The Benefits of Owning a Vacation Rental Property in Honolulu

In 2022, over nine million people visited Hawai'i. This isn't surprising, given the islands' beautiful weather, fantastic beaches, and looming mountains. And this is after a global pandemic from which spending hasn't yet recovered.

Owning a vacation rental property in Honolulu might give you a small piece of this pie. Investing in a vacation property is a good idea if you have long-term plans, giving you a tangible asset. And, of course, you can block out some time to use it yourself. This can be much cheaper in the long run than spending on hotel rooms if you love Honolulu!

Of course, there are many things to consider before taking the plunge.

Hawai'i might be a small state, but it has a lot of options and variety. So, why choose Honolulu? Honolulu is the capital of Hawai'i and is fast paced and cosmopolitan, with world-class dining and shopping. It encompasses Waikiki Beach, the most famous beach in Hawai'i and one of the most recognized in the world. However, there are other beaches too, less well known, equally beautiful, and often quieter. Hike up Diamond Head to get views of the city and the ocean.

The city contains top cultural destinations, including the Bishop Museum, Hawai'i's largest history museum, the Honolulu Museum of Art, and the 'Iolani Palace, the residence of Hawai'i's kings and queens. You can get every kind of food here, from fantastic local dishes to the eclectic offerings of Honolulu's Chinatown. Last but not least, there's every kind of shopping, from high-end fashion labels to beautiful local crafts.

There is everything you might want here: perfect Hawai'i weather, an international airport within easy striking distance, and a short drive to the Honolulu Watershed Forest Reserve and Ewa Forest Reserve to steep yourself in nature. Many people come back to Honolulu again and again because there is more than you can ever do in one trip!

Purchasing a vacation rental is not, of course, for everyone. However, with Hawai'i's tight market, a vacation rental anywhere in the islands is a good investment. Honolulu can be particularly valuable with the convergence of island and city prices. But a vacation rental is more than just an investment. It's an anchor, a commitment to the city.

Renting to vacationers generally has a higher ROI than renting to locals. You can charge a higher rate because they will not be there long, and people expect Hawai'i to be expensive. Although you have the challenge of keeping the property occupied, you can often bring in a significant amount of money and have accommodations waiting when you want to visit Honolulu yourself. On top of that, you may be able to deduct your visits to the property as business trips! Talk to your tax professional about the benefits you might get in your specific situation.

If you are retired or don't need to commute because your job is remote, you may want to live in your Honolulu vacation home for a larger part of the year and rent out only when you return to your regular home base. For example, many people decamp to Hawai'i during the winter, especially if their home is in the Midwest or the colder parts of the Northeast. If this is the case, you can still get financial benefits from renting the home out for the rest of the year.

Honolulu has strict zoning requirements. In fact, you can only do short-term rentals (less than 30 days) in the Waikiki neighborhood. Most of the properties there are condos. Short-term rentals are limited to resort zones. If you own a home anywhere else, then you may be able to rent it out for part of the year and stay in it for another part, but this is generally less lucrative. A law that would have extended the limit to 90 days was blocked by a judge in October 2022. If you own a home anywhere else, right now, you will have to rent it out in 30-day blocks, significantly limiting what you can do. Violating the rules can get you hefty fines, so don't risk it.

For tax purposes, vacation homes must have living accommodations, including a cooking area and bathroom facilities. You also have to live there for at least 14 days or 10% of the total number of days the property is rented. Because of this, you should choose a property suited to your own uses rather than thinking primarily of investment value. This should be your vacation home first.

Managing vacation rentals can be challenging. Airbnb and similar options have rules you may or may not want to deal with. If your budget allows it, you should engage a professional property manager, especially if you are doing high-end rentals. You will also need to work out how to provide maintenance services to your tenants and deal with potential damage. Again, a good property manager can help with this, and your Honolulu luxury real estate agent may be able to recommend somebody.

You are very limited if you want to do true short-term rentals (less than 30 days). The resort zone in Waikiki is the only part of Honolulu where those types of vacations are legal. This almost certainly means a condo, but a good variety is available. One limitation is size. Many of the condos in Waikiki are on the small side and unsuitable for larger families. However, there are larger properties on the market from time to time.

Most of these condos are in buildings that have good amenities, such as saltwater pools and recreation and workout areas. You should consider which amenities are important to you.

If you're willing to rent out in larger blocks, Honolulu also has a good inventory of single-family homes. This includes larger homes on large lots, often with pools. There is a wide variety to suit your family and your budget. You also have a wider choice of neighborhoods, including the quiet streets around Diamond Head, the artsy district of Kakaako, and the suburban beauty of Hawai'i Kai.

Are you looking for a vacation rental property in Honolulu? Contact Agora Hawaii Real Estate for help finding the right property for your needs and to learn more about the many benefits of buying a vacation home in this vibrant city.