Investment or Future Resident Buyers: Consider a Long-Term Rental

I get many calls from prospective buyers looking for a home they will one day occupy as full-time residents or part-year snowbirds, but would like to rent in the meantime. Usually the preference is for something that they can rent short-term and use on their own vacations. Sound like you?

With the County short-term or transient accommodations rental regulations that began in 2019, that means most of the time we are looking at resort condominiums or homes. But what if you would prefer not to be in a resort?

My answer: Please consider a long-term rental property. With long-term rentals in such short supply, rents have risen and you have a large pool of qualified renters. [Not just opinion. Here is a study by the University of Hawaii Economic Research Organization that recently confirmed that short-term rentals do drive up housing prices.]

Here are some tips for success as a long-distance landlord of a Hawaiʻi property.

Desirable long-term rentals are near jobs, as well as near schools, parks, services and shopping – Waikoloa Village is a location that checks those boxes, has community amenities including a golf course and swimming pool, and is an easy drive to the Kohala Coast resorts and beaches.

Tips for Success as a Long-Term Rental Landlord in Hawaiʻi

I have a number of investor and future retirement clients who have been very successful with their long-term rental properties. I also have my personal experience, owning a long-term rental property in Hilo consisting of two homes on a single lot. At the moment I see a lot of (mis)information on websites opposing the proposed transient accommodation rental regulations about how awful it is to be a landlord of a long-term rental in Hawaiʻi. Frankly, some of it is downright offensive in its characterization of the kamaʻaina population. And definitely contrary to my own experience.

I rent both homes as affordable rentals, filing annually to take advantage of the lower property tax rate. The County also has a well-administered Section 8 housing voucher program which guarantees landlords a market rental, making up the difference between market rate and what the Section 8 tenant can afford to pay.

Here are some tips if you are considering a rental property in Hawaiʻi:

• Hire a long-term rental property management company. I use Hawaiʻi Lifeʻs long-term rental department for my property management of course, and love the professionalism and service. You will pay a percentage of the gross rental income, but it is well worth it to have the pros in charge. They will set appropriate rental rates, screen prospective tenants, collect the rent and pay you, as well as efficiently handling tenant maintenance requests.
• Be tax-savvy. Remember that you will need to pay income taxes on your net rental income, as well as charging and remitting General Excise Tax on gross rental income. You may want to check with your tax professional for advice on federal and state tax issues, both for your annual taxes and for your capital gain upon sale of the property some day.
• Permits and CC&Rs matter. I am always floored by estimates of the number of homes and units within homes in Hawaiʻi that are being rented but are not permitted as residential units. Sometimes legal additional homes have restrictions that you will find on the title report (an ʻohana unit that can only be rented to family members, or an additional farm dwelling that must house agricultural workers). And if you are in a subdivision with CC&Rs, check for any restrictions on renting all or a portion of the property.
• Location, location, location. When you think about the ideal short-term rental property, you are thinking about proximity to vacation amenities and attractions. When you think about a long-term rental, you want to be near jobs! Usually those locations also include the amenities that you would eventually want as a future resident: with the big three of schools, shopping, and services topping the list. My Hilo rental is equidistant from Hilo Medical Center and the University of Hawaii and Hawaii Community College campus, two good sources of tenants.

Examples of Active Listings That Might Make Good Long-Term Rentals

This vintage home is hidden at the end of a quiet lane but right in Hawi town. Rent part of it and save part for your own vacation use!

Just looking quickly through listings in North Kona, South Kohala and North Kohala (my usual geographic focus), here are just a sample of properties that caught my eye as candidates for long-term rental:

• This penthouse at Hualalai Village in the heart of Kailua Kona cannot be rented short term but would work for both a long-term rental and an eventual second or retirement home.
• For a Waikoloa Village condo that makes a great long-term rental, I like Makana Kai at Wehilaniʻs location and steel frame construction. There are two active listings, both with recent price reductions: Makana Kai 3601 and Makana Kai 2804.
• Looking for a big ocean view, single-family home on acreage without a lot of CC&Rs with a potential for long-term rental income? This new $2.1 million listing at Kohala Estates meets all those criteria, and as a multi-family configuration you could rent out the main home to maximize income and save the smaller units for your own visits. Or vice versa.
• There is a home in the heart of Hawi town but at the end of a lane for privacy that was configured for multiple units. Buyer would need to do their due diligence on the legality of renting each of the units, but this again strikes me as one where a buyer could have one good long-term tenant plus their own pied-a-terre for frequent visits while they look for, or even build, their dream home.

And donʻt forget, our Hawaiʻi Life Long-Term Rental department can also give you a feel for market rental rates and property management costs if you have a property in mind for long-term rental use.