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Posts tagged ‘SB2089’

Legislation Affecting Vacation Rentals in Hawaii Upsets Investors

Is Hawaii a good place for investors in vacation property? Recent developments in the state legislature have left many in doubt.

Overwhelming fear from homeowners that legislation affecting short-term rentals in Hawaii may cause them to lose return on their investments – possibly having to sell their property or even risk foreclosure.

The highly divisive legislation in question calls for non-resident (read: off-island) vacation rental owners to employ a licensed property manager who would be responsible for collecting taxes on the homeowner’s behalf and who would be the primary contact listed on all solicitations, advertisements, etc. Guests would be required to deal with this agent in place of the homeowner.

The bills have sought, in large part, to be a means of ensuring non-resident owners pay their required taxes, a justification that has angered owners who have consistently paid their taxes. In effect, for non-residents this means the end of the concept of vacation rental by owner, i.e. the self-management of their vacation rental homes.

A slew of legislation has led some to describe the legislative battles as a “war”. Bills that have been fought over include SB2089, HB1706, and HB1707. At play now are HB2078 and SB2947, the language of which is being hotly contested as this story goes to press.

The highly charged opposition to the legislation has sent thousands of pages of testimony to legislators, organized petitions and watch-groups to protect vacation rentals by owner in Hawaii and beyond, and have taken to web boards and online forums to share strategy and information. They describe the legislation as an “onslaught” that unfairly targets non-resident investors of vacation rental property which has quickly garnered Hawaii a reputation as an inhospitable environment for outsiders to do business. Rentini.com has confirmed as much. “Many would-be investors on Hawaiian vacation homes are holding off until this legislation is behind us before going through with their plans,” a Canadian client recently told us.

The technology of the Internet has made do-it-yourself solutions more popular than ever. It is no surprise that vacation rentals by owner has grown into such a huge industry, one that continues to threaten management companies that have traditionally acted as intermediaries, charging large sums of money and taking up to 50% commission plus other fees on rental transactions. Just as travel agents have been hit hard by the Internet, so too have hotels and property management firms felt the sting of new ways of organizing travel.

Individual owners have long complained that this arrangement is deeply unfavorable to them. With a simple Internet connection, many have taken the responsibility of management upon themselves. As reported earlier, a homeowner from California told us:

I know most of the management companies on the Big Island, and I wouldn’t trust the majority of them to manage my home. To me, this is the realtors wanting this legislation. I just don’t think it will work the way they think it will. Two realtors [I know of] (one of them a vacation rental property manager), has lost one home to foreclosure and the other one had to file for bankruptcy. My help on the island had her realtor’s license, but I think she let it expire. What I don’t get, is that I would have to give up the handling of the rent completely and it would go through a management company in Hawaii. I think I will sell before I do that.

Adam Yanow, a vacation rental owner from Canada, expressed his frustration with management companies which he views as the driving force behind the legislation. Fearing foreclosure, Adam writes:

This is just another attempt by rental managers to increase their profit margin at our and our guest’s expense…. I, for example, am at least 20 percent underwater on my mortgage already due to the recession. This bill will force me into foreclosure.

The legislation is also feared by many simply because it would take over a role they have cherished for several years – the role of manager of their vacation home. Marsha Vaughn, a Kihei condo owner living on the main Island, expressed her disappointment in towards the legislative hurdles. “[T]he Hawaiian legislators ha[ve] created not one, not two but at least four different bills,” she writes, “[all] designed to force me to turn the management of the business I so lovingly created over to licensed property managers or real estate agents.”

What has outraged many homeowners regarding these bills has been that as one is successfully deferred its contents have “morphed” into an amended version of another bill. This was the case with HB 2089 that was deferred. The requirement for a licensed property manager to operate the rental was vociferously opposed until the bill’s deferment. Yet in an amendment to HB 2078 this clause was resurrected, reintroduced. In light of this, homeowners have become hyper-vigilant to any amendments that may affect them.

Online message boards have been on fire with homeowners opposed to the recent string of bills. “The intent behind much of it seems, from my perspective, to place the blame for on-island problems directly in the laps of off-island investors,” said one blogger.

“We live in Vancouver and own two condos on Kauai, and I wouldn’t want anyone managing them but us. We take great care with them and have had just the best experiences dealing direct with our guests. I also have two friends in the process of buying in our same complex and both have put their deals on hold until this gets sorted out,” wrote another.

Adam Leamy lambastes Hawaii’s “me-first” policies that threaten NAFTA protections for cross-border investments in vacation rentals, such as his own. “And what a monopoly it will be. Testimony on these bills has revealed that the commissions Hawaii property management firms charge to properties under their ‘care’ can be 30, 40, and 50 per cent, with all manner of hidden costs and property abuses. It’s hard to see how those commissions will decline, or how quality and service will increase once a state-legislated monopoly is in place,” added Leamy.

John Eckel, Vice-President of the Rentals By Owner Awareness Association, has stated that he doesn’t believe it would be wise for the State of Hawaii to pass the legislation as it currently stands. The repercussions can be “damaging for Hawaii.” Citing alleged unconstitutionality of the bills, Eckel warns of the cost of “legal wrangling” that will result should this legislation pass. “It may cost Hawaii dearly,” Eckel said.

Legislation Targeting Off-Island, Self-Managed Vacation Rentals Still Kicking in Hawaii

Where’s the aloha in the aloha state? According to off-island resident owners of vacation rentals, the State of Hawaii is putting their business in the cross-hairs.

The controversy in question centers on a slew of legislation calling for non-resident (read: off-island) vacation rental owners to hire rental agents to manage their businesses. Writing in the Vancouver Sun, Adam Leamy, owner of a rental in Maui, summed it up this way:

Four bills are advancing through the Hawaii legislature that target off-island…owners of vacation rental properties. Senate bills (HB2078, SB2089) and House bills (HB1706, HB1707) require off-island owners of vacation rental properties to turn over the management of their rental property to some form of on-island licensed real estate broker or salesperson, managing agent, rental agent, or condominium hotel operator. Curiously, local, on-island owners of vacation rental properties are exempted from the bills and their provisions.

This legislation has given rise to stormy opposition from off-island owners who self-manage their vacation rentals, and Leamy is one of them. Leamy lambastes the “me-first” policies that threaten NAFTA protections for cross-border investments in vacation rentals, such as his own.

Not only are Canadians like Leamy voicing legal concerns, hundreds if not thousands of people are arguing against the discriminatory nature of the bills as such. Attorney Gregory Kugle, representing the Hawaii Vacation Rental by Owners Association, has lodged complaints against the bills on grounds that they’re unconstitutional, in violation of the Commerce Clause. On homeowner forums, there is already talk about lawsuits should this legislation pass in its current form.

Marsha Vaughn, a Kihei condo owner living on the main Island, penned an article in Maui Now in which she expressed her sadness in the face of the legislative onslaught. “[T]he Hawaiian legislators ha[ve] created not one, not two but at least four different bills,” she writes, “[all] designed to force me to turn the management of the business I so lovingly created over to licensed property managers or real estate agents.”

The question “Why?” has produced answers. But detractors argue that even the answers are flawed and foolish. The stated reason why this legislation was borne has been that, as Vaughn says, “[S]ome …people cheat on their taxes.” Or rather, “Because the Department of Taxation can’t figure out how to find the people who do.” This latter point has added fuel to the fire. In targeting off-island owners, Hawaii has offended countless vacation rental owners who assert their good standing vis-a-vis current laws and their tax compliance. They feel under attack, angered by the accusatory nature of the legislation. “We Are Not Tax Cheats,” Vaughnn exclaims.

Indeed, the argument that non-residents are disproportionately tax evaders doesn’t carry much merit. Leamy explains:

Legislators say the measures ensure tax compliance, but the only evidence of non-compliance is anecdotal, and provided by the…licensed real estate brokers or salespersons, managing agents, rental agents, or condominium hotel operators. The state has no data to suggest this is the case, and in a classic case of “legislate first, get facts later,” says it will undertake to find out.

In fact, testimony by the Department of Taxation to the House Committee on Finance in 2007, addressing a Hawaii Tourism Association study of non-compliance vis-a-vis vacation rentals, stated that proposed regulations could backfire:

INCREASED SCRUTINY MAY DRIVE TAXPAYERS UNDERGROUND-The Department points out that after its last audit project with HTA, the Department concluded that, in general, those that rent transient accommodations are tax compliant. The Department fears that any increased scrutiny could potentially backfire and drive otherwise tax compliance individuals ‘underground.’ Taxpayers that are forced ‘underground’ can have a direct impact on collections.

Many local agencies were armed with detailed information on those rentals that were non-compliant at the time. Many feel that the problems could be addressed by the counties on the local level and that the legislation reveals a general failure in local and state government in Hawaii. That the state is cash-strapped is no excuse for current legislation, they say.

What has been shocking about these bills is that as soon as one is successfully deferred its contents reappear in an amended version of another bill, causing off-island owners to again rally against the new morphing of the bill. This was the case with HB 2089 that was deferred. The requirement for a licensed property manager to operate the rental was vociferously opposed until the bill’s deferment. Yet in an amendment to HB 2078 this clause was resurrected, reintroduced. In light of this, homeowners are more vigilant to any amendments that may affect them.

Behind the stated interest of securing rightful tax money for the State of Hawaii, there are surely hidden interests. In a previous article, I wrote that HB 2089 was revealed to be backed by the City and County of Honolulu Department of Planning and Permitting; Maui Hotel & Lodging Association; Condominium Rentals Hawaii; Poipu Beach Resort Association; West Hawaii Property Services, Inc.; Waikoloa Vacation Rental Management; and four individuals. Testimony in opposition, on the other hand, came from the Hawaii Vacation Rental Owners Association; The Travel Group; Trading Places International; Hanalei Bay Resort; Makana Mai Ka Lani; Hot Spot Tax Services; Sunshine & Rainbows, LLC; Humiston and Company, CPAs; and numerous individuals.

The current legislation, so similar to that early legislation, is lobbied for by roughly the same interests, with property management firms and hoteliers taking lead.

Overwhelming fear that these bills could cause homeowners to lose return on their investments – possibly have to sell their property or even risk foreclosure – is rife. Many would-be investors on Hawaiian vacation homes are holding off until this legislation is far behind us before going through with their plans.

The office of Senator Sam Slom, the lone dissenting vote on much of the legislation, evidently provided a list of amendments on HB 2078 that they expect to see introduced this Friday. They include the following:

1. removing the term “non- resident owners” and replacing it with language that conforms with the Landlord Tenant Code (521-43)

2. deleting the definition of non- resident owner

3. replacing the requirement that owners residing out of state or on another island must hire rental agents to manage their property with the requirement that they must designate an on- island agent

4. Defining the scope and duties of the designated agent to be consistent with chapters 467 and 521 of HRS, specifying that the agent cannot perform the duties of a real estate agent without a license, and clarifying that the agent will serve as a local point of contact.

5. Tying the fines under this section to existing fines for non- payment of taxes under the tax code

6. Requiring that immediate notification be given to the appropriate parties upon a change in contact information for the designated agent

7. Requiring that the GET and TAT tax numbers be listed on any advertisement for a transient accommodation

8. Deleting the tax clearance provision in subsection ( e )

9. Amending the findings and purposes section to reflect the changes to the bill

Although many homeowners still have reservations about displaying a registration ID or website where the ID can be found on all advertisements or solicitations, the general sentiment is that these amendments would be agreeable enough. Most homeowners seem eager to welcome the changes.

All this drama has resulted in some positives. In their opposition to the recent slew of legislature, off-island vacation rental owners have formed new bonds and strengthened old ones. A new NGO devoted to keeping abreast of developments in pending legislation affecting transient rentals has come into being. Its name is the Rental By Owner Awareness Association (http://rboaa.org). Many other allegiances were formed.


How do you feel about this legislation winding its way forward in Hawaii? Give us your thoughts. Tell us your stories. Share them below.

“Show Me Your Tax ID Number,” as required by HB 2078

In wake of the deferment of bills SB 2089 and HB 1707, non-resident vacation rental owners of properties in Hawaii have had little time to relax. They’re still contending with other bills that could be passed at their expense.

Show me your ausweis!

Bill HB 2078 requires homeowners to publicly expose on the web their tax ID and personal info of the local agent

The latest bone of contention is over House Bill 2078, which if passed will require that all non-citizens who run transient – i.e. short-term – vacation rentals in the State of Hawaii display a registration ID or website where the ID can be found on all advertisements or solicitations. All non-residents must also “provide contact information for a local agent”.

Just as with the previous bills, non-resident vacation rental owners feel that HB 2078 unfairly targets them.

Many homeowners, and community organizer John Eckel is one of them, have expressed privacy concerns too. In his testimony against the bill, Eckel writes:

Display of a tax ID number could lead to intrusions on the privacy of owners and even potential identity theft. If a unique ID number can be created without the identity of the property owner being made known publicly, I would support the display of this number on all ads by residents and nonresidents alike.

Homeowners argue that requiring a local contact person included on ads clutters the message and confuses prospective guests about who they’re working with. Eckel again raises privacy related concerns:

Listing a local contact… [is] a violation of the privacy right of the local contact person. Further, if the name of the local contact were publicly available, it could easily enable criminals to falsely claim to be the emergency contact person to facilitate crimes on unsuspecting guests.

Homeowners targeted by this bill are irked most of all by the issue of taxation, feeling that the bill punishes them for allegedly not paying their dues even though they are tax compliant.

It’s true that tax evasion is a valid concern, but just who is doing the evading and what its scope is for vacation rentals in Hawaii is debatable. In 2005 a Hawaiian Tourism Agency study concluded that an estimated 9,000 vacation rental units were non-compliant with tax laws. This figure was challenged at the time and the agency has since stated that, “The results of that investigation, where several thousand undocumented accommodations were identified, were presented to the Department of Taxation, the Department of Business, Economic Development and Tourism, and the counties to take administrative and enforcement actions necessary to ensure compliance with state laws and county ordinances.”

In other words, local agencies had the information to crack-down on whatever non-compliance existed at the time.

The Department of Taxation testimony to the House Committee on Finance on April 3, 2007, opposing bill SB 750 SD 3 HD 1 related to Transient Accommodations Tax, also addressed the HTA 2005 study. Their testimony stated, in part:

INCREASED SCRUTINY MAY DRIVE TAXPAYERS UNDERGROUND-The Department points out that after its last audit project with HTA, the Department concluded that, in general, those that rent transient accommodations are tax compliant. The Department fears that any increased scrutiny could potentially backfire and drive otherwise tax compliance individuals ‘underground.’ Taxpayers that are forced ‘underground’ can have a direct impact on collections.

Non-resident homeowners that would be most hurt by HB 2078 are irate that they would have to take steps to prove the legitimacy of their rentals when no data has been presented to confirm that there is even a tax enforcement problem with transient accommodations.

Most agree that having an emergency contact number should be mandatory for guests and homeowners, that it is in their mutual interest. What many do not agree about is the necessity of having this person take a center role in the advertisement of the rental itself. This and showing their tax ID number leaves many shaking their heads.

What do you think of HB 2078?

You can submit testimony here. You will need to enter “HB 2078” into the search box and make sure your testimony is submitted before the 24 hour cut-off deadline at 7:15 pm EDT on March 21, 2012.

Please duplicate your testimony and share your thoughts with us in the comments section below.

SB 2089 Advances Through the House

12 mile Kalalau trail leads to the picturesque Napali beach. Does the Bill SB2089 bring you Aloha?

On March 6th, the Hawaii State Senate passed 372 Senate Bills during its session. Shouldn’t that feel as exhausting as hiking the 12 mile Kalalau trail along the Napali coast? Perhaps, but do all these bills lead us to an image as picturesque as the Napali beach?

According to individual vacation rental owners rebelling against Senate Bill 2089, this one will certainly not.

Senate Bill 2089 was forwarded from the Senate Committee to the House. The vote passing it forth was a lopsided 24 in favor, 1 opposed.

Senator Sam Slom, the lone dissenting vote, answered a supporter’s question of what he saw in the Bill that made him oppose it. Senator Slom offered a succinct response:

Dear Gordon,
Thank you for your email. I saw:
1) An unconstitutional bill

2) An unfair cost burden to out of state owners.
It is as simple as that.
Aloha, Sam

Yesterday, March 8th, SB 2089 passed its first hearing by the House and is scheduled for a second hearing on Monday, March 12th.

In the meantime, homeowners continue to band together – creating action groups and strategizing on how they can best have their voices heard.

They continue to submit testimony in opposition to the bills. Other homeowners contend that SB 2089 violates NAFTA. Still others have reached out to the American Civil Liberties Union for support. Attorney Gregory Kugle is arguing that SB 2089 discriminates against non-residents and is therefore unconstitutional, a view echoed by many scholars of constitutional law.

John Eckel, a principal organizer of the homeowners group, summed up his opposition in six points, ending with an appeal:

1. It will do significant damage to tourism and non-resident property owners.

2. It reduces visitors’ right of free choice to decide if they would like to rent directly from an owner or instead go through an agent.

3. It will reduce property values since it will make it less attractive to own property in the State of HI. This will result in lower property taxes.

4. It is unconstitutional since it discriminates against non-residents.

5. The Department of Taxation testified in 2007 that there was not a substantial non-compliance problem. There has not been any hard data submitted to suggest that situation has changed.

6. This appears to violate the provisions of NAFTA (North America Free Trade Act).

These are all substantial issues that must be considered and addressed before the bill should be approved. This will take time. Please do NOT rush this bill through. The damages will be very consequential both for the State of Hawaii and the non-resident property owners.

One of the difficulties faced by individual homeowners confronting this law has been awareness of its existence. Although they’ve been actively working to get word out, there are organizational challenges. The homeowners – though many are out-of-state and distanced from the legislative process, in different time-zones – the homeowners communicate with each other on-the-go. Many are organizing using the same media they use to promote their vacation homes: forums, blogs, social media, email and phone trees.

Reading their exchanges on public forums, the confusion and anger caused by these bills is palpable. Homeowners feel they’re being railroaded with not one but three separate bills that, if passed, will cost them dearly. One of the Bills – HB 1707 – has been deferred. Attention is now focused primarily on SB 2089, which would require the following:

Requires any nonresident owner who operates a transient accommodation located in the nonresident owner’s private residence to employ a real estate broker or salesperson. Requires any nonresident owner who operates a transient accommodation located in the nonresident owner’s private residence in a condominium hotel to employ a condominium hotel operator. Requires relevant information about owners of the transient accommodation to be provided to the department of taxation for enforcement purposes. Requires the counties to provide the department of taxation with relevant owner information about every transient accommodation permitted by the respective counties annually. Establishes fines for noncompliance. Provides an exemption from the mandatory employment of a licensed real estate broker or salesperson or condominium hotel operator in certain circumstances.

Homeowners feel that they’re being faced with multiple, unclear bills that will compromise their business. What’s worse – doubts persist over whether or not Senators read through or even counted testimony against SB 2089 before it was sent to the House. One homeowner posted the following:

A friend of mine spent some time reviewing all the testimony on the SB 2089 posted last week, and gave me permission to share with you all. It is rather interesting:

  • Total votes to support – 28
  • Total votes to oppose – 706

1 vote to defer from Mike McCartney – Pres & CEO Hawaii Tourism Authority

FYI – Vast majority of those supporting were just a vote. No comments or documentation. Those opposed were very detailed and fact oriented.

In response, one user commented,

The legislators may be pinched for time, and aren’t giving the testimonies the time they should.

In reference to the State House passing 300 bills primarily aimed towards boosting the economy, another blogger wrote:

Any group of people that can pass 300 bills in what? a week? is not paying attention to what they are doing.

Why is Rentini so invested in these issues? This Bill hits close to home. Some of us run our own rentals in Hawaii via other states like NY and California, and we have friends – and clients – that do too. We support them as much as we support you.

Let’s hope the bill doesn’t pass. Either way, Rentini will stand behind homeowners. We are working on features to minimize the impact of the Bill shall it pass.

We would like to hear from you.

Why are you opposed to SB 2089? Are you a frequent visitor of the islands, or do you own a home there? Regardless of who you are we encourage you to submit your stories about dealing with individual owners versus management companies. We’ll publish your best stories and forward them to the journalists we know.

Let’s spread the word and fight this together!

Publish your stories as comments below.

What is Senate Bill 2089 after and who is behind it?

Pu'u 'O'o crater floor continues to erupt lava as Hawaii Senate floors get some heat from vacation rental owners

Hawaii crater floor continues to erupt lava while Senate's floors get some heat from vacation rental owners

The purpose of Senate Bill 2089, which calls for any non-resident (out of island) owner who rents out their vacation accommodation in Hawaii to employ a property manager, is supposed to be for Hawaii to ensure it collects taxes from short term rentals.

But are they going about it the right way? Are they only after taxes or something more?

While Hawaii aims at ensuring it gets its taxes, we’ve been hearing from many owners who do pay their taxes on time and employ local Hawaiians to help them manage their rental business. They express fear of overhead costs associated with employing a property manager approved by the real estate commission. There has long been bad blood between individual owners and property management companies. One vacation rental owner shared her experience of hiring a prominent management company in Hawaii:

On almost ALL of my monthly revenue reports, they took more money than they were entitled to take. Instead of 45%, they would take 47% or 48%. When I questioned them, they always paid me back very quickly and apologized. However, never, ever was an error in my favor…always theirs. They were totally skimming off the top and I’ll bet they did it to all the owners and nobody bothered to double check their math. They would frequently upgrade angry guests who booked “parking lot view condos” to my oceanfront condo for $135/nt!! I was sick of getting ripped off by them and having my condo trashed by guests who couldn’t even afford the Motel 6! So I fired them. I don’t ever want to go back to them…ever!

Her next statement is even more telling:

The other management company I used, Luxury Kauai, didn’t bother to pay my taxes for an entire year! Guess who got stuck paying the interest and penalties?

This defeats the stated purpose of the Bill – for Hawaii to collect tax revenue accordingly.

Writing for Maui News, Adam Yanow, a vacation rental owner from California, expressed his frustration with management companies which he sees as the force behind SB2089. Fearing foreclosure, Adam writes:

This is just another attempt by rental managers to increase their profit margin at our and our guest’s expense…. I, for example, am at least 20 percent underwater on my mortgage already due to the recession. This bill will force me into foreclosure.

The Senate Committee set a 48 hour period to deliberate on the Bill with added amendments, which is set for tomorrow March 6th. Amendment 6 again asserts the preeminence of a middleman in the vacation rental business by requiring

advertisements for every transient accommodation located in the State to include the name and phone number of a local point of contact for each transient accommodation, and establishing fines for noncompliance.

This would interject a middleman and consequently increase overhead costs, effectively ending the practice of vacation rentals by owner if you are running the rental as a non-resident.

Amendment 7 comes closest to a compromise. It states,

Permitting nonresident owners who obtain an annual tax clearance … to be exempt from the mandatory employment of a licensed real estate broker or salesperson or condominium hotel operator proposed by this measure.

However, there is no clear understanding what it takes to qualify for the exemption. While this gesture is viewed as a possible workaround for those non-residents targeted by Bill 2089, the amendment raises many new questions, mainly, What are the costs – both financial and labor?

Many vacation rental owners feel there are already sufficient measures in place at the local level to address taxation. In the words of Senator Baker, these measures “strengthen enforcement of tax laws and enhance consumer protection in the State’s transient vacation rental market….”

It seems the only proponents of the bill are those who will directly benefit financially from the Bill’s passage:

the City and County of Honolulu Department of Planning and Permitting; Maui Hotel & Lodging Association; Condominium Rentals Hawaii; Poipu Beach Resort Association; West Hawaii Property Services, Inc.; Waikoloa Vacation Rental Management; and four individuals.

On the other hand, testimony in opposition came from

Hawaii Vacation Rental Owners Association; The Travel Group; Trading Places International; Hanalei Bay Resort; Makana Mai Ka Lani; Hot Spot Tax Services; Sunshine & Rainbows, LLC; Humiston and Company, CPAs; and numerous individuals.

An analysis of testimonies of those in favor of the measure and those opposed turned up interesting findings.

Total votes to support – 28

Total votes to oppose – 706

1 vote to defer from Mike McCartney – Pres & CEO Hawaii Tourism Authority

Among these votes, the vast majority of those supporting only voted without adding comments or documentation. Those opposed were very detailed and fact oriented.

Gregory Kugle, who has been representing the Hawaii Vacation Rental by Owners Association, authored a letter in opposition to the bill on constitutional grounds. In part, he states:

The Constitution prohibits discrimination against non-residents through the Equal Protection, Privileges and Immunities and Commerce Clauses…. The statute is unconstitutional if it is not necessary to further a compelling state interest. Under the Commerce Clause, the inquiry is whether the law regulates evenhandedly with only incidental effects on interstate commerce, which means different treatment of in-state and out-of-state economic interests. “If a restriction is discriminatory, it is virtually per se invalid.”

Citing what he calls a “fatal flaw” in the Bill, Kugle writes,

it impermissibly infringes on the four Counties’ home rule powers, each of which can differently define transient accommodations for purposes of their zoning laws. In addition, property owners are statutorily exempt from using a licensed realtor when renting their own property.

Despite all this, the Bill may still pass. If it does, we can expect to see drastic changes in the Hawaiian vacation rental space that may include foreclosures, sales, and even a possible impact on tourism. This, in turn, might cause a drop in revenue for the Aloha State.

Who would be willing to invest in real estate in Hawaii if private property owners are not given a choice of how to run their businesses?

Eliminating competition usually results in price fixing. Are tourists of the Aloha state ready to bite a drastic price increase?

Gallery

Shh..don’t tell anyone yet…let the Bill get passed!!!

A specter haunts vacation rentals by owner in the state of Hawaii. The problem is a pressing one.

In January of this year, two bills were introduced to the Hawaiian legislature that could effectively end the practice of vacation rentals by owner as we know it, and turn the industry in Hawaii on its head.

The first Bill, Senate Bill 2089 calls for any non-resident of Hawaii who rents out their vacation rental accommodation to employ a property manager who has been approved by the real estate commission. The second, House Bill 1707, requires that any non-resident property owner in Hawaii who rents their housing short-term must do so through a licensed real estate salesperson or broker. The middleman must then collect all applicable taxes for the rental of the property or the owner is penalized.

One proponent of the measure evidently sent an email to fellow Realtors and property managers celebrating the possibility of 1707’s passage. The email is telling:

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 owners 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… yee hahhhhlll! 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…

But it was too early to celebrate a victory. Concerned homeowners mobilized and took action. At a public hearing on February 23, thanks in large part to the testimony from vacation rental owners that pay their taxes on time and employ local Hawaiians to maintain their homes, HB 1707 was “deferred”. A temporary victory for vacation rentals by owner in Hawaii, but it would be premature to start dancing the Hula just yet.

The ending of HB 1707 is not an outright win, as that first Bill – SB 2089 – still awaits its hearing. If proponents have it their way, on Tuesday, February 28th, SB 2089 would again interject a middleman into already established private rental businesses in Hawaii.

Tuesday’s hearing will again bring proponents of this bill out into the open, revealing the powerful Realtors interests that gave birth to these bills. Many vacation rental owners who would be adversely affected by this bill are not aware that it is out there. If owners do not push back, SB 2089 could pass.

To Submit testimony online, click here and hit the blue Submit Testimony button.

To ensure the CPN Committee receives the testimony it is essential to duplicate the message to cpntestimony@capitol.hawaii.gov by 10:00 am Hawaiian Time on Monday Feb 27.

Meanwhile, many are challenging the constitutionality of the bills. Attorneys and constitutional scholars point to the targeting of non-residents of Hawaii as blatantly discriminatory and unconstitutional. Gregory Kugle, representing the Hawaii Vacation Rental by Owners Association, authored a widely distributed letter in opposition to the bill on these grounds.

The technology of the Internet has made do-it-yourself solutions more popular than ever. It is no surprise that vacation rentals by owner has grown into such a huge industry, one that continues to threaten management companies that have traditionally acted as intermediaries, charging large sums of money and taking up to 50% commission plus other fees on rental transactions.

Individual owners have long complained that this arrangement is deeply unfavorable to them. With a simple Internet connection, many have taken the responsibility of management upon themselves.

SB 2089 can be viewed in this light. If it passes on Tuesday, the old way of business will enjoy a revival while the fate of vacation rentals by owner in Hawaii will likely take a nose-dive. Many homeowners familiar with the bill say that the stakes are too high and they will sell if it passes.

One homeowner I spoke with from California ended the conversation by saying:

I know most of the management companies on the East side of the Big Island, and I wouldn’t trust any of them with my house or my money. To me, this is the realtors wanting this legislation. I just don’t think it will work the way they think it will. Two realtors [I know of] (one of them a vacation rental property manager), has lost one home to foreclosure and the other one had to file for bankruptcy. My help on the island had her realtor’s license, but I think she let it expire. What I don’t get, is that I would have to give up the handling of the rent completely and it would go through a management company in Hawaii. I think I will sell before I do that.

If SB 2089 passes, it may be Hawaii that loses in the end.

A Hawaiian resort before bill SB2089

A Hawaiian resort before bill SB2089

Think of it as it was before and after!

A Hawaiian resort after bill SB2089

... and after bill SB2089

Do you own a property in Hawaii?

What is your position on SB 2089 and HB 1707 ?

What if every state adopts the same practice to force all out-of-state residents to employ a broker for running vacation rental business?

 

 

Does the SB 2089 sound unconstitutional to you?

Attorney’s letter to Senator Baker from Hawaii Vacation Rental Association

 

 

 

No more Aloha in the Aloha state if you are a vacation rental owner outside the islands!

New Hawaiian Bills set to change the vacation rental landscape

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?

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