit your vacation needs if you plan on using for yourself!
What is a short-term rental property in Maui?
We for the purposes of this article are talking about Condominiums. There are homes that have short-term rental permits but this is not a feasible road for most buyers. The process first requires a lengthy holding period and then a lengthy permitting process that does not guarantee that you will receive one. So a short-term rental property on Maui typically means, you can rent it out for 180 days or less. Most are rented to vacationers so it is usually one to two weeks. These condos are typically located in the resort areas of Maui and have zoning that allows for short-term rentals. If the zoning is not short-term (Hotel) rental then there could be another type of “entitlement” that grants it. Please note that not all properties that have short-term (Hotel) zoning allow short-term rentals. Confused? Well, this is a good time for me to point out that is why you need to work with an experienced and knowledgeable realtor!
Where to Find Short-Term Rentable Condos on Maui?
Maui offers a vast array of condominium complexes, from luxury resorts to more modest options. Most of the short-term rental condos are located near beaches in the resort areas of South (Makena, Wailea, Kihei, Wailea) and West (Lahaina, Kaanapali, Napili, Kahana, Honokowai, Kapaula) Maui. Also Maalaea area has a good assortment. Each area offers its own advantages so it’s important to take time to research all options before investing.
What to consider when buying a short-term rentable condo:
First, you need to decide whether this will be purely for investment or will it also be used for you and/or your family/friends’ enjoyment. In other words, do you plan on allocating time for your own use in the condo? If so, then you may want to consider what you want in a condo? A one-bedroom or more? What area of Maui do you prefer to spend time in?
Some questions to consider:
- What area of Maui?
- How many bedrooms?
- Min. Square footage?
- What kind of view? Ocean View usually commands the top rental rate but then you have to see if it is within your purchase cost range.
- Condition of the condo? Move-in ready or are you open to remodeling?
- Do you want to have a front desk rental desk (typically this will meant that you have hired the management company that attends the front desk)
- Amenities? Pool. spa, fitness center, beachfront, golf, pickleball, tennis, nearby restaurants, etc
- Parking. Also if you plan on using the unit then do you plan to keep a car here in Maui? If so, does the condo complex allow for that? Is there a fee?
- Age of building? Do want a newer complex?
- Price range?
- Grounds? Landscaping?
- Proximity to the airport? Is this important to you?
- Does the condo have a lanai and if so, how large?
- Does the condo come fully furnished?
- Does the condo have a rental history? While by no means can anyone guarantee rental income, it would be important to obtain rental history. The caveat, this does not mean that you will get this rental income, and on the contrary, it also doesn’t mean you are limited to this income.
- Does the condo have future rental reservations that a buyer must honor?
- Does the condo have a rental management contract that the buyer must honor to a certain date?
- Run the numbers. Do a spreadsheet on costs, potential rental revenue, etc.
These are just some of the questions you may consider. Please note that there are many other considerations such as condo doc review, inspection etc. Again, talk to your realtor agent, your accountant, your tax advisor, and any other professional you deem important.
How to buy Short-Term Rentals
Well, the obvious answer would be to buy in cash. I would discuss this with your financial advisor if using all cash makes the best sense for you. If you don’t have all the cash or find it advantageous to leverage then you can also finance short-term rental properties. I would advise considering a local lender who finances such properties. Because most lenders who are not familiar with these types of properties do not lend on these properties. So it is very important your lender understands this kind of property, sometimes called “condo-tels” and can finance them. It is highly advised you have a pre-approval letter before shopping.
Call me for a list of lenders who finance condo-tels. Or if you have your own realtor, then ask them for a list.
Some basics you will need to start:
- You will need to have a general excise and transient accommodation tax license. Ask your rental management company if they direct you or help you with how to apply. For Non-US owners, you may need more tax forms. So consult with a professional. Here is a Hawaii state website for some info. Click here. Click here for Intro brochure on transient tax. Click here on general info on renting residential property Please note again to get updated info (if any) and rules and regulations may have changed. Also, the brochures are for general info purposes and thus there may be other restrictions and different counties also have their own specific rules and regulations.
- Hire a qualified, experienced professional vacation rental management company. The State of Hawaii also requires all out-of-island owners to have an “on-island contact” for rentals. Also please know that rules and regulations are subject to change so always get up-to-date info and requirements so you are in compliance with State and County laws and any other regulations.
- Your property tax rate for short-term rentals is higher than owner occupant rate. Here is the Maui Property tax rate website. Look for the current and upcoming year. Please see how to categorize your property as such if not already in place.
- You will need additional property insurance. Consult with your insurance agent and also your property rental manager (some rental companies require certain insurance and amounts)
Some questions to ask when choosing a rental property manager/company:
- You will need to review the property rental management contract and what it entails.
- Make sure they are licensed in the State of Hawaii
- What system do you use to schedule guests? Can I have real-time access to the guest’s calendar?
- What can I expect for the rate and occupancy rate?
- Do you schedule check-in/out cleaning? Who pays for that? Passed on to guests?
- Do you take care of maintenance/repair services?
- Who covers off-duty hours?
- Do you handle the bookkeeping and general excise and transient accommodation tax payments?
- How do you market the rental? What websites? Can I see the reviews?
- Can you offer ideas on how to make my rental stand out!? Can I see examples of your listings?
- Do you offer a listing-specific website?
- How quickly do you respond to inquiries?
- How quickly do you respond to maintenance/repair issues?
- Do you run specials? What is off-peak and peak dates?
- Do you have a special standard for your rentals? Condition?
- What are your charges? Meaning what is not included in the typical rental management fee?
- Do you have restrictions on when or how long the owner can stay in the unit?
- Do you charge if the owner’s family and friends stay in the unit?
- What if the owner finds the guests? Do you still charge the same amount for the management fee?
- Is there a furniture or repair/maintenance fund requirement?
- Do you have a front desk at the complex?
- How many units do you manage in the complex? In total on Maui?
How to increase your success in renting out short-term rental
- Update your unit as much as your budget will allow. If you can hire an interior design consultant then that would be useful. But that may not be in your budget or preference. Look up vacation rentals and see what is garnering the best reviews. Look at current colors and trends. But remember, it has to withstand use as well.
- Brighten up your unit. Allow for as much natural light to come thru if possible. You want your unit to look bright, clean, and airy. If your condo faces the afternoon sun then a sun shade on a lanai (or sliding glass door if that is what is avail) if the condo complex allows would be advisable.
- Seek to find nice ventilation. The use of ceiling fans is highly recommended along with AC. For instance, in some areas or some times of the year, the use of ceiling fans is all that will be needed. But in the heat of summer or days when our trade winds are non-existent, the use of AC would be much appreciated.
- Use a professional photographer/videographer for your rental website. THIS IS A MUST! Also, make sure you take pictures of amenities as well.
- Write a welcoming and accurate description of your listing
- Replace old and broken objects in your unit.
- Always have a clean set of linens ready to go.
- Have a welcome book for the guests. Here you can personalize your welcome intro and maybe even offer your favorite places to go or dine. You will have a property manager but your personal touch can also be a warm welcome.
- Do you like photography? Then take a picture of Maui (whatever you like such as a sunset or beach, etc) and make your very own complimentary postcards (easy and affordable to do via Vistaprint or similar companies) to leave in your unit for guests to use!
- I have many more ideas for my clients! Also, every unit is different and unique. My interior design and marketing background has enabled me to help my clients with much success!
Most important! It’s all about the reviews! It is actually a hospitality business you are in, right? So truly extending aloha to every guest and ensuring their vacation is wonderful will help create an abundant guest list.
Are you thinking about investing in a short-term rental property in Maui? Contact me for an obligation-free consultation and let me show you how I can assist. As an experienced realtor agent on Maui, I understand how to navigate this territory which may seem daunting for people who have never owned a vacation rental property on Maui.
Enjoy this video I took last week driving out of Lahaina. The sunset was just breathtakingly beautiful.
Disclaimer: I got to put it out there. I am not an accountant, tax advisor or attorney. I am not a property manager. I cannot guarantee any future rental income or appreciation of any property. So please do your due diligence. Hire professionals. This blog is for general purposes only. It does not account for any of your specific situations or any new rules and regulations.