There are many reasons for wanting to own a vacation rental. If you live off island and are hoping the property will pay for itself, a Maui property will likely not offer you that. The costs (mortgage, homeowner association, management fees etc) are quite high. However, if your intention is to subsidize your vacation home and build equity, this may be for you.
What are some things to do and look for when starting a vacation rental on Maui?
Before you even look any further, is your property zoned for vacation rental? Is it located in the hotel zone? If you have purchased a house, you are likely out of luck. As of right now Maui County is not issuing new vacation rental permits. Check with your professional Maui realtor. Please do not rent illegally.
Hands-on vs Hands-off
There are two categories of vacation rental owners on Maui ~ those who rent through a rental agency and those who self-manage. Actually, there are also those who do bit of both, a hybrid.
Which is best?
If you want to be completely hands-off, don’t have time to deal with the day to day of a vacation rental, a rental agency is best for you. They take care of advertising, bookings, cleanings, maintenance, sometimes tax filing and are usually your local contact. Rental agencies charge anywhere from 20-45% of gross income to manage, plus costs for additional services provided. Some allow owners to take their own bookings, others do not.
If you choose to self manage, consider that you will be on call 24/7. You will handle all the advertising, hire and schedule cleaning and maintenance staff and an on-island contact. You will handle the correspondence with the guests, be on call for any and all questions.
The condo’s cleanliness and maintenance will make or break your business. Hire businesses with good track records and check up on them.
A local contact
Vacation rental owners by law need to have a local contact for guests and the condo complex to contact should there be a problem. This could be a simple problem such as lock-out, to a more complex problem such as a unit flood from a failed wash machine connection. Your guests and the home owner’s association by law need this person’s name and contact information on file. (By the way, in the case of our condos we ~ Sig and Cara ~ are the on island contact).
You will need to apply for a GET (General Excise Tax) and TAT (Transient Accommodations Tax) license with the State of Hawaii. Taxes are paid on all income received, either semi-annually, quarterly or monthly, depending on rental income. You also file MCTAT (Maui County Tax). The taxes on Maui are currently 4.166% GET, 10.25% TAT and 3% MCTAT.
Also, don’t forget you will need to file State of Hawaii and US federal income tax returns on your vacation rental income. I recommend hiring an accountant located on Maui to help you with this, at least the first year.
Most condos are sold fully furnished, however you may want to replace furnishings to suit your taste. In addition, if a condo has previously been vacation rented, it will likely come with inventory. Dishes, cutlery, pots and pans, kitchen gadgets, linens, towels etc. We try to have quality items that match (avoid hodge-podge) and are easy to replace. You will also want spares accessible to your cleaner/manager to replace broken, stained or torn items.
Rental Agreements and Policies
If you self-manage, you will need to draw up a rental agreement, come up with house rules and policies. Examples are check-in/check-out times, rates, security deposit vs insurance, cancellation policies.
When you own a vacation rental, many friends and family members will want to use it and may expect a discount. You have bills to pay, so decide early on a ‘friends and family’ policy that you think fair.
Can it be done?
Sure, thousands of owners vacation rent properties here on Maui. Some with more success than others. A number of years ago I wrote a blog, Four Things that will Make or Break your Vacation Rental Business. We have new cleaners (Cindy retired a few years ago), but these principles definitely hold true.