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Sometimes you hear about a Bill being pushed that you can’t believe could really come into effect. It’s too farfetched, seems rather silly or you can’t see how that particular Bill would benefit anyone.

This was my reaction when we heard about the two Bills currently pending before Hawaii Legislature. The first Bill, SB 2089 states that any person, who is not a resident of Hawaii, yet rents their second home in Hawaii as a vacation rental accommodation must employ a property manager which has been approved by the real estate commission. The second, HB 1707, requires any non-resident owners of a property in Hawaii who rents their housing as a short-term rental must rent the property through a licensed real estate salesperson or broker who must collect all applicable taxes for the rental of the property.

Essentially this means anyone who does not live in Hawaii, yet owns a property within the state which they rent out on a short-term basis (less than 30 days) will be required to give up managing their own property. This new law will include all “non-resident” owners, regardless of whether they’ve followed the laws and paid their taxes. It will become illegal to manage the property independently, and the property must be rented through a realtor or property manager who will collect all your rental money for you.

Naturally property owners in Hawaii are less than thrilled. This new law will signal a huge financial loss to property owners who have to surrender often time up to 40% – 70% of their gross revenue. It’s not uncommon for Property Management companies operating in the state of Hawaii to set steep fees as high as 35-50% of rental income plus many other fees meaning homeowners only receive a small percentage of the money made from each rental period. Many property owners have already begun a petition to oppose the Bill, are writing to the House representatives and are trying to make the government see that there are other ways for the state of Hawaii to collect tax revenues. Click here to sign a petition and join the forces!

While some vacation owners are claiming this Bill is a result of the “war against vacation rental owners” which has been raging for a few years, many residents of Hawaii are against these Bills just as much as non-resident property owners. Many residents have raised concerns that they will be indirectly harmed as a result of these new laws, believing the property value of Hawaiian housing will plummet. With the projected financial loss non-resident owners will face, it is likely many will be forced to sell, and throwing the real estate market into turmoil.

It is interesting to note that the Hawaiian Association of Realtors and The Hawaiian Real Estate Commission have both spoken out against these Bills saying they are indeed overkill and that there are already laws in place regarding the collection of taxes.

One disgruntled property owner laid it out very clearly, saying the only people to benefit from this Bill will be the Property Rental Managers who will create a monopoly in the vacation rental market.

“If you are an investor, say a Hawaiian who lives on Oahu but has a vacation rental on Maui your rights as an owner are about to be abridged. If you are an investor from the US mainland or a foreign investor you also lose as it will now cost 30 to 45% more to have your rental property. If you are a Hawaiian developer and hope to sell your finished properties to investors, your offering now makes less sense to investors which will cost you sales, increase the time you take to sell your property and make you think twice about starting a project in the first place. If you own Hawaiian real estate you will also notice a further softening in your values as the removal of many investors from the equation will hurt all property values ( as if the last few years weren’t hard enough). If you are a Hawaiian tax payer these Bills will have very little upside but they will definitely hurt the economy. And lastly, if you are a consumer and the cost of a vacation rental has now increased you also suffer so you may shorten your stay or you may vacation elsewhere. Once again, who wins? Oh yes, the Rental Property Manager.”

So if this Bill is serving no one but the Rental Property Manager, how has it managed to get so much consideration? What will the short and long-term implications be? Are there any benefits to these laws?

If each non-resident property in Hawaii is being maintained by a property manager, this would give the advantage of homeowners knowing their vacation home is in good hands and being well maintained. The house manager will be able to meet the guests renting the property out, will be able to tend to broken cupboards and burst water pipes. You will be able to rest assured your guests and your property are being well looked after. As the property manager will be professionally trained in this line of work they may also be more responsible when it comes to cleanliness, standard of presentation and professional conduct. They will also have experience dealing with angry and possibly unreasonable guests.

However, it must be kept in mind that individual owners are generally more pro-active about their own business, however management companies have no preferences about renting your unit or the one next door. This generally means the vacation rental performance results suffer somewhat.

As a personal example here, I had my property under a property management company for four years. When I realised I was paying more in maintenance costs than I was making I knew something had to change. I took over managing the property personally and increased occupancy by 95%. I went from having the house occupied once every three months, to having it rented out every single weekend. On top of that I was much more aware of any damages or maintenance jobs that needed attention, whereas under the care of the management company, they managed to let “small mishaps” like holes in the walls slide.

My point here is that it should be a choice whether you hire a property manager to oversee your property or manage it yourself. If I had, by law, been forced to have my second home managed by a property manager, it would no longer have been financially viable to own a second home.
If you’ve purchased a rental property, rent it out as a vacation rental and pay your taxes as legally required shouldn’t you to free to manage your property as you see fit? Or should you have to employ a property manager to take control of your rental.

What is your opinion on these Bills? Do you think it will cause the real estate market to slump, or do you think it’s for the best of Hawaii’s tourism industry?

Comments on: "New Hawaiian Bills set to change the vacation rental landscape" (15)

  1. Have the Hawaiian legsilators fully thought through the repercussions of HB 1707 if it becomes law? By forcing me to pay for an on-island management company/realtor to manage my rentals, you are completely destroying me and my business (and many others like me). I completely oppose this law and when you think long and hard about how it may effect Hawaii’s economy, I am confident you will realize it is NOT the answer. This law takes away my freedom of choice. And it discriminates between residents and non-residents.

    I love Hawaii and have been going there since the early 1970s. I purchased 2 vacation rental homes in 2004 on the east side of the Big Island, and have had them as successful vacation rentals since then. I have lots of satisfied and repeat guests. If I were to depend on one of the East Hawaii vacation rental management companies to keep my homes booked, I would not be nearly as booked as I am by doing it myself. I LOVE what I do, and now you are trying to take it away from me. I paid the state of Hawaii over $10,000 in TA taxes in 2011. My homes are affordably priced (not like the very expensive West Hawaii properties).I employ a wonderful, hardworking Hawaiian couple who take care of my homes as if they were their own. You don’t think a management company will do that, do you? And I pay them nicely! A win- win for both of us. I know many mainlanders who have Hawaii homes and do exactly what I do because we LOVE Hawaii. Why are you trying to force us to go through a management company when what we do completely benefits the state of Hawaii and tourism. And we are completely abiding by the current TA & GE laws. If this law goes into effect, the repercussions will be most unfortunate for the state of Hawaii. You will see more foreclosures, more homes for sale in an already depressed real estate market. This law if enacted is taking away my rights as a homeowner to know who is in my home. When I rent my home, I may not physically meet my guest, but by the time I have made the reservation, we have had many emails, phone conversations, etc. Why would I spend 40% of my gross to do what I can do myself and I enjoy doing?? I won’t do that and lots of others won’t do it either, and so we most likely will be selling or losing our properties. You will find that most property owners who do their own bookings off island (like I do) truly care about their homes and Hawaii and their guests. This is the reason we have chosen not to use a management company. We continually make improvements on our homes (I recenlty added solar panels to one of my homes).. This law if passed will mandate me to trust a management company with my homes, my guests, and my money. I’m sorry, but I trust myself and from what I have seen, this is the only way to go.

    HB 1707 is WRONG and not the solution to Hawaii’s problems. The non-resident vacation homeowner is one of the state’s assets. Who is promoting this insane legislation? It must be the Hawaii realtors ??

    If it is about not paying taxes, there are already ways to find out who is not paying taxes. And I would imagine there are about an equal amount of cheaters that are residents as non-residents. Enforce the laws that are already in effect. Don’t pass new laws that will ultimately hurt your state, which this bill most certainly will do.
    .

    • Samantha said:

      I, personally, completely agree with you Pat

    • vadimosya said:

      Pat, i am completely on board with you here! I had a property in Maui and had to change management company TWO times within a year. I ended up managing it myself, because both companies cared less about the property, their guests, my income and myself. Furthermore their system was out of a stone age and no one seemed to worried about it besides me. The same story in Kauai. Waipouli Beach Resort was completed in 2007, i hired Outrigger for a 50% commission and all i’ve seen were the charges that ate up up to 70% of the revenue. Within two months i terminated the contract hoping i will never need to deal with this again! Now my hope is under big threat and i am concerned as much as you are. It’s obvious that only one party will benefit from this Bill – realtors and property managers. They just do not realize it will last only for a short term until every mainland owner bails out from Hawaii. I wanted to share a part of an official testimony from Feb 23 when the HB1707 was defeated. It’s an email written by a property manager of Sullivan Properties of Maui from Jan 26:

      “I didn’t have time yesterday to provide written testimony but they passed the initial Bill with a complete affirmative vote from the House… The Bill will require all mainland owner who rent their homes or condos out to have a licensed Realtor on island…. ie…. Bayer …. Vinson … Berndt … this way the State can make sure everyone is paying their GET and TAT …. yeah hahhhh!!!!! But don’t tell anyone yet …let the Bill get passed!!… then we can get some $$$… unless they find a cheap Broker who will represent them for cheap…”

      Check it out here on page 126:
      http://www.capitol.hawaii.gov/session2012/Testimony/HB1707_HD1_TESTIMONY_CPC-JUD_02_15_12_.PDF

      Reading about these shameful tactics makes me feel even stronger that we have to get together and fight openly this insane legislation.

    • Andrew Waller said:

      I am just about to leave for Hawaii to check out the real estate market. After reading this, I will probably cancel my trip. If other people react like me, then this is clearly going to affect property values.

  2. Has anyone even thought that the big number of union clout from Wailea, Kaanapoli, and Kapalua might have some influence on this–don’t you think HB 1707 would help the hotels??

    Just a thought, there certainly are more people in the SEIU than there are realtors.

  3. Yes, Dave! This sounds like a probable natural development. There are certainly some bigger forces driving this than it appears from the surface. How about all homeowners joining the SEIU as a self-employed employees:)? This way we can see what’s going on from the inside:)

  4. I own a place at Napili Point Resort, and had to separate from management due to low rentals and other issues that prohibited fair return on investment. since that separation, my condo is renting just fine and I’m able to charge decent rates to decent renters. this proposal of sb2089 is a huge overstep into my ownership and ability to remain solvent. I, like many others, will contest the measure until it is taken off the table.

    • Julie, your property looks so lovely and it certainly does deserve a better treatment than what the management company gave it. I had exactly the same story with Outrigger running my unit at Waipouli Beach Resort of Kauai – no bookings, low earnings, high fees (50% + other charges), no proper care.

      Still in all, with a great regret i have to inform you that the bill has passed on Feb 29 and now we all have to deal with its consequences. Please, consider joining the group on Facebook that opposed the bill and try to fight it: http://www.facebook.com/groups/194035220703875

  5. Enjoyed studying this, very good stuff, thanks . “We swallow greedily any lie that flatters us, but we sip little by little at a truth we find bitter.” by Denis Diderot.

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  7. It’s a shame you don’t have a donate button! I’d definitely donate to this superb blog! I guess for now i’ll settle for book-marking and adding your RSS feed to my Google
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  8. Buying this week. Studio. On the beach. Maui. West side. 25% under market. Retiring in 6. Have great manager. Aloha.

  9. Everything is very open with a clear clarification of the challenges.

    It was truly informative. Your site is very useful.
    Thanks for sharing!

  10. […] Here again I would like to add, agencies, do not hope for some sort of regulation in your favour. Its a tough market. To survive you need to be smart and make a difference. Don’t expect a law to come into place like it was proposed in Hawaii that houses rented on short term basis can only do so by going through a property manager. See here: New Hawaiian Bills set to change the vacation rental landscape […]

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