Hawaii has always been one of the best and most profitable markets for investing in short-term rental properties, decades before the recent boom in the vacation rental industry. There is barely a need to explain the reasons for this considering that Hawaii is the 10th most visited US state despite its small size and population. The amazing beaches, the clean waters, the exciting water sports activities, the unique nature, the tropical climate, and the endless other tourist attractions bring millions of domestic and foreign visitors every year.
However, before buying a vacation rental property in The Aloha State, check out the Hawaii short-term rental laws. Similar to other states like California and Texas, Hawaii does not have statewide regulations pertinent to Airbnb rentals. Each county and city has adopted its own local legislation to regulate short-term rentals and reduce interference with the local community and economy. Certain Hawaii cities have had some of the strictest vacation rental regulations and restrictions in the US market.
In this article we have a look at what it takes to start an Airbnb business in the State of Hawaii and what you should know about the local laws and rules in four of the most popular tourist destinations there.
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Hawaii’s Definition of a Short Term Rental
The State of Hawaii does not have a unified definition of a short-term rental. Most counties and cities define this as a residential dwelling or lodging that is available for rent for less than 30 consecutive days, in exchange for remuneration. Other places, like Honolulu, expand the vacation rental definition to include rentals of up to 90 days.
The prevailing upper limit is comparable to the definitions adopted in the Colorado and the Georgia short-term rental laws. Meanwhile, the 90-day limit is in line with the North Carolina definition of short-term rentals.
Starting a Short-Term Rental Business in Hawaii
Since Hawaii does not require state-level short-term rental licenses or permits, you only need to follow the general requirements for starting a business when investing in a vacation rental property.
Investors can register a Hawaii business entirely online. This requires reserving a business name and providing some basic documents.
According to Hawaii short-term rental laws, state transient accommodation tax (TAT) and general excise tax (GAT) have to be paid on Airbnb rental income. This means that you need to get a State Tax Identification Number. Investors can get this number, file taxes, and pay dues through a single portal, Hawaii Tax Online.
Short Term Rental Licensing Requirement in Hawaii
Hawaii does not impose any requirements related to vacation rental licenses or permits at the state level. The state authorities have left this responsibility to county and city authorities in order to prevent over-tourism and an affordable housing crisis at the local level.
As a result, most Hawaii counties and cities have introduced specific regulations prohibiting the further spread of the Airbnb industry. It’s important for an investor to familiarize themselves with the local short-term rental laws before investing in any location.
Required Documents for Hawaii Short Term Rentals
Starting a Hawaii Airbnb rental business does not require special documents, at the state level. The documentation that’s needed is the standard forms and information required to get a State of Hawaii TAT license and GAT license. Hosts can submit applications online, which makes the process easy for both in-state and out-of-state real estate investors.
However, since each county and city in the Hawaii real estate market has established its own short-term rental laws, every location requires a unique set of documents to be presented when applying for a vacation rental license or permit.
Hawaii Short Term Rental Taxes
Hawaii short-term rental property owners need to pay general excise tax (instead of sales tax) and transient accommodations tax at the state level. Also, TAT has to be filed and paid at the county and/or city level too. Similar to the rest of the US market, investors must pay income tax on the rental income - or Airbnb revenue - that they generate through their vacation rental property.
Hawaii Vacation Rental Tax Deductions
Based on federal regulations, Airbnb hosts in Hawaii are eligible for tax deductions if they rent out their second home for a minimum of 14 days in a calendar year and use it for personal reasons for a maximum of 14 days per year. It’s important to take advantage of these short-term rental tax deductions as they can help push up your cash flow and return on investment.
Hawaii short-term rental property investors can deduct the following business expenses:
- Mortgage interest
- Mortgage insurance premium
- Property tax and other taxes
- Property maintenance
- Supplies to guests
- Cleaning, accounting, legal, and other business service fees
- Travel costs related to managing the property
- Home office expenses
Statewide Short Term Rental Rules in Hawaii
Just like many other US states, Hawaii does not impose statewide regulations on short-term rental properties. One major exception to this trend are the Florida short-term rental laws.
Because of the lack of state-level rules, each county and city has adopted its own legislation to regulate the spread of the vacation rental industry.
Short Term Rental Rules By Hawaii City
While tourism is a major part of the Hawaiian economy, the immense growth of the Airbnb industry has become a challenge for local homeowners, tenants, and residents. To address the growing problems of housing affordability and the large numbers of visitors, counties and cities have adopted their own Hawaii short-term rental laws, varying by location. Most of these rules have been updated over the course of the last couple of years, and investors might expect further changes in the coming years to reflect the dynamic situation.
Vacation rental rules and regulations in four of the most prominent locations for tourists within the State of Hawaii:
Maui Short Term Rental Laws
The County of Maui adopted Ordinance No. 5316 in January 2022, which establishes a moratorium on issuing permits for new transient accommodations including short-term rentals and vacation rentals for two years or until the County Council adopts a tourism management ordinance. The only exception is applications for new bed-and-breakfast permits. However, investors can renew existing permits.
The government body deemed this drastic change has been deemed necessary in ord return to the codifieesident ratio.
Getting (once it’s possible) and renewing a short-term rental home permit requires:
- Registered user account in the Maui Automated Planning & Permitting (MAPPS) Customer Self Service (CSS) Portal
- Completed and signed Short-Term Rental Home (STRH) Permit Renewal Application
- Completed STRH permit renewal checklist
- Proof of mailing notifying adjacent property owners/lessors of the permit number, manager name, 24-hour available phone number, and house rules - for first renewals
- Certificates of insurance
- Written verification of tax payments
- Detailed Compliance Report listing each approval condition
- Additional documents if the property is within the State Land Use Agricultural District
- Application fee of $958 - besides $1,145 if a public hearing is required - for new permits or $783 for renewals
The local transient accommodations tax rate is 3%.
Starting a new Maui vacation rental business is not an option at the moment. If you’re interested in buying an Airbnb property in the County of Maui, check in a few months if a tourism management ordinance has been adopted and the moratorium on new short-term rental homes has been lifted.
Big Island Short Term Rentals
The Big Island, also known as the Island of Hawaii, is in Hawaii County, so it follows the Hawaii County short-term rental laws. Short-term vacation rentals (STVRs) on Hawaii Island are regulated by Ordinance 2018-114, or Bill 108, adopted in November 2018.
According to this ordinance, short-term vacation rentals are permitted in V, CG, and CV districts; residential and commercial zoning districts in the General Plan Resort and Resort Node areas; and the RM district for multi-family dwellings within a condo property regime. This means that renting out on a short-term basis is not allowed in most residential areas.
Big Island Airbnb properties need to be registered with the Director of the Planning Department.
The registration form should include the following information:
- STVR registration form
- Verification of effective State of Hawaii GET license and TAT license
- Verification that County property taxes are paid in full
- Site plan showing the location of the rooms for rent and required parking space
- Floor plan
- Verification that notification letters from nonconforming use applicants have been sent to owners/lessors of lots within three hundred feet of the short-term rental property
- Reachable person who lives within the County of Hawaii and can be reached by guests, neighbors, and County agencies at all times
- Signed Statement of Compliance
- Application fee of $500
Registrations need to be renewed annually.
The Big Island transient accommodations tax rate is 3%.
Investing in a Big Island Airbnb property faces restrictions related to location. However, it remains a viable option as non-owner occupied short-term rentals are legal in Hawaii County. Investors just need to be careful to choose an area where this rental strategy is allowed.
Honolulu and Oahu Short Term Rentals
The City and County of Honolulu have been regulating short-term rentals since 1989. We expect this in such a popular tourist destination as Honolulu. There is a new Ordinance 22-7, which is planned to go into effect on October 23, 2022. Until then, the registration of new short-term rentals has been temporarily suspended and will be reopen after this date.
All Honolulu short-term rental laws apply to Oahu and Oahu is within the County of Honolulu.
Unlike most other cities in Hawaii and the rest of the US market, Honolulu defines a short-term rental - also known as a vacation rental - as a lodging that provides guest accommodation for less than 90 consecutive days. Now Ordinance 22-7 limits this type of rentals to designated areas only, to increase the supply of long-term rentals and homes for sale.
There are two types of Honolulu short-term rentals:
- Bed and breakfast homes (B&Bs), where the homeowner or permanent resident is present during the short-term stay. They can rent a maximum of two rooms per property out, with a maximum occupancy of two adult transient occupants per room.
- Transient vacation units (TVUs), also called whole homes or unhosted rentals. The maximum occupancy per room is two adult guests.
The areas where Honolulu Airbnb properties of either type can legally operate under the new ordinance include:
- The areas within the Apartment Precinct on the Waikiki Special District Mauka of Kuhio Avenue
- The areas within A-1 low-density apartment zoning district and A-2 medium-density apartment zoning district in proximity to the Ko Olina Resort
- The areas within A-1 low-density apartment zoning district in proximity to the Turtle Bay Resort
B&Bs and TVUs which were being rented for periods from 30 consecutive days to 89 consecutive days prior to October 23, 2022 can continue operating as short-term rentals until April 23, 2023. After this date, they have to stop leasing, convert into long-term rentals, or register as short-term rentals under the new ordinance, provided that they meet all requirements.
In order to operate as an Oahu or Honolulu vacation rental, a property needs to be registered.
The registration of an Honolulu, Hawaii short-term rental requires the following documents:
- Registration form to be provided by the responsible department
- Recent title report
- Valid current State of Hawaii general excise tax license and transient accommodation tax license
- Valid current city transient accommodation tax license
- Evidence of a real property home tax exemption for a B&B
- Evidence of at least 50% interest in the subject property for a B&B
- Evidence that the use as a B&B home or TVU is covered by an insurance carrier
- Confirmation that the short-term rental is permitted by the HOA or other relevant regime articles, bylaws, or house rules
- Evidence that the dwelling unit is not an affordable unit subject to income restrictions, did not receive housing or rental assistance subsidies, and was not subject to an eviction within the last 12 months
- Initial registration fee of $1,000
Honolulu short-term rental registrations are valid for a year, and they have to be renewed annually for a fee of $500. The initial registration fee and the annual renewal fee in this Hawaii city are significantly higher than in other top locations for vacation rental investing across the US. This cost is something investors need to include in their calculations before buying a property in order to make sure that their Airbnb cap rate is good.
Another expense which Airbnb hosts need to take into consideration is the 3% city TAT.
Over all, Honolulu and Oahu short-term rental laws are rather limiting because of restrictions on allowed locations. They make running an Honolulu Airbnb business expensive. Savvy investors can find profitable opportunities, especially if they pair up with a local Airbnb property management professional or company.
Kauai Short Term Rentals
The County of Kauai is yet another area in the State of Hawaii that has imposed very restrictive Airbnb rules. These regulations have most recently been updated in 2022. In Kauai short-term rentals are allowed only in Visitor Destination Areas (VDAs).
Kauai short-term rentals are divided into two categories:
- Homestays, or bed and breakfasts, where transient accommodation is provided to visitors for 29 days or fewer. During homestay operations, the owner benefiting for a homeowner’s exemption for the homestay must be physically within the County, be living at the homestay property, and be physically available to address the needs and concerns of guests. No other individual can act on behalf of the owner. Only three rooms within a property can be rented out to guests. Eventually, this type of properties refers to owner-occupied short-term rentals.
- Single family transient vacation rentals, where the owner can designate a contact person or representative to be available all the time. This type refers to non-owner occupied short-term rentals.
Operating a Kauai homestay requires a homestay zoning permit, which is to be renewed annually. The documents needed to get and renew a permit include:
- Valid State of Hawaii general excise tax license
- Valid TAT license for the homestay
- Documentation that there is at least one fire extinguisher
- Proof that the homestay is the owner’s primary residence and that the owner is benefiting under Section 5A-11of Kauai County Code 1987 for a homeowner’s exemption for the homestay site
- Fee of $750
Meanwhile, Kauai single family transient vacation rentals, except for time share units in a timeshare plan - need to register with the Director of Finance. This includes a nonconforming use certificate which needs to be renewed annually. Applications require:
- Valid State of Hawaii GET license and TAT license
- Proof that the use has been ongoing
- Proof that the dwelling unit complies with all State and County land use or planning laws
- Documentation that there is at least one fire extinguisher
- Current photos of the property
- Copy of the evacuation route from the property
- Copy of each advertisement on the internet
- Fee of $750
Kauai Airbnb investors can own and operate multiple single family transient vacation rentals as long as they all meet the requirements. A separate registration is needed for each transient vacation rental.
Based on Kauai, Hawaii short-term rental laws, owners need to pay a 3% county TAT.
If you are considering investing in a vacation rental in Kauai, the good news is that non-owner occupied short-term rentals are a legal option. However, you need to consider the location restrictions and make sure that you can locate positive cash flow opportunities within the VDAs of the County.
While Hawaii might be one of the first markets that come to your mind when you think about buying an Airbnb property, you should know that The Aloha State has some of the most restrictive short-term rental laws nationwide. This is logical for a place that sees the number of tourists that Hawaii does. As counties and cities have adopted their own vacation rental regulations, it’s key to check out each location before deciding on the best place to start an Airbnb business.
* If after reading this article, you’d like some help to buy and manage a Hawaii short-term rental property, you should know that Awning can help with vacation rental buying and full-service vacation rental management. This includes navigating the legal work and guaranteeing compliance with local legislative requirements, for an industry-low fee of 15% of revenue.