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?