Illegal vacation rentals under scrutiny
Many condominium associations are stepping up enforcement of vacation rental laws in 2017. Recently I spoke with an investor who used to own and operate one such rental. Illegal rentals are common on Oahu, talk to enough people and you'll find somebody who either owns, manages or maintains an illegal rental.
In 2014 Makaha Beach Cabanas, once a haven for illegal rentals, announced the association wouldn't allow them going into 2015. That resulted in a selloff of condos at the building, both good and bad depending on who you are. For investors, it was bad because they lost their cash cows. For persons intending to owner occupy or to use their units as second homes, it freed up inventory and made it easier for them to buy.
Makaha Beach Cabanas' resident manager and its board members are actively monitoring guest activity and penalizing owners who violate the house rules. I spoke with a resident who told me the unit next door to her is a short term rental. She said the owners are making a good profit and they are willing to pay the occasional penalty when they get caught.
Developments at Makaha Valley Towers in 2017
A letter dated June 30, 2017 was sent from the attorneys for Makaha Valley Towers to its owners. This property is also home to many illegal vacation rentals.
The attorney's letter advised owners the City and County of Honolulu has begun investigating transient vacation rental use at the Towers. For purposes of the attorneys' letter, "transient use" is less than 30 days.
On June 27, 2017 a building inspector for the City & County of Honolulu visited Makaha Valley Towers in response to a complaint about a specific transient rental. The inspector met with the general manager. Before his visit, he checked the City's records and he said there are no units at Makaha Valley Towers that have non-conforming use permits in effect.
The inspector indicated the investigation may expand to other apartments at Makaha Valley Towers, as his research on the internet found numerous transient rentals advertised for this property. And he mentioned some owners might "think" their transient rentals are legal because they are collecting and paying General Excise Taxes and Transient Accommodations Taxes on their rentals.
Makaha Valley Towers has updated its house rules and they clearly indicate rentals for periods of less than 30 days are not allowed.
This looks like the beginning of a significant change at the Towers. The Towers is a big property with nearly 600 condos. Makaha Beach Cabanas is a smaller building with around 160 units and it's on the beach. I have mixed feelings, some clients have made money on their vacation rentals and others have found their home or their second home at these properties.
Mike's Note: - A nonconforming use permit allows an owner to legally operate a transient rental in a residential building or neighborhood. The permits were last issued around 1989 and require bi-annual renewal. If an owner fails to renew his/her permit or changes the use from transient to long term rental or owner occupancy, the permit expires and it cannot be renewed.
AIRBNB in 2017
This company is a big player in the Hawaii market. Its TV ads reflect mom and pop operations, renting out a room in their home or maybe a cottage out back. In reality, at least on Oahu, the transient rentals are more often a condo or a house. AIRBNB claims it wants to "make it right" by collecting taxes on all its Hawaii rentals and remitting them to the State of Hawaii, without consideration about whether a particular rental is legal.
Hawaii's legislature is currently working on House Bill 1471 and Senate Bill 1087 to work with AIRBNB. Governor David Ige vetoed a bill last year after it got through the legislature. One of the main issues is many of the vacation rentals are illegal. Then the question is, should the State be collecting tax on an illegal activity? It looks like the State is getting closer to saying "OK".
Keep in mind, the State of Hawaii and the City and County of Honolulu are two separate governmental entities. If the State law gets passed, it doesn't necessarily mean that City inspector will stop his crackdown on short term rentals at Makaha Valley Towers.
Laws are different in other Hawaii Counties
For persons looking for legal vacation rentals on Oahu, most of them are located in Waikiki and Ala Moana. If you're looking at other islands, those are different counties and more areas have zoning that allows vacation rentals. For example, Maui vacation rentals can be found in Kihei, Paia and Lahaina. Kauai has numerous vacation rentals throughout the island. The Big Island has its vacation rentals too.
Enjoy life in Hawaii!
Michael Bates (Realtor Associate)
1585 Kapiolani Blvd #1533
Honolulu, HI 96814