Have you ever considered owning a vacation rental on Maui? As an owner myself, and having helped many clients find vacation rental properties over the years, I thought I might share some insights into 1) why you might choose this path and 2) things you might want to keep in mind along the way.
First, Why Purchase a Maui Vacation Rental?
Simply put, a vacation rental property can give you a place to keep your money. As of March 2022, median condo sales prices on Maui were up nearly 28% year-over-year! And while that rate of growth may not be typical, property values did steadily increase here for many years leading up to the pandemic, as well.
Depending on your goals, your Maui vacation rental might provide income, or at least pay for itself. Although we do have peak and off-peak visitor seasons, this is certainly a place where people want to vacation year-round.
And If you’re not a Valley Isle resident at the moment, a Maui vacation rental property could also give you a home away from home in a place you love. As your life circumstances change over time, your use of the property may evolve, too. For example, you may choose to rent it quite a bit early on but spend more time here after retirement – or even move here full time.
Next, What Should I Look For?
Maui County restrictions have tightened in recent years around the use of certain properties as vacation rentals. As it stands now, you have to have owned a single-family home for at least five years before it can be converted into a vacation rental. Even once that condition is met, there’s an extensive permitting process that has to take place.
So rather than a single-family home, you’re likely to be looking for a condo – and specifically, a condo in a complex that allows short-term rentals. You’re also likely to have your search narrowed down to the Kihei/Wailea/Makena area, Maalaea, or the Lahaina/Kaanapali/Kapalua area, since those are the parts of the island that attract the most visitors.
As you’re evaluating different options, you’ll want to consider the amenities that potential guests might be looking for, like easy access to beaches, golf, and other attractions, as well as restaurants and grocery stores. Selling points like a view, a nice pool, and updated finishes may also encourage a vacationer to book your condo rather than someone else’s.
Once you’ve honed in on some properties of interest, your real estate agent may be able to share information with you about the income that has been generated by comparable units nearby. Or if a specific unit has already been operating as a vacation rental, your agent may even be able to obtain a rental history so you’ll know exactly how it has performed in the past.
The Financial Ins and Outs
Of course you’ll need to ask yourself the usual questions when it comes to purchasing real estate, like whether you’ll pay in cash or rely on financing. We’ve seen a high percentage of cash deals here on Maui in the first quarter of 2022. If you’re financing, though, you’re likely to have the smoothest experience with a local lender who’s familiar with these types of properties.
In addition to calculating factors like the size of your down payment (if you’re financing) and potential closing costs, you’ll need to be aware that the Maui County tax rate is higher for short-term rentals than for owner-occupied condos. There’s also an additional transient accommodation tax, but (like cleaning fees) your renters would typically cover that expense.
In addition, your calculations should include homeowners’ association dues and maintenance costs. And if you aren’t currently a Maui resident, you’ll need an on-island property manager. Rates can vary depending on who you choose and what level of service you’d prefer, but you can expect to pay something in the ballpark of 20% to 25% or your rental income for management.
What You’ll Need to Know as an Owner
First, you may want to give serious thought to your overall game plan for the property. Do you want to maximize income or minimize wear and tear? Do you want to be here on Maui for the holidays and at other times when your family might be able to join you (like during spring and summer breaks from school)? Or would you prefer to rent out your condo at peak rate times?
Once you’ve answered those questions, you should expect that any property manager will be able to take care of:
- Creating a listing for vacation rental websites (VRBO, Airbnb, etc.)
- Responding to inquiries about potential bookings
- Making sure the unit is well-stocked, with everything in working order
- Coordinating check-ins, checkouts, and cleanings
- Responding to maintenance/repair issues
But here are a few questions that may help distinguish one management company from another:
- How will you make my listing stand out? For example, will you use professional photography to generate interest and show guests why it’s worthy of its nightly rate?
- How will you ensure that my listing appears near the top of travelers’ search results? For example, will you respond quickly to inquiries about potential bookings?
- Will you adjust rates seasonally so that my condo stays competitive year-round? Do you use tools like dynamic pricing software to set rates?
- What strategies will you use to inspire guests to write great reviews? For example, will you offer in-person check-ins or concierge services? Or will you send them an email after their visit, with a link that makes it easy to create a review?
Yes, there are a lot of considerations for owning a vacation rental property – but many of us find that it’s well worth the effort. If you have any questions about the process or want more details, I’d love to hear from you!
Leslie Mackenzie Smith, REALTOR(S), RS-42147