Legal Nightly Rentals on Oahu | Condotels, BnBs, and TVUs
I get many questions from buyers about purchasing legal nightly rentals on Oahu, aka “vacation rental” properties on Oahu. With the popularity of services such as AirBnB and similar vacation rental sites, more and more homeowners are looking for ways to help pay the mortgage. Other buyers live off-island and would like a pied-a-terre on Oahu that partially or fully pays for itself.
Whether or not nightly rentals are legal on Oahu mainly depends upon zoning, with a few twists in terms of non-conforming use certificates. Residential zoning typically requires rentals to have a 30-day minimum term of occupancy.
Legal nightly rental on Oahu: BnB vacation rental in Kailua.
Currently, there are 3 main types of properties that allow legal nightly rentals on Oahu (rentals under 30 days). These property types with legal nightly rentals on Oahu are:
- BnB Properties (or Bed and Breakfasts)
- TVUs (or Transient Vacation Units)
1. The Condotels – Legal Nightly Rentals on Oahu
Condotels (Condo-hotel) are the first type of legal nightly rentals on Oahu. Condotels on Oahu are typically properties which are in Hotel and Resort (versus Residential) zoning districts of Oahu. Many of these are located in Honolulu, specifically, in Waikiki. There are also some Condotel properties in places like Ko’Olina with resort zoning. Some examples of Condotels on Oahu are the Ala Moana Hotel, the Ilikai, and the Ritz Carlton Residences.
On Oahu, you may also see some condominium properties listed in MLS as Condotel, but they are in Residential or Apartment zoning districts. These condominiums may not be true Condotels, but they may be condos subject to a TVU certificate (explained below). You may even find an entire (or close to entire) building or developments with TVU certificates (e.g., Waikiki Banyan, Waikiki Sunset, Kuilima, etc.)! Read on for the differences.
Management of Condotels
In many circumstances, owners may self-manage their Condotel, though some of the Condotels limit outside management options to one or more specified management companies. You can also manage your Condotel through the “hotel pool.” In this case, the condos are managed just like a hotel room. The management company is the hotel.
The management fees for being in a hotel pool are typically higher than for a property management company-managed unit. But hotel pools provide you some advantages. One is the power of bulk advertising and booking. Because hotels advertise and book the rooms through a main hotel website, you may end up with a higher occupancy rate. Another is with respect to consistency. The rooms may be kept more to a consistently high standard when in and maintained with a hotel pool.
Advantages and Disadvantages of Condotels
Oahu Condotels are purchased in Fee Simple, just like a regular condominium. Owning a Condotel can be nice because it allows an owner the option to come visit Oahu and stay in the unit for periods of the year and to rent it out for others. Condotels on Oahu also may have more hotel-like features. They often have resort amenities, including pools, gyms, and restaurants on the property. On the downside, the management fees can be higher, especially in a hotel pool. Also, you may not have much control over decor and the interior of the unit.
Condotels as an Investment?
On a per square foot basis, Condotels generally will be more expensive to purchase than regular condominiums because they offer legal nightly rentals on Oahu and have higher revenue than long-term rentals. But are Condotels a better investment than long-term condo rentals? In my experience, no; they seem to come out about equal, given the management fees and expenses. But you should analyze each property’s returns individually and make a decision based upon specifics. Also note that there can be a very high non-tangible value to have your own, partially paid for, second home on Oahu. Long term rental condos do not provide that advantage.
2. Bed and Breakfast Homes (BnBs) – Legal Nightly Rentals on Oahu
Bed and Breakfast homes (BnBs) on Oahu are typically single-family homes (versus condos) that are located in residential zoning areas. BnBs have been granted a special non-conforming use certificate (not a zoning variance) by the City and County of Honolulu. This certificate allows a non-residential, transient occupancy use while the certificate is valid. Homes which have a BnB certificate have special requirements to keep the certificate. The certificate does not “run with the land” and must be maintained, but may be transferred with a sale for the unexpired term of the 2-year certificate.
Legal nightly rentals on Oahu: Kailua beach home with BnB License previously listed by Yvonne Ahearn RB-20262.
Oahu BnB Certificate Requirements
Some of the requirements to maintain a BnB certificate are:
- The owner or a designated manager must live on the premises (in another room/rooms of the home) while the BnB rooms are rented out.
- Owners may rent only certain bedrooms in the home (up to a maximum total of 2, with a maximum of 4 total guests) for transient occupancy. These bedrooms must be designated. A floor plan of the residence must be provided to the Department of Planning and Permitting (DPP) showing the location of the BnB room(s).
- One off-street parking spot must be provided for each guest room on the certificate, in addition to those required for the main dwelling unit.
- Owners may not use exterior signs and must post the BnB certificate inside.
- Owners must renew the certificate every two years with proof that the BnB room(s) have been rented for periods of less than 30 days each, for at least 28 days of each period of 12 consecutive months. In addition, the owner must pay GET and TAT on the gross revenue received for the BnB rentals. If the owner does not meet these requirements, the certificate will be lost.
- Owners must have used the property as a bed and breakfast home, prior to December 28, 1989, and must have been already granted a non-conforming use certificate based upon that use. BnBs established after that date cannot get a BnB certificate and use as a nightly (under 30 day rental) BnB is illegal.
See Section 21-4.110-2 of the Land Use Ordinance.
You cannot legally rent out an entire home with a BnB certificate on a nightly basis. You must have an in-residence manager or owner. Also, you cannot deviate from the rooms identified. For example, you can’t later add a rental cottage to the property, in lieu of the designated room(s). Despite the restrictions, this type of non-conforming use certificate is still very valuable. An owner may live on premises and rent out a room or two for extra income. This is exactly what many Oahu buyers are looking for. Homes with non-conforming transient use certificates often sell for a premium.
3. Transient Vacation Units (TVUs) – Legal Nightly Rentals on Oahu
A Transient Vacation Unit (TVU) certificate also allows for rentals of less than 30 days in Residential zoning areas. A TVU certificate is an even more valuable than a BnB certificate because there is no owner-occupancy requirement. Like the BnB certificate, sellers may transfer the TVU certificate at sale, but new owners must maintain the certificate.
Oahu TVU Requirements:
The main requirements to maintain a TVU certificate are as follows:
- Owners may not use exterior signs and must post the TVU certificate inside.
- Owners must renew the certificate every two years and they must provide proof that the TVU has been rented for periods of less than 30 days, for at least 35 days of each period of 12 consecutive months. In addition, the owner must pay GET and TAT on the gross revenue received for the TVU rentals. The owner must meet these requirements or the property will lose the certificate.
- Owners must have used the property as a transient vacation unit prior to October 26, 1986, and owners must already have a non-conforming use certificate based upon that use. TVUs established after that date cannot get a TVU certificate and use as a nightly (under 30 day rental) TVU is illegal.
See Section 21-4.110-1 of the Land Use Ordinance.
As mentioned, there are several buildings and developments, especially in Waikiki, in which many units have TVU licenses. Don’t confuse these TVUs with Condotels. Requirements to maintain the TVU certificate do not apply to Condotels.
BnB vacation rental on Oahu.
Buying Vacation Homes for Legal Nightly Rentals on Oahu
Condotels are fairly easy to find and purchase. Vacation homes with TVU or BnB licenses are not as common. For example, there are currently only 60+/- homes in Kailua, Oahu with non-conforming transient occupancy certificates. There are even fewer non-condo single family homes in Honolulu with these certificates. The City and County of Honolulu keeps a list of homes with these certificates.
However, the number of vacation rental homes for sale on Oahu may all change significantly in the near future. The City and County of Honolulu is now considering a proposal to allow owners of ALL Oahu owner-occupied homes to obtain a legal BnB non-conforming use certificate. Further, under the proposed law, Honolulu County may allow a limited number of TVU licenses. If and when Honolulu County passes this legislation, I will post more information.
Please let me know if you need help in researching and/or purchasing these homes. And contact me with any other questions about legal nightly rental properties on Oahu.