Running a Bed & Breakfast on the Big Island: What You Need to Know
NOTE: This post, originally published in April 2012, was updated in August 2016.
So, you want to run a B&B on the Big Island…you visit the Big Island and stay as a guest in a Bed and Breakfast (B&B) in Captain Cook or Hawi. You chat with the owners about how they came to live here and explore what their lifestyle is like as a full-time resident. So, the dream begins: why not buy a unique home, move to Hawai’i, and make ends meet running a B&B?
Or perhaps you stay year after year in a wonderful vacation rental in Puako, Kapoho, or along Alii Drive in Kailua-Kona, falling asleep to the sound of the ocean. You see an oceanfront home for sale down the street and wonder if the income stream would make it a good real estate investment, or offset the costs of owning a second home.
This Kona Bay Estates home (MLS# 279711) would make a good vacation rental; $2,989,000
Know the Rules & Regulations on Transient Accommodations
Laws and regulations are complex when it comes to transient accommodations in Hawai’i (meaning vacation rentals and bed-and-breakfast rather than renting your property to long-term tenants). The County planning and zoning codes can restrict legal usages of properties and are different for each County (island).
Rentals are also usually subject to rules in the CC&R’s and governing documents of a subdivision or condo complex. If you are considering a property already being rented to tourists, even before looking at the historical income stream, the first question you should ask is whether the rentals are done legitimately or “under the radar.”
If the zoning is RS (residential) and the property layout is right, an application for B&B special permit takes time and money, but still exists on the Big Island. It does require notice to the neighbors, which has proven a problem for some, but most applications are approved.
If the zoning is resort, transient accommodation usage is easier. Remember, to run a B&B (rather than a “vacation rental”), you must be using the property as your primary residence. The full rules can be found in the Hawaii County Zoning Code section 25-4-7.
Live in one dwelling, rent the other to vacation guests (MLS# 297979)
Overnight accommodations appear to be difficult to provide on properties classified agricultural by the Hawaii State Land Use Commission, generally zoned “ag” by the County. While the County has been willing to issue special permits, I first saw a ruling in 2013 in which the Land Use Commission denied such an application, saying overnight stays for agricultural tourism are only allowed in Maui County.
Think Net (Not Gross) Rental Proceeds for Vacation Properties
If you are not living in the home, you canʻt run a B&B, but you may have the option of renting out the entire property to vacationers. As you evaluate the potential of homes for vacation rental, you should also keep in mind the costs of marketing and of property and rental management.
Full-service vacation management can cost you as much as 25%-50% of gross rental income. In addition, you will still have your property taxes, utilities, insurance, HOA dues if in a subdivision or condo, and maintenance both inside and out.
Some out-of-state owners do the marketing themselves and deal directly with local cleaning and maintenance staff. The Hawai’i state legislature keeps considering bills that would require vacation properties with off-island owners to be managed by a real estate licensee. You do need to have an on-island “agent” to collect general excise and transient accommodation taxes.
The Stateʻs concern is that off-island owners using vrbo.com, AirBNB, and similar websites to market their properties may not be reporting the rental income and paying the taxes on it.
Oceanfront Puako properties are popular vacation rentals, like (MLS# 291568) for $4.4 million.
Multiple Homes or Legal “Ohana:” One to Rent, One For Personal Use
A new listing near Kahalu’u Beach on Ali’i Drive in Keauhou (Kailua-Kona) has resort-zoning, which allowed two homes to be built with a total of 10 bedrooms, each with its own bath. This listing was on the market in 2012 when I first wrote this post, and is relisted in 2016.
Two houses, ten bedrooms, one block from Kahalu’u Beach for $1,995,000 (MLS# 290017)
This would also be a property suitable for a licensed bed-and-breakfast if you are in residence. Ocean views, a one-block walk to the beach, or farmers market nearby to buy the papaya for breakfast…are you dreaming yet?
A hui hou,
Beth Thoma Robinson, R(B)