There has been a tremendous amount of focus on short-term rentals in Hawaii. This seems to be a highly debated topic on both sides of the coin. Many spots of the islands have been offering short-term rentals for many years. The short-term rentals in areas that are oceanfront, and lacking hotels, have been hugely successful. When you look at areas such as the North Shore of O’ahu f0r example, there is very limited space in hotels and B&Bs available. So as a result, a lot of tourists that want to visit the North Shore have very limited options.
The issue comes more into play when you are looking at areas that are master-planned communities that are not at all designed for short-term rentals. This is very true with many of the areas in Ewa Beach. The developers such as Haseko and Ewa Gentry have very methodically master planned out these communities, and there is no mention of allowing short-term rentals. Actually, it is just the opposite — it is forbidden.
The Issue with Short-Term Rentals
So here is the issue, homeowners are hearing about all this opportunity to make money with short-term rentals. They look at the math, and figure you can rent a house out daily for a good amount usually lower than a traditional hotel room, and then multiply that rate by X for rentals. It more than pays for the usual mortgage. Next, you find buyers that are using this math and buying properties and occasionally overpaying. So what happens if this is permanently stopped tomorrow? Could those owners still make the mortgage payment? I bet not. Many have bought very speculatively on short-term rental income projections and own multiple homes. So if rentals suddenly stop completely, what would the owner do? They would sell and sell fast. This would have a ripple effect of lower home prices for the area. The actual numbers of short-term rentals in any given area are staggering. Think if they all had to sell tomorrow, what would happen to the home prices in your community?
When you buy in a master planned community such as some in Ewa Beach, you sign what is called CC&Rs. These are the covenants, conditions, and restrictions for the development. The HOA spends a great deal of time and money developing the rules for each of these master planned communities. This can be items such as what color you can paint your house, the flowers you can plant, and many other rules and restrictions that are part of the community. If you buy in the subdivision, these are the rules you must follow and the rules you agree to when buying. There are plenty of defined rules about short-term rentals. Most people do not realize that the rules from an association can be more restrictive than the rules from the city and county. So for example, if the city and county say you can build a house 40 feet high in the area, but the rules from the developer limit it to 20 feet, the rules from the CC&Rs win. In short, the rules from the HOA can be and usually are more restrictive than what the city the county may allow.
We are not even taking into account the rules from the city and county who mainly only allow 30-day rental minimums on Oahu. The city and county already have task forces developed that impose large fines for rule breakers. If the fines are large enough you can rest assured the city will use this as a source of revenue and go after these homeowners and levy huge fines. When a neighborhood starts to have a lot of short-term rentals popping up, the neighbors take notice. A neighbor who does not want or agree with someone breaking the rules of the community can cause a lot of issues for a homeowner, so be aware.
Protect Your Investment
Nobody wants to see the value of there most important and expensive investment deteriorate. Most homeowners will try to do what they can to protect their investments. You really need to take a good look at the rules and consequences before making an investment around short-term rental potential income. I do not see the rules getting looser, and if anything, they are tightening island wide.
If you want to know more information about short-term rentals and whether it’s allowed in a certain community, please do not hesitate to get in touch, Making an informed decision is the best first step.