What Does the Term “Vacation Rental” Mean?
The term “vacation rental” seems straight forward enough, but it is an increasingly complex term applied to rental properties in vacation destinations. The term “vacation rental” is generally understood to mean short-term vacation rental, generally a stay ranging from a couple of nights to less than a month.
The concept of short-term vacation rental has become a topic of controversy, and recent laws on Oahu have been passed to curb and contain these types of rentals to specific areas on the island. The terms and acronyms around short-term vacation rental can get confusing but are somewhat interchangeable, STR is used for short-term vacation rental unit, and TVU is transient vacation rental. These terms generally apply when a property is being rented for less than 30 days and referenced in various local laws and policies.
Fixed or mid-term rental is typically used when renting for more than 30-days but less than 6 months. And long-term rentals are typically 6 months or longer in duration. These two categories appeal to snowbirds, contract/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.
The concept of short-term vacation rental has become a topic of controversy, and recent laws on Oahu have been passed to curb and contain these types of rentals to specific areas on the island. The terms and acronyms around short-term vacation rental can get confusing but are somewhat interchangeable, STR is used for short-term vacation rental unit, and TVU is transient vacation rental. These terms generally apply when a property is being rented for less than 30 days and referenced in various local laws and policies.
Fixed or mid-term rental is typically used when renting for more than 30-days but less than 6 months. And long-term rentals are typically 6 months or longer in duration. These two categories appeal to snowbirds, contract/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, with 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 somewhat 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 who 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 short term rental eligible.
Residential zoned properties, which is 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 some 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.
What Are the Taxes?
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, nearly four times more than a residential use property.
Where Is the Best Location?
In short, the best location to a 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 fixed/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 very popular. They can provide investors with satisfying returns and can be full of potential challenges. It's important to work with an agent 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? We can help.
