So, You Want A Short Term Rental Property on Maui?

Considerations When Purchasing A Short-Term Vacation Rental Condo In Paradise

While ROI considerations are important, the decision to purchase often stems from a desire to create a personal haven in one of the most beautiful places on Earth. So, why get a short-term vacation rental condo on Maui? Because it's not just an investment; it's a ticket to a lifetime of joy and relaxation in a tropical paradise. 

Are you dreaming of owning a Vacation Property in paradise on the beautiful island of Maui? Investing in a short-term vacation rental condo can be a rewarding venture with the opportunity to create lasting memories with friends and family. While ROI considerations are important, the current landscape of the allure of high yield savings account, CDs at favorable rates, higher mortgage interest rates, and higher condo prices can prevent some investors to take the plunge. This poses challenges for investors that are seeking high returns on their Maui vacation rental properties. Several factors contribute to this scenario, and it's essential for potential investors to be aware of these challenges and strategize accordingly.

Future Appreciation and Rate Increases: Look beyond current nightly rates and consider the potential for future appreciation and rate increases. Maui's real estate market is influenced by various factors, and investing in a property with growth potential can yield substantial returns over time. While immediate returns are essential, investors may need to adopt a more long-term perspective. Property values on Maui have historically appreciated over time, and holding onto an investment for the medium to long term may provide a more significant return on equity.

What makes a great Vacation Condo: ROI trends may suggest that studios and 3-bedroom units perform the best, but it's essential to consider the preferences for your own use. While visitors love ocean views, proximity to the beach and neighborhood amenities, air conditioning, and the convenience of in-unit washer and dryers will attract guests and encourage repeat visits. While units without all these amenities may rent for less, they can still provide a steady rental income and typically sell for less, thus providing a similar ROI as those units with all the bells and whistles.

Zoning Considerations: Zoning plays a crucial role in short-term vacation rentals on Maui. While properties on the Maui County approved list do not require a permit for vacation rentals, some buyers prefer the added security of purchasing properties in Hotel or Business zones. It's important to be aware that the county list may have errors, so due diligence is necessary and counties can change zoning regulations. 


Financial Potential & Personal Enjoyment

Beyond Purely Investment: Many buyers in the Maui market are motivated by more than just financial returns. Investing in a short-term vacation rental condo on Maui offers a unique blend of financial potential and personal enjoyment. They seek to create a haven for their friends and family to enjoy, turning their investment into a personal retreat. Owning a vacation rental allows them to cover expenses when the property is not in use, making it a smart investment that combines personal enjoyment with financial benefit. Choosing a property in an area you love ensures that you can also enjoy the tropical paradise you've invested in, creating priceless memories and experiences. These types of properties are located on the Sunny sides of Maui with vacation condos situated in sought-after locations like Wailea, Kihei, Maalaea, Kaanapali, Honokawai, Kahana, Napili, and Kapalua.

Tax Implications

Short term rentals in Hawaii are subject to a range of state and federal taxes. General Excise Tax (GET) applies if the seller has been receiving rental income, while Transient Accommodation Tax (TAT) is applicable if short-term rental income has been collected (where tenants occupy the premises for 180 days or fewer). Additionally, taxes on any capital gains realized through the sale must also be paid whenever investment properties are sold.

Out Of State & Foreign Buyer's

Are you an out-of-state buyer? When considering purchasing property in Hawaii, one of the initial inquiries from prospective Buyers often revolves around the existence of special taxes for out of state & foreign Buyers. While the immediate response may appear straightforward as a 'No', it's crucial for Buyers to grasp that when it comes to selling, there are withholdings imposed based on non-Hawaii residency (for out-of-State owners) and non-US residency (for foreign nationals). This is a withholding, not a tax, to collect for taxes on any capital gains realized through the sale. You will be refunded any amount due for overpayment when you file your taxes. For more information on HARPTA and FIRPTA see my article on Real property tax matters here.

Financial Advisors & Property Managers

Seek Professional Guidance: Seeking advice from financial advisors, and property management experts can be instrumental. Their insights into the Maui market, trends, and potential opportunities can guide investors in making informed decisions. 

If you're contemplating the purchase of a short-term vacation rental (STVR) property, I can assist you in identifying condos that permit short-term rentals and provide insights into their zoning regulations. Additionally, I offer support in collecting rental data, expenses and linking you with a property management company equipped with financial advisors, ensuring you have the necessary information to make well-informed investment decisions.


Posted by Jyoti Grazaino on

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