Are you thinking about investing in Hawaii real estate with the plan of holding the property for rent?
The idea of being a landlord, with tenants sending monthly checks, sounds like a stable, prosperous investment. And in Hawaii, average rental prices make being a landlord an attractive investment option:
- As of July 2019, the average rent in Hawaii is $2,413 per month.
- Average rent is $2,257 in Honolulu.
- Average rent is $1,784 in Kahului, Maui.
Investing in a rental property in Hawaii surely has the potential to generate a cash flow and appreciation on the property itself. But before you buy a Hawaii rental property, realize being a landlord isn’t simply a check in the mail each month. There are a number of laws, tasks, and a variety of rental options to consider before investing in a Hawaii rental property.
Hawaii Landlord Life
Before you begin to see a cash flow through a Hawaii investment rental, there are a number of tasks to complete. Here is the short list:
- Market for tenants through online advertisements, signs, or more.
- Interview tenants and do background and credit checks.
- Collect rent every month.
- Assure utilities and applicable maintenance fees are paid on time.
- Maintain the landscape and repair broken items.
- Adjust the rent according to the market.
- Evict tenants, if necessary.
A landlord must also follow a long list of Hawaii state laws, known as the Landlord-Tenant Code, including the following:
- Certain classes are protected against discrimination by federal and state law in the rental application process: color, disability, familial status, national origin, race, religion, sex, age, ancestry, gender identity or expression, HIV infection, marital status, and sexual orientation.
- Security deposits cannot be more than one month’s rent. For example, for a $2,000 monthly rent, a landlord could collect $2,000 as a security deposit. The landlord must give the tenant the security deposit back within 14 days of moving out and can only keep the deposits for certain reasons and with certain receipts.
- Increases in rent payments can only occur after providing written notice and if the terms of the lease have expired. Tenants can deduct from their rent payments if the landlord has failed to make repairs within a certain amount of time.
- A landlord can enter the apartment only for certain circumstances under Hawaii law and must give the tenant 48 hours’ notice before accessing the unit. A landlord doesn’t have to give notice if the tenant abandoned the unit or if there is an emergency.
Perhaps all the effort needed be a landlord seems overwhelming. A property manager is another option to take care of you rental investment unit. Most property managers charge around 10% of monthly rent, but the price may be worth it if you are not willing to wake up at 3 a.m. to fix a leaking toilet.
Hawaii Rental Properties: Long-Term, Short-Term, and ADU
When considering a possible property for a rental, think about what a tenant may want: a certain location, proximity to the bus system or bike lanes, parking, floor layout, amenities like a washer and dryer, and affordability. Some properties are easier to rent out than others, like those that are near the University of Hawaii at Manoa or those that are in a transient vacation unit zone in Waikiki.
An investment should only be made after thorough number crunching. What will be your monthly expenses, including incidental repairs? Will you pay for electricity and water? How much can you invest into a rental property? What is your expected return on investment (ROI)?
Once you know your numbers, it might be time to search for the perfect rental property in Hawaii. There are a variety of rental options available for potential investors in rental real estate.
Long-Term Rental: Also known as the “buy and hold strategy” since the investor will typically own the property for more than five years, this is a common investment strategy that can provide the following perks:
- monthly rental income
- depreciation tax deductions
- equity growth in the property
- property appreciation
- leverage to buy even more properties.
Short-Term Rental: Hawaii has strict short-term rental laws, which differ by island. A short-term rental is generally defined as a rental of less than six months.
While Airbnbs and other short-term rental options were once popular across Oahu, even though most were illegal, recent laws have been passed to highly fine illegal short-term vacation rentals (even up to $10,000 per day for each infraction). Read more above the laws governing short-term rentals here.
Legal short-term rentals can still be found on Oahu in certain neighborhoods, like Waikiki. A well-priced vacation rental condominium with lower HOA fees can be a solid option for your real estate portfolio, as the average daily Honolulu hotel rate hovers around $320.
Accessory Dwelling Unit (ADU): An ADU is a separate home built on a single-family lot, which can be attached or detached to the existing home. An ADU is sometimes called an in-law apartment.
In September 2015, the City and County of Honolulu created an ADU Ordinance that legalizes the development and long-term rental of ADUs.
Here are basic requirements for a piece of property to qualify for an ADU under the City and County of Honolulu’s Department of Planning and Permitting (DPP):
- Lot is zoned residential or country.
- Lot is at least 3,500 square feet.
- The lot only has one dwelling unit.
- The lot isn’t landlocked.
- The property owner or owner’s family will live in the primary dwelling or ADU.
- There is at least one parking space for the ADU or the lot is within one-half mile of a rail station.
- ADU maximum size is 400 square feet for 3,500 to 4,999 square-foot lots or 800 square feet for 5,000 square-foot lots or larger.
Whether a long-term rental, short-term rental, or ADU, holding a Hawaii property to serve as a rental investment can offer many benefits – including a steady cash flow and appreciation on the property.