A week doesnʻt go by that someone asks, “What rentals do you have?” Usually I have to say, “Sorry, nothing open at the moment”. We definitely need more long term rental units in North Kohala.
Our island has always needed good rental units for permanent residents and new comers. However, during the COVID-19 pandemic our Big Island became an even more popular place since we were late to have major outbreaks of COVID. As real estate prices soared, people were buying properties in record numbers to distance themselves from larger cities with larger outbreaks. At the same time workplaces moved from office buildings to homes. With rising real estate prices a number of homes that had been long term rentals were sold leaving tenants with the difficult task of finding suitable rentals in places they had grown to love and had family and friends. With higher property prices rents increased and simultaneously the number of rental units dwindled.
So what are the types of rentals on the Big Island? For the purposes of this article, Iʻll cover residential rentals not commercial rentals for businesses and industry. The two major categories of residential rentals are long-term and short-term. For the most part, long-term rentals are properties that rent for a minimum of six months and typically last one year; however, lease length can be specified for longer time periods in the rental agreement. Any rental for less than six months is considered short-term also known as a vacation rental. Short term rentals now require a STVR (Short Term Vacation Rental) license which is available through an application process at the Hawaii County Offices. STVR licenses require that the property is in a Permitted Zoning District or that the owner live on the property. However, there are additional restrictions which can be identified during the application process.
In addition to length of rental time, long-term and short-term rentals are differentiated by the amount of tax the State collects on the rents. Owners are required to pay GE or General Excise tax currently 4.712% in Hawaii County which can be included in the rent. Short-term rentals mandate TAT or Transient Accommodations Tax is paid in addition to the GE tax and is currently 10.25%. As of January 1, 2022 a new County of Hawaii TAT of 3% has also been added making the total tax on STVR rentals 17.962%. Whether the owner of the rental property lives in Hawaii or not, they are required to file a Hawaii State Tax return and there is no Statute of Limitations for audits, so it is most wise for owners to pay these taxes when due, to avoid future penalties and interest. Any print or digital advertising of STVRs must include the ownerʻs STVR license number. This regulation passed within the last few years since so many people were doing STVRs without licenses.
The laws for short-term vacation rentals have become more restrictive over time. Why? People complained that the increase in vacation rentals directly correlated to reduced numbers of long-term rentals for our local families and workers; unfavorably changed the dynamic of some residential neighborhoods; and some owners were operating
illegally with unpermitted buildings and/or not paying taxes. According to a recent search, our small area of North Kohala has over 1,000 short-term vacation rentals as listed by airbnb and VRBO. People are questioning if it would make sense to have more of these properties rented long-term so that we arenʻt losing residents who can no longer find rentals. Which in turn limits the number of available workers in our area. Owners of short-term vacation rentals say the income and flexibility of vacation rentals is better for them.
When owners live on the same property as their rental units the rentals are called hosted-rentals. If hosted, short-term vacation rental requirements are loosened with the rationale in part being the rental is less likely to be a noisy party house if the owner is on-site. However, County officials have hinted that hosted-rental licenses are likely to be re-evaluated and restrictions tightened in the future.
Who qualifies to rent properties? Any owner can decide to rent the whole or part of their property as a long-term rental but short-term rentals are more complicated. An owner of one property can rent the property themselves or hire a licensed real estate property manager. If an owner rents more than one property, they are required by the state to have the properties managed by a licensed property manager. Property managers must keep updated on laws that dictate required safety codes, discrimination laws, what can and cannot be included in a lease, tax laws, real estate rental laws. If owners rent the properties themselves, it is important they are updated on these laws and tax requirements to avoid fines.
Why should property owners consider renting their properties? First of all, the income is steady and if properly managed, the home stays well-maintained. When properties remain vacant, our Hawaii weather, flora, and vermin population take over. Homes here like to be occupied and typically remain in better condition with people in them. Lastly, it is actually a community service at this time when rentals are few and far between. My spouse and I have provided residential rentals for years and take pride in knowing weʻve improved the properties and provided homes for people in need, while getting a nice income. We win, the tenants win, and the neighborhood wins.
Consider renting your home or a portion of it long-term. Iʻm sure it would make someone or some family very happy and help keep good workers local.