So You Want Buy a Home to Vacation Rent on Maui

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Everywhere you turn these days, you are bound to see an ad for Airbnb or VRBO. These businesses are changing where people stay on vacation. They are also leading to an increase in the number of buyers looking for single family homes that they can buy to rent on Airbnb. That said, Hawaii is similar to a lot of other locales in that they are increasing regulations on single family home vacation rentals.

The goal of this post is to delve into the rules and regulations that one might face if they have ambitions to vacation rent. It should be a prerequisite so that you can make an informed decision as to whether or not pursuing a home to vacation rent ultimately makes sense for your needs.

To be clear, this post is applicable to homes and not condos. There are a large number of condos on Maui zoned to allow short term rentals.

Are There Any Legal Vacation Rental Homes on Maui?

Hotel/Resort is the only type of zoning on Maui that allows for vacation/rentals. The bulk of the properties located within this zoning are hotels or vacation rental condominiums. There are literally a handful of homes around the island that have hotel/resort zoning. It is extremely rare that you will see the a hotel/resort zoned home on the market.

If a property does not have hotel/resort zoning, a homeowner could seek one of two different types of permits. 1. Short term rental 2. Bed and Breakfast.

Short Term Rental Permits

The short term rental permit is applicable to those who want to own a second home that they vacation rent. Maui County has legislation in place to regulate vacation rentals of single-family homes and agriculturally zoned properties. The application/licensing process is lengthy. The County does not approve all applications. If there are multiple short term rental homes in a neighborhood, new applications are subject to a formal review and public hearing by the Maui Planning Commission. For those that want to take a deep dive into the short term rental legislation, it is available online via the county website.

Some important things to know about the short term rental rules include the following:

  1. There is a five year ownership requirement to be eligible to apply for a short term rental permit. In other words, you cannot apply until you have owned the home for five years.
  2. The short term rental permits do not transfer with the sale of the property. New owners must wait five years and then apply for a new permit.
  3. Any short term rental on agriculturally zoned land requires Maui Planning Commission Approval.
  4. Accessory dwellings, also known as ohanas or cottages, may not be rented on short term basis.
  5. There are geographic caps for permits. In non-planning speak, that means there are limits to the number of vacation rentals in a community. As of this date (April 2019), no areas on Maui have met their caps.

Bed and Breakfast Permit

The Bed and Breakfast permit process is similar to the Short Term Rental Permit process in that there are no guarantees that a permit will be approved. The ordinance is available for review in its entirety online. Here are some key components of the Bed and Breakfast legislation:

  1. To obtain a bed and breakfast license, the owner needs to be an owner occupant. They need to live on the property.
  2. You do not need to own the property for five years to apply for a permit. A new owner may submit an application for a permit right after the purchase of the property.
  3. As with short term rentals, there a caps on the number of bed and breakfasts in a community.
  4. Like short term rentals, Bed and Breakfasts on agriculturally zoned properties require Maui Planning Commission Approval.
  5. Like short term rental permits, the county ordinance prohibits the transfer of bed and breakfast permits with a sale.
  6. Bed and Breakfast owners may serve simple breakfasts, but any more formal cooking would require a separate commercial kitchen license.

Subdivision Restrictions

The County isn’t the only entity that regulates vacation rentals in a community. Prior to applying for a short term rental or bed and breakfast permit, applicants should check the rules of their homeowner’s association. That is particularly true for the resort communities. All of the subdivisions in Wailea and Kapalua prohibit vacation rentals. All but one of the subdivisions in Ka’anapali prohibit vacation rentals.

Additional Rules and Regulations

The State of Hawaii recently passed a law requiring that any owner renting their property on short-term basis (a duration less than 6 months) must:

  • A. Register and obtain a state tax id. 

  • B. Have an on-island representative. 

  • C. Include your license and permit information in all advertising (media, web etc).

Taxes on Rentals

State law requires the payment of two state taxes on any rental income from bed and breakfasts or vacation rentals. Most landlords / owners accomplish this by making it a pass through tax (For Example: You advertise your rental as $500 / night plus applicable fees and taxes). These taxes are currently 14.42%, the same amount as guests would pay a hotel or a vacation rental condominium.

Additional Taxes

Although Maui County has some of the lowest property tax rates in the Country, vacation rental properties are subject to higher property tax rates.  Here are the tax rates for 2019:

Residential Rate – $5.52 / $1,000 of assessed value. 

Homeowner Rate – $2.85 / $1,000 of assessed value with a homeowner’s exemption of $200,000. 

Bed and Breakfast Rate – Commercial residential (plus no exemption) – $4.55 / $1,000 of assessed value. 

Short Term Rental Homes – Commercial – $7.28 / $1,000 of assessed value.

Vacation Rentable Condominiums – Hotel Resort –  $9.28 / $1,000 of assessed value.  

Maui County Property Tax Rates

These rates are reviewed on an annual basis and may be subject to change. The changes usually are not very drastic.

Penalties and Fines

There are quite a few properties on island that are being vacation rented illegally without permits. We can neither condone or recommend this practice. The county of Maui recently raised the stakes for vacation renting illegally. Voters recently voted to raise the penalty for illegal rentals to $20,000. The fines combined with advanced enforcement efforts make illegal rentals a particularly risky proposition.

Is it Worth it?

When we present clients with the information provided above, most have refocused their efforts on vacation rental condos. We have a fair number of buyers who want to buy now and move to Maui in the long term. If that is the case, they may decide to buy a home and rent it long term until they are ready to relocate. Those that want to open a Bed and Breakfast have a less strenuous path than those who want a short term rental permit. That said, the permit process isn’t easy. We do not assist with this process, but we may be able to line you up with some resources who could help. Contact the Maui Real Estate Team with questions or for additional assistance.

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