Why a Hawaii Vacation Rental is a Good Investment: Answers to the Most Frequently Asked Questions
If you are interested in purchasing a Hawai’i vacation rental property, you likely have some questions about whether or not it’s a wise investment. At Hawai’i Life, we get a lot of questions from potential vacation rental investors just like you. For answers to these FAQs about buying that Hawai’i vacation home, keep reading:
What’s the Advantage of Owning Real Estate as an Investment?
According to Hawaii’s Department of Business, Economic Development & Tourism, the visitor arrivals forecast is projected to hit 9.1 million by the end of 2022. And visitor arrivals are projected to rise to 9.7 million in 2023, 10.1 million in 2024, and 10.3 million in 2025. Considering how tight the Hawai’i vacation rental market is and how the state continues to grow as a popular tourist destination, it’s safe to say that there’s a strong market for vacation rentals.
The biggest advantage of owning real estate over other investments, such as stocks, is leverage. With a somewhat small amount of money out-of-pocket, you can own an investment property that will generate revenue for years to come.
How Much Capital is Needed to Buy a Vacation Rental?
To find out, we recommend discussing this with a lender in the local area you are interested in, especially if you plan on financing your Hawai’i investment property. Typically, the lender will require 25% down (for the best rate) for an investment purchase, as well as a minimum of six months of reserves to cover your primary and investment properties in the event that they sit vacant. You will also need to have funds available in case of a longer period of vacancy or unexpected repairs that may be required.
Is There a Down Payment on a Vacation Rental Home?
Like buying any home, you will need to make a down payment on a vacation rental property. Most likely, you will need a minimum of a 10% down payment. When budgeting for a vacation rental home, you’ll also need to factor in any homeowner’s association fees that will need to be paid in addition to your down payment and mortgage.
Do Owners Have to Pay Taxes on Rental Income?
Yes, you do have to pay taxes on vacation rental income. Any rental income you earn on your Hawai’i vacation property must be reported to the IRS. You can, however, deduct related expenses from your rental property, which may help absorb any blow from taxes owed.
Can Zoning Laws Impact My Investment?
Hawai’i has areas zoned specifically for vacation rentals, so before purchasing a potential rental home in Hawai’i, do your research to determine what the zoning laws are for that area. For example, the island of Oahu has a new law that will increase the minimum stay at short-term vacation rentals in certain areas. In non-resort zone areas (also known as residential areas), the minimum stay will change from 30 days to 90 days, while bookings in resort zone areas will be restricted to 30 days or less.
Are Evaluations and Inspections That Important to Purchasing a Vacation Rental?
As with the purchase of any property, a home and termite inspection, evaluation of cesspool/septic/sewer, and more will be a necessary part of the process of purchasing a vacation home. For help navigating these processes, work with a knowledgeable Hawai’i real estate agent who can guide you every step of the way.
Who Will Take Care of My Rental When I’m Not There?
If you live on the same island where you will be purchasing a vacation rental, consider who will take care of the rental property if and when you’re not there. If you don’t reside on island, you are actually required by the state of Hawai’i to hire a local individual or company to manage your vacation rental property, and respond to guest inquiries and requests. Depending on where you live, how often you plan to rent out the vacation home, and how much work you have time for, it may be helpful to hire a vacation rental company to manage the rental for you.
At Hawai’i Life, we take the stress out of managing a vacation rental by handling all the details for you. Our full-service property management team has a wealth of experience managing and protecting your real estate investment, including providing you with contracts and checklists, offering bookkeeping, providing preventative maintenance, responding to maintenance issues, and conducting regular home inspections on your behalf. Visit our Property Management Services page for more info, here.
Does Owning Real Estate as an Investment Property Offer Opportunity for Financial Gain?
While any financial market can be unpredictable and dependent on supply and demand, as well as other aspects beyond your control, real estate has proven to be a wise decision for those who want to make a lucrative investment. Specifically, investing in a vacation property can be a strategic aspect of a long-term financial plan.
Owning Hawai’i real estate as an investment property does in fact provide opportunities for direct financial gain. An investment in real estate is an opportunity to collect revenue from guests, which can offer ongoing income down the road. It’s also an investment that can appreciate in value over time, leading to a considerable profit if and when the property is sold.
Connect With Us
The bottom line is that there are real financial gains to be had by investing in a Hawai’i vacation rental. If you’ve taken the time to do your research, have considered the answers to these Hawai’i vacation rental investment FAQ, and are ready to invest in Hawai’i real estate to rent, Hawai’i Life has the local teams, connections, and professional support to maximize your investment. Connect with us today by email or phone at Vacations@HawaiiLife.com or 855.447.3685.