When it comes to Maui real estate, vacation rental permitting is one of the topics I get asked about most. It’s no wonder that so many buyers want to learn more – Maui vacation rentals have become extremely popular in recent years! If you’ve found yourself wondering about the possibility of owning one, here are some of the questions you may have had …
First of all, what exactly does “vacation rental” mean?
Any Maui County property rented for a period of less than 180 days would be considered a vacation rental. Around here, you may also hear this type of property referred to as a transient vacation rental, or TVR.
Many of Maui’s condos are already zoned for hotel/resort use, meaning that short-term rentals are allowed. If you purchase a hotel/resort-zone condo and your homeowner’s association doesn’t prohibit vacation rentals, you may find it pretty easy to get in the game of earning income from your property.
On the other hand, you may own a property that isn’t hotel/resort zoned (for example, a single-family home in a residential or agricultural area). In that case, your first step would be to check your neighborhood/community covenants – and if vacation rentals are allowed, you may choose to apply for a county permit.
Are there different types of vacation rental permits?
In a word, yes.
The more common type is referred to as a short-term rental home (STRH) permit. There’s one major restriction associated with this type of permit: it’s only an option for people who have owned their home for five years or longer.
The less common type is referred to as a bed and breakfast (B&B) permit. B&B permits do not have a five-year ownership restriction; technically, the application process could begin on day one of property ownership.
There is another restriction associated with the B&B permit, though: it can only be granted to an owner who lives on property. For example, if a property’s dwellings include a main house and an “ohana” (or cottage), an owner may choose to live in the ohana and rent out the main house after obtaining a permit.
Fun fact: Maui County has only had a permitting system in place for B&Bs since 1997, and for STRHs since 2013! And the rules and regulations surrounding each system do change periodically.
What should I know about each type of permit?
First and foremost, permits do not transfer with the sale of the property. That means that if you’re considering buying a home that has an existing STRH or B&B permit, you should not plan on simply jumping in and taking over its vacation rental operations.
Second, there’s a limit on the number of STRH and B&B permits allowed in each community region in Maui County. A region may therefore be “capped” at times, meaning that no more permits are available at the moment.
Third, a formal review by the Maui Planning Commission and a public hearing may be required as part of the permitting process in certain situations. For example, if a home is on agriculturally zoned land, or if a neighborhood already has multiple vacation rental homes in operation, the Planning Commission may have to be involved.
What are the tax implications of owning a vacation rental property?
Compared to many other areas in the U.S., Maui County has relatively low property taxes. That being said, property taxes rates do increase when a home becomes a vacation rental. You can check the Maui County website directly for the most updated information (and a history of real property tax rates), but here are the Maui County real property tax rates as of July 1, 2022.
Hawaiʻi law also requires each vacation rental owner to register as a business and obtain a state tax ID. Owners are responsible for paying General Excise Taxes (GETs) and state and county Transient Accommodation Taxes (TATs) on their rental income. However, GETs and TATs typically take the form of a “pass-through” tax, meaning that the owner simply collects the tax from each guest who rents the property, and then passes it along to the state/county.
What else should I know about operating a legal vacation rental on Maui?
If you decide to pursue a STRH or B&B permit, you’ll find that you have to designate an on-island representative to handle any property-related issues that might pop up for your guests. All of your marketing materials will need to include your permit information. And each vacation rental home on Maui is required to have a sign that includes both contact information for the on-island representative and the property’s permit number.
By the way, fines can reach up to $1,000 per day for operating an unpermitted vacation rental in Maui County! So it’s not a good idea to try to fly under the radar.
How do vacation rentals impact the Maui community?
Based on the most recent U.S. census, only one of about every 248 homes on Maui is a vacation rental. Since 2020, though, vacation rentals have been the #1 source of real property tax revenue for Maui County.
Vacation rentals are also the single biggest contributor to the county’s affordable housing fund. And since they require everyone from management companies, to landscapers and cleaners, to plumbers and electricians to stay in operation, they also support our local economy by creating jobs.
Where can I learn more?
And as always, please don’t hesitate to contact me if I can answer other questions you might have about any Maui real estate topic!
Nancy Beebe, REALTOR(S), SRES