Do you own a vacation property or do you plan to purchase one on the Big Island
? Do you want to get the most enjoyment AND the most value out of your investment?
As is very common, people want to consider renting their property out to cover expenses but still plan to use it for their own enjoyment.
To make the most of this very valuable asset it’s important to take some time to understand your priorities and expectations. While most people would certainly enjoy the income, there are trade-offs that come with it.
Managing a property is a part-time job and using your property as a vacation rental means additional taxes, reporting, and government regulations. When you decide to turn your vacation property into a source of income, it can mean a lot of extra work if you plan to self-manage.
If all you really wanted was a great place to relax and enjoy your vacation, more work was probably the last thing you bargained for. If it seems like too much, don’t despair. Mixing business and pleasure is still possible with the right approach.
Here are 4 steps to having it both ways:
1. Put Yourself First
Think about why you bought or plan to purchase your Big Island vacation property. As one of the premier leisure destinations in the world, Hawaii offers a unique blend of Pacific island culture, year-round outdoor lifestyle, and a world-class array of amenities and services. With access to everything from private chefs to airborne volcano adventures and deep sea fishing to scenic golf links, owning a little slice of the Big Island lets you savor some of the best things life has to offer.
To get the most out of your property when you plan to use it for both personal enjoyment and income, plan your personal time first. Renting out your property with the idea that you’ll use it whenever it’s vacant has a way of not working out. Even if you don’t want the prime weeks during holidays and school breaks, scheduling your time first is good practice, particularly if you go the route of hiring a property manager.
Knowing well in advance when you will be occupying the property avoids disappointments and potential conflicts. You can always cancel your plans or offer your weeks to family or friends if something comes up. If you still want or need to get the best possible return from renting out your property, consider scheduling your personal time during the slower seasons which can be late summer, after spring break or the dates between Thanksgiving and Christmas.
2. Appreciate the Intangibles
Understand that some of the features and amenities that led you to buy your particular property don’t always translate neatly into increased income. What exactly is a view of a sunset shimmering over the blue Pacific worth? That’s a value judgment that is hard to pin down.
In a year round long term residential rental market, the location, size, and availability of basic amenities combine to determine the potential market rent of a property. The school district, proximity to public transportation, number of bedrooms, available parking stalls and basic amenities like a washer and dryer in the unit all add up to determine the rent.
In a vacation property, the value is much more in the eye of the beholder. Be open to the possibility that not everyone values the same things as you do during their vacation. Being within walking distance of the golf course clubhouse may be a huge plus for you but hold little or no value to a potential guest. Be ready to see the vacation rental market for what it is and adjust your income expectations accordingly.
3. Research the Market
To help you set your expectations it’s a good idea do a little research. If you are like many people, you might ask a real estate agent or property manager for that information. Don’t be put off if you find their answers are a little vague. They may know the answer but are not comfortable sharing it for fear of breaking the law by suggesting "If you buy this you will get X amount $'s in rental income"
Any statement made by a licensed real estate agent or property manager about your potential vacation rental profits could fall in the gray area between providing real estate information and representing an investment.
Fortunately, there is a wealth of up-to-date income information at your fingertips. On-line platforms such as vrbo.com, airbnb.com, and homeaway.com have many examples of vacation rentals in the area or complex that your property is located. Check out the published rental rates and take a look at the availability calendar to see what occupancy rates look like. But keep this in mind, some owners will undercut other rates so they can "keep the place" rented. They are not concerned about maximizing profits they just want to cover expenses, which is the goal of the owner. Remember, you need to set your goals for your investment.
It’s also a good idea to read through some of the visitor comments (both good and bad) to get an idea of what guests liked or disliked about their stay. A little digging will give you a good feel for the market and help you better understand what will attract guests to your property.
4. Ask the Question
What kind of landlord are you? If your answer is “What are you talking about? I’m no landlord,” then you have made an important first step.
If you don’t already own income property, the idea of being a landlord even though you might never be face to face with a guest or tenant may come as a surprise. Whether your personal involvement is welcoming guests into your home or simply forwarding income statements to your accountant, you are the landlord.
Deciding what kind of landlord you would like to be is a key step in being successful in this role and remaining happy with your decision.
Your vacation rental business can be structured in a variety of ways depending on how hands on you would like to be. Each level of involvement has its own pros and cons.
Here are 3 of the most common structures with a few key pros and cons, however, there are many other pros and cons of each management choice and I would be happy to discuss those with you.
Self-Managed - You Live on Island
- Greatest level of control
- Least amount of overhead
Off-Island Management - You Live Off Island but Still Handle Day to Day Business
- Must be available as the on island contact for your guests.
- You may have to make time to handle your own cleaning and repairs if you do not outsource these services.
- You are responsible for all accounting
- You still handle the reservations and will probably continue with low management overhead
- No face to face interaction with guest
On-Island Property Management Company
- Need to secure an on island contact for your guests, this is the law
- Need to secure cleaning service (I would recommend always having a backup cleaning service) and have contacts to handle repairs
- May need to be available, by phone, 24/7 for your guests and have a plan to handle any immediate tenant problems.
- You are responsible for all accounting
- Meets absentee owner requirements
- No involvement with reservations, check-in, check-out or the collection of money from guests
- Property management company will handle service requests and be available by phone to assist guests
- Highest overhead of all options
- Management program may restrict owner’s personal use
Regardless of which form of management structure you choose it’s important to remember, as the owner, you are still ultimately responsible. Owners must register for both the General Excise Tax(GET) and Transient Accommodations Tax(TAT).
An owner not residing on the island where the property is located is required by Hawaii State law to designate an on-island contact. While that contact is not required to hold a real estate license, if they are involved in real estate activities, such as offering the property for rent, they must be a Hawaii-licensed real estate broker or sales agent.
Getting the most from your vacation property is as simple as taking the time to understand your motivation and being honest with your expectations. Doing a little research will help you set reasonable goals. Deciding how much hands-on involvement you want with your rental business will help you choose the management structure that’s right for you.
If you are interested in purchasing your own Big Island Vacation Rental or using Hawaii Life Vacations as your Property Management, give me a call.