courtesy of Kevin Spaise R(S)

There is more than one path to your own piece of paradise. For many, operating one or more vacation rental properties makes the most financial sense.

 Most vacation rentals are condos, including Studios, 1-bedrooms, 2-bedrooms, and 3-bedrooms. Approximately 90% of vacation rentals are 1- and 2-bedroom units, and nearly all are on or across the street from the beach. The large majority of vacation rental condos are located in Kihei (south Maui) and Kaanapali (west Maui). Both areas have shown phenomenal (and comparable) appreciation in the past several years, and both areas have extremely high occupancy rates. Most of these condos are Fee Simple (complete ownership, with all rights and privileges), while a few are Leasehold.   

Vacation rentals (also known as short term rentals) are allowed and supported in most resort properties. Most properties are very flexible and supportive of vacation rental use, although there are a few exceptions. Owners set their own rates, policies, and procedures, so long as they are in harmony with the building’s CCRs (covenants, conditions, and restrictions). Owner use is unlimited, and there are no limits on number of rental days, etc.

 

Financing, rates, and mortgages operate similar to real estate purchases on mainland.

Various mortgages are available, including fixed 30-year loans, 20 year loans, and ARM’s. Most condos are sold Fee Simple (FS). Rates are slightly higher for “condo-tel” vacation rentals. Many mainland owners purchase condominiums as “second homes,” with very attractive rates and terms. Local lenders rely upon, support, and appreciate mainland owners, and I have an excellent network of financing and escrow specialists. Most escrows are 45 days, but some are longer, some are shorter. It has been my overwhelming experience, and that of my fellow agents, that transactions almost always flow much more smoothly when local lenders are used, and I strongly recommend utilizing a local lender.    

   What sort of occupancy can you expect?

It varies significantly, depending on which management service you use, which property your rental is located within, view, condition of the unit and whether or not it shows recent renovation, its proximity to the beach and the quality of that beach, and how it is advertised and promoted. Occupancy rates of 80% and higher are not uncommon: at 80% (24 days per month), your vacation rental is a well oiled machine. I figure much more conservatively when projecting income. For comparison sake (between units), I generally figure 20 days (66%) for my projections, and I expect to achieve higher numbers. You can get a very good idea of actual situations by going to sites like aliiresorts.com, whalersrealty.com, and others that show actual vacation rentals and availability calendars. Owner-driven sites like VRBO.com also have individual Maui listings, and many of those have calendars.

 

Do guests do much damage?

Typically, no. Incidents of damage are very, very rare on Maui. Nearly all guests reserve and pay their rental with a credit card, which is a deterrent to bad behavior. Rental owners should plan for easy maintenance (tile, etc.) when renovating.

 

Three types of management:

            *Full service management company (30-55%) – Owner is completely hands-off - open mail box, collect check.

             *Combination on-island management, and owner-operated. An on-island manager collects commission on bookings they arrange, but the owner is also allowed to book the unit with zero commission. Owner generally operates an independent website, responds to leads and inquiries, maintains an availability calendar, and collects revenues on those rentals he books. This mitigates the 20%-25% management fee, often to single digits. The manager does everything: books the unit, collects the rental, arranges cleaning, assures check in and check out, and handles any guest issues.

             *Owner-operated, with contracted cleaning services, etc. Rentals are generated through various vacation owner-active rental websites, and commission-based, independent sites. Owner responds to all leads, all client contact, etc.

 Most rental bookings are 5-7 nights.

Sometimes, it makes sense to accept shorter bookings  at a premium rate, perhaps with a cleaning charge, if the dates fit within “holes” in your calendar.

 

Owners are responsible for licensing rentals and collecting and paying 11.42% tax on every transaction.

 Typically, the guest pays a deposit of anywhere from one night’s rent to $200 upon booking, with the balance due 30 days prior to arrival.

 Maintaining an on-line availability calendar is free, easy, and highly recommended. 

 What do visitors to Maui want in a vacation rental?

Overwhelmingly, they want proximity to a nice beach. A view is important to many, but not essential. Two- and one-bedroom units both rent very well, and there is a well-proportioned mix in Kihei, and a good balance. Three-bedroom units and homes are at a premium.

 What are the best months, and the slow ones?

Peak: Mid-December, January, February, early March

Slowest: May, September, early December

Our premium months are December, January and February, with peak occupancy driven by the holiday season, and the arrival of the whales. March has gotten progressively busier in recent years, and is now a strong rental month. April is fairly solid. May is typically slow, and a good discount month. June is strong for weddings, and July courts the summer vacation flow. August is OK, and September is typically slow. October picks up about midway through, and November is usually a fairly good rental month. Early December can be slow, and then most units are booked solid through the holidays.

 Do you adjust the rates for high season? Absolutely. And I recommend giving discounts for longer stays, which are often repeat guests.

 How far do guests rent in advance? Some wait until they are at the airport before they try to find a rental. Others book nine months to a year in advance. Most guests, however, book two to four months in advance.

 What kind of license do I need? A vacation rental tax license, available at the Maui County offices (General excise tax license) 

How much are cleaning expenses? For a 1-bedroom, $55-70 is typical, for a 2-bedroom $60-70.

Other expenses? Maintenace fees (generally cover some or all utilities, grounds maintenance, pool servicing-maintenance, liability insurance on the grounds, trash, water, exterior painting and maintenance, etc.; Property taxes; Supplies (paper towels, toilet paper, etc.); Repair/maintenance (minimal);