What Does "Short-term Vacation Rental" Mean?
The term "vacation rental" seems straight forward enough but is an increasingly controversial expression that invokes a variety of opinions. The term typically implies a property rented for short stays ranging from a couple of nights to a couple weeks - in other words for vacations.
The length of time an owner intends to rent their Oahu property is an important detail that could make the difference on whether the rental is operating legally or not. It is important for property owners to know the difference between short-term, mid-term and long-term rental laws.
On Oahu, short-term refers to a rental period less than 30 days. Short-term rentals have become controversial, and recently implemented laws on Oahu are intended to curb and contain these types of rentals to specific resort zoned areas on the island.
Rental lengths between 30-180 days are mid-term and are generally less regulated than short-term, but there are efforts underway by various stakeholders to get existing short-term rental laws modified to expand the timeframe definition to include rentals under 90 days, but as of the date of this blogpost 90-day time frames are considered mid-term length. For rental periods of 6 months and beyond, these are long-term rentals and generally no restrictions other than the State of Hawaii's landlord tenant code.
Demand for short-term rentals is high, whether you are the guest or the property owner. On Oahu there is also significant demand for furnished mid-term rentals that appeal to snowbirds, contract and construction workers, relocation, military, and virtual workers - all who are typically looking for furnished accommodations for a couple months but usually less than a year.
Most traditional condo-style buildings have association rules defining the minimum period a unit in the building can be rented. Typically, condo associations do not allow rental periods of less than 30 days, and some may even prevent rentals less than 6 months.
In Waikiki, there are several buildings that are a hybrid between a hotel and a condo, these are referred to as condotels, condohotels or hotelcondos.
Who Makes Vacation Rental Laws?
In the State of Hawaii, vacation rental laws are determined by each individual island county. On the island of Oahu, it is the City & County of Honolulu that determines laws pertaining to vacation rental properties and the Honolulu Department of Permitting and Planning is tasked with enforcing the laws.
The City & County of Honolulu also sets property tax policy and rates, based on how the property is used and the assessed value being two major components of the tax calculation.
On Oahu the vacation rental law has been evolving contentiously. On one side of the argument are neighborhood residents concerned about tourism infiltrating their everyday life and eager vacation rental investors driving up home prices. The hotel industry views short term rental as a threat to their business model, and property tax policy as a loophole that contributed to the proliferation of illegal vacation rentals across the island. On the other side of the argument are on-island and out-of-state investors who see opportunity like any traditional investment property. Also, a slew of local small businesses and gig-operators rely on visitors of any duration for their livelihood. Overall, this is a highly sensitive topic with many stakeholders, and Oahu law in this area is likely to continue to evolve, as is happening in other parts of the country.
At the State of Hawaii level, landlord/tenant and taxation laws are applicable to rentals of any duration, with different laws and policies applying depending on the length of rental.
Zoning Matters
There are 4 resort zones on Oahu as defined by the City & County of Honolulu, these include specific areas and buildings in Waikiki, Ko Olina Resort, Makaha and Turtle Bay. These are general areas, and not all properties within these areas or zones can be assumed to be eligible for short term rental eligible.
Residential zoned properties, which are going to include much of the single family, condo/townhouse style homes on Oahu does not permit short-term rental. Most residential zone properties could operate as fixed/mid-term or long-term rentals provided there are no covenants or association rules that prevent such.
Evolving are laws that apply to apartment zoned properties in areas adjacent to the resort zones. In these areas, it appears likely it may become an option to operate short-term rentals within specific paraments.
Are Vacation Rental Properties Taxed Differently?
Specific to the City & County of Honolulu and State of Hawaii, there are multiple taxes that apply to rental properties. The rental duration determines the applicable taxes. There is a general excise tax and potentially multiple transient taxes.
If a property is operated as a short-term rental, it is likely the property tax rate will be comparable to the hotel and resort rate, four times more than a residential use property.
Where Is the Best Location?
In short, the best location to buy vacation rental property is somewhere you can do it legally. If your goal is to operate a short-term rental, you need to look in buildings and areas that specifically allow short-term rentals.
If you are open to expanding beyond traditional vacation rental definitions, you may find that mid-term duration is a model that offers more areas of Oahu and home styles to choose from.
Need Help Finding a Rental Property?
Short term rental properties on Oahu are in high demand. They can provide investors with satisfying returns and can be full of potential challenges. It is important to work with a realtor who understands the nuances of this market and can help you find a property that best meets your needs.
Need help finding the ideal rental property? I can help, let's connect: CraigA@bhhshawaii.com