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I would like to address the most important question that we get here in the Hawaiian Islands by far – “Tell me about short-term vacation rentals.What are the rules? Where can you do it? Where can’t you do it? How much money I can make?”
We did a whole series on short-term vacation rentals, so just search for it here on YouTube and it’s a three-part series on short-term vacation rentals. Check it out here:
The first thing you need to know about short term vacation rentals is there’s two sides to the island. East side of the island. Hilo side, wet side gets a lot of rain. West side of the island is the dry side and is more expensive. You can get a nice house in Hilo for $350,000 but you’re gonna get a ton of rain. On the West side is where all the resorts are. This is where everybody comes to vacation, but the price goes way, way up.
The second thing is, is people see properties online all the time, whether they’re searching on Zillow or some other website portal, and they say, “I could get this two bedroom and I could rent this out!” Actually, no, you can’t. You have to understand where you can do a short term vacation rental and where you can’t. And so I’m gonna give you this general rule – there is an area on the West side called a vacation zone or vacation node. It’s the area that runs all up and down the coast. In that vacation zone, you can do short term vacation rentals. Now you say, “well, how do I know where that vacation zone is?” Here’s an easy rule: If you’re looking along Ali’i Drive in Kona, anything on the ocean side of Ali’i Drive is going to be in a vacation zone. And, here, you’re able to do short term vacation rentals, anything on the other side of the street, you’re not allowed to do it, even though you’re just looking across the street at the ocean.
If you’re looking on the ocean side of the main highway, chances are that is all going to be in a vacation zone and eligible for short-term vacation rental. If you’re looking on the other side (the mountain side), not allowed. Now, there are some exceptions, of course.
Not every area along the ocean side has short term vacation rentals. Keep in mind that that’s the county rules, but local subdivisions with covenants, controls and restrictions. So the county says this area is eligible for a short term vacation rental permit, however, that subdivision, that area, prohibits it. It’s all very complicated. So, you say, “well, how am I gonna know?” I don’t expect you to know. You’re not supposed to know all the rules and all the areas that you can do short term vacation rentals in. That’s where we come in. That’s why you rely on us. That’s why you hire us. We are here to help you navigate that. Now remember, if you are on the ocean side of the street, if you are in a short-term vacation rental, all of those properties that you may be interested in for short-term vacation rental are way more expensive than the properties on the other side of the street.
The ability to do a short-term vacation rental adds a lot of money onto the purchase price. Anywhere from $50,000 to several hundred thousand dollars. It’s kind of a catch 22. You say,”well, I’m going to buy a property in a short term vacation rental area, and I’m going to be able to rent it out a lot because everybody wants to go to a resort.” Yes, everybody wants to be near beaches. Everyone wants to be near amenities. So your occupancy rate will be high and your nightly rate will be higher than everywhere else because it is in a resort. But consequently, you are going to pay a lot more for that property. It all goes hand in hand — You pay for more for the property, you can get more in a nightly rate, you can get better occupancy, you pay less for the property. Less of a nightly rate, less of an occupancy.
Now, there are properties around the island that are not in the vacation zones and have a short term vacation rental permit. Those properties we call “Gold”. Those are gold because they were grandfathered in before the law went into effect. The permit is eligible to be transferred over to the next buyer and the next buyer and the next buyer. And so when those come up, when we get properties that are outside the vacation zones with short-term vacation rental permits, they are absolute gold. And of course they fetch a premium price.
There’s so much more to learn, and again, I would just encourage you to give us a call here at the Hawaii Team. We’re always happy to help! And one last thing. Don’t forget this. Right now, the island of Kauai and the island of the big island, Hawaii are the most friendly short-term vacation rental islands, meaning the rules here are less intrusive or more lenient. The rules for short term vacation rentals are the worst in Maui and Oahu. It’s very difficult to do short term vacation rentals there.
Again, if you need to buy, sell, or invest in real estate, contact us here at the Hawaii team (808) 913-0899