Owning a Vacation Rental in Maui: What You Need to Know
6/12/18 | Christopher D. Davis
Since the breakout of vacation rental listing sites like Airbnb and Homeaway, there’s been a recurring phenomenon. Travelers visit a resort destination, choose to stay at a vacation rental over a hotel, and then later think, “I could do that. I could own a vacation rental.”
It’s a mindset that’s helped fuel the spectacular growth the vacation rental industry has seen in the last 10 years, and will continue to support it for years to come. One Technavio report estimated the global vacation rental market will grow at a CAGR of 7.07% between 2017 and 2021.
Hawaiian vacation rentals are certainly a part of this. In this post, we’ll talk specifically about Maui’s booming tourism sector, and how to buy a vacation home amid this rapidly changing environment.
While it’s an exciting prospect, owning a vacation rental in Maui can also get complicated. We're here to give you answers. In the following post, we’ll cover:
Maui’s tourism sector did it again. Not only was 2017 another record year for tourism arrivals, economic expansion continued for the 10th consecutive year.
Hotels are certainly feeling this massive growth in tourism. In 2017, hotel occupancy rates hit an all-time high of 78 percent, and this is predicted to rise to an astounding 83 percent in 2018. Considering there are approximately 63,000 visitors on the island every day (nearly 40 percent of the permanent population), the need for additional accommodation is real. To quote economics professor Carl Bonham when he recently spoke at a Hawaii Small Business Association luncheon: Where the heck are they all going to stay?
What’s more, Southwest Airlines will begin routes to all Hawaiian islands beginning in 2019, which should not be overlooked. From February 2017 to January 2018, Southwest Airlines had virtually the same market share of the domestic airline industry as American Airlines, at just over 18 percent. This is expected to be an enormous boon for Maui’s tourism, provided there is sufficient accommodation in place.
If you’re keeping an eye on Maui’s vacation rental industry, get ready to crane your neck skyward.
On the island of Maui, the supply of short-term rental permits for single-family homes is constrained to 400, disbursed between the island’s communities.
The popular Lahaina area, which includes the famous Ka’anapali Coast, has already issued its total allotment of 88 permits. Complicating matters, single-family home permits cannot be transferred during the sale of a home, but rather, you’ll need to apply for a new permit (which we describe in detail below). The situation is slightly different in Kihei-Makena, where there are currently 61 single family home permits available.
UPDATE: As of June 20th, West Maui opened up a handful of permits, however, these aren't expected to last long with demand so high.
On the condo front, 16,000 are currently available for a Transient Vacation Rental permit, however the quality of these condos varies significantly. Supply of true luxury condos is much lower, and there are currently no development plans for new luxury condo buildings in 2018. If you're looking to buy a true luxury condo, consider the complexes of the Kapalua Bay Condos, Kapalua Bay Villas, Ironwoods, The Ridge, and Montage.
Between the rosy outlook for Maui’s tourism and the limited supply of luxury vacation homes, it’s easy to see why home prices are outstripping Maui’s average income, and a market ripe for lucrative vacation rentals is forming.
The Permit Process for Owning a Single Family Vacation Rental in Maui
The following bullets show the criteria your single family home will need to meet if you plan to rent it out as a vacation rental.
The answer is a resounding yes. If you’re caught operating without a permit, you’ll be banned from applying for one for five years and hit with a $1,000 fine. Continue to operate without a permit, and the fine increases to $1,000 per day after initially being told to stop.
If a new ballot measure in November turns into law, then these fines could rise to $20,000, and then $10,000 per day after that.
The most typical violations for Maui vacation rentals are for noise ordinances. There are strict quiet hours from 9 pm to 8 am, and no sound can be audible from beyond the property’s boundaries. There is also slightly vague language that prohibits “parties and group gatherings,” which if enforced, typically falls under a “disturbing the peace" violation.
Here’s the biggest takeaway: If you receive three police reports in a 12-month period, you will lose your Maui short-term rental permit.
Anywhere you buy a vacation rental, be sure to factor property taxes into your estimated annual revenue.
In Maui, vacation rentals won’t qualify for the homeowner tax exemptions. The total property tax amount for residential homes comes to $5.54 per $1,000 of the home’s valuation. For apartments, the rate is $6.32 per $1,000.
On a $700,000 home, this amounts to $3,878 in annual property taxes. A similarly priced apartment would see annual property taxes of about $4,424.
However, designated Short-Term Rentals could see property taxes of $9.28 per $1,000 of the valuation if the proposed 2019 budget goes through. That would put vacation rental property taxes just under Hotel and Resort property taxes, which were proposed at $9.37.
This all is critical information to understand. Let’s look again at our theoretical $700,000 home. As a vacation rental owner, your property taxes would be $6,496 - 68 percent higher than that of a typical single-family home that doesn’t obtain a vacation rental permit.
But this is where the investment pays off. Our luxury Maui condos average around $500 per night, and can rent for as high as $1,000 per night during peak season. And, given the figures we looked at earlier, demand for accommodation in Maui is exceptionally high, meaning the bookings will come if you market the home correctly. (At the time of writing, InvitedHome’s Maui occupancy is at 100%).
The biggest difference between property managers in Maui will be whether they’re local or national. Smaller, local companies have been thriving in Maui for years, and can offer extremely personal service, high care, and attention to the homeowner, due to their low home count. However, what they offer in care they tend to lack in marketing.
National companies can use their wide reach to get luxury homes in front of the right audience, and have the resources to market homes in various ways. This includes email blasts, social media, and advanced SEO strategies, in addition to using the largest vacation rental marketplaces.
At InvitedHome, we pride ourselves on offering the care of a local property manager and the resources, professionalism, marketing reach, and scalability of a national company. To learn more, check out our Maui vacation rental management page here.
Everyone at InvitedHome is an expert in what they do, and we’re happy to share this information with you as you look deeper into owning a vacation rental in Maui. Below are just a few services we offer:
Where to Buy a Vacation Home in West Maui
Discover the best neighborhoods in Maui for vacation rental investments with our guide here.
The Six Critical Steps to Rental Revenue Projections
Learn how the revenue management experts at InvitedHome craft rental revenue projections with pinpoint accuracy through our 6-step process.
How Much do Vacation Rentals Make?
There are several factors that can impact how much net revenue you can generate from your vacation rental. See a list of all of them here.
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