Buying a Maui Vacation Rental: What You Need to Know

Browse before you buy…

Maui is more than paradise. The land is rich with culture, history, and opportunity. Visiting Hawaii is on nearly everybody’s bucket list and they all need somewhere to stay. The reason so many people are interested in Hawaii real estate is because they want to own a piece of paradise and share it with others—for a profit. Licensed Maui rentals can go for anywhere from $100/night to $10,000+/night for luxury homes overlooking the ocean. If you think you have to be on island to buy—you’re wrong. Plenty of people buy Maui vacation rentals for cash, sight unseen, and are very happy with their purchase.

For those looking to invest in Maui vacation rentals, be sure to keep these tips in mind:

1.  Location, Location, Location

If your goal is to make money on your Hawaii real estate investment, you’ll want a home or condo as close to desirable spots as possible. On Maui, those areas tend to be in Kihei/Wailea area and Lahaina/Kaʻanapali near beaches and golf courses. When you tour the property, take a look at the views, the amenities nearby, and the proximity to nearby shops and restaurants. What are the amenities of the property? Are there pools and recreation areas? Think about all the pros and cons of the location to decide whether it’s a good investment. Put yourselves in the shoes of a vacation goer—would you want to rent this location?

2.  Know There are Seasons

In Hawaii, there are waves of visitors during certain times of the year, the busiest being from Christmas to New Year’s. As a vacation rental owner, it’s important to buy a place where you can make your money back without having your property rented out every single day of the year. Know that the holidays may be booked a year in advance, but there may be times that aren’t rented in the summer or fall. Usually, Maui vacation rentals book at about 85% capacity for the entire year. If you plan on using your Hawaii real estate personally, visit during off-peak times to maximize your profit.

3.  Zoning: Long-Term vs Short-Term

On Maui, specific properties are designated for short-term rentals (less than 6 months). This means that the complex or area was zoned for short-term rentals, or that the property went through a licensing process to obtain short-term rental status. Renting short-term without the short-term rental status subjects the owner to fees up to $30,000/day - best avoided entirely. If you are curious to learn about more specific locations and zoning, feel free to reach out to Li Hay.

4.  Fees and Maintenance

If you purchase a condo or your home is part of a Homeowner’s Association, you’ll have HOA fees to pay each month to keep the area in tip-top shape. HOA fees go towards amenities like parking lots, pools, and landscaping. Some fees even cover some utilities such as cable, trash, and water. Know that if you do not live on Maui, you must hire an on-island property manager to care for your investment. Property managers charge anywhere from 10% - 25% with varying levels of service. When it comes to property management for Maui vacation rentals,  consider spending time on island to find a trustworthy and affordable person/cleaning service to take care of your tenants and your home.

5.  Get Your Financial Ducks in a Row

Speak with your CPA or tax attorney about this investment and the tax advantages (or disadvantages) based on your state’s tax structure. Get clear about the various taxes you are responsible for with your Maui vacation rental (property tax, income tax, general excise tax (GET).

Here are three ways people purchase vacation rentals:

• All Cash – if this is your preferred option, be sure to get an official letter from your personal banker or wealth manager documenting your balances or having a readily available print out of your current bank balances as proof of funds for your purchase.

• Conventional Loan – if you go the route of borrowing money, expect to pay ¼ - ½% more in interest on your mortgage with a higher down payment of 25-30% for a vacation rental property.

• 1031 Exchanges – if you’ve recently sold rental property, you can apply those earnings to a same or greater priced rental property with this tax-deferred method.

6.  Don’t Overinflate Your Profit

While you may have dollar signs in your eyes when you calculate your profits from the property you’re looking at, keep these expenses in mind:

Down Payment: some people think they can waltz into the Maui vacation rentals market and scoop up a condo for 20% down and start making a profit. Realistically, most of the prime properties don’t break even unless there’s 25-30% down or more.

Maintenance: mentioned above, just know property managers and HOA fees can take a big bite out of your profit.

Utilities: even if you’re not renting, there will still be residual bills to pay that even if they aren’t being covered by rental fees.

All Access: the real value is owning a piece of paradise you can share with family and friends and have strangers cut the costs of your upkeep.

Rental Management: if you entrust the management of your Maui vacation rental to a company with front desk check-in, expect a 30-50% fee on your rentals. If you choose an outside management service, they will generally charge 10-25% of the rental fee per service. 

Taxes: be sure to include all state and county taxes with your profitability calculations.

7.  How much can I expect to make?

Of course, your profit will depend on a number of factors from your property management choices to the HOA fees of your unit. We are happy to work with you through every detail and do a pro forma to see what it will take to get you a profitable vacation rental on Maui.

8.  Prime Parking

A very important part of buying a property is the parking situation. Most condo complexes will have one assigned space for each unit and guest spaces for visitors. Some have two per unit and some are fully open. Be sure to look at the parking situation to know how it might be for your guests because if you’re having trouble finding a spot, they will, too.

9.  Look Around

It’s recommended to stay at a few Maui vacation rentals to see what you like, don’t like, and what you might do differently. Is the furniture out-of-date? Do you hear noise at night? Are there recreational supplies like snorkels and boogie boards? Is the lock system digital or do you pick up a key at a registration desk? See what other owners do and how vacation rentals are run so you can provide the best for your guests.

10. Reach Out to Your Agent

What is the best way to search for properties on Maui? Great Hawaii real estate deals pop up occasionally for our agents, but it’s up to you to proactively reach out to see what’s on the market. Give Li Hay a call to discuss your Maui vacation rental dreams and she’ll help make them come true. Even after your purchase, Li is part of your Maui Living team and will be available for professional service (or dinner) recommendations.