You Purchased an Investment Property on Maui! Now What?
Maui’s resort market creates a significant opportunity to own rental properties. Both long-term rental income properties and vacation rentals have consistently been in high demand, and there are no signs of this slowing down any time soon. Even during the pandemic, the vacation rentals that temporarily converted into long-term rentals were able to carry their costs due to the high rent rates that resulted from “digital nomads” working remotely and the popular desire to escape crowded cities and towns to live in paradise. However, investors looking to diversify their portfolio with acquisitions on Maui should know the market-specific requirements in advance. This will allow them to smoothly transition from the escrow process to securing consistent rental income as soon as possible.
4 Important Steps to Follow Immediately After You Close on Your Rental Property
1. Apply for a General Excise Tax License, Transient Accommodation Tax License, and Maui County Transient Accommodation Tax License
There is a 4.166% general excise tax (GET) on all goods and services. All rental income in the State of Hawaii is taxed the GET. Regardless of whether you own a vacation rental or a long-term rental property, you must pay GET on all rental income. If you own several investment properties on Maui, each property must have its own GET license number. You can apply for a GET license online by clicking here. Select “Register a New Business” and complete the BB-1 Form Packet for each investment property. There is a one-time $20 license fee.
If you own a vacation rental on Maui, you must also register for two types of Transient Accommodation Taxes.
1. State Transient Accommodation Tax (TAT) which is currently levied at a rate of 10.25%
2. Maui County Transient Accommodation Tax (MCTAT) which is 3%. These payments are due concurrent with State TAT returns and payments. Once your property is registered with the State and you have a valid TAT number, you do not need to register separately for the MCTAT with the County of Maui.
2. Maui County Transient Accommodation Tax (MCTAT) which is 3%. These payments are due concurrent with State TAT returns and payments. Once your property is registered with the State and you have a valid TAT number, you do not need to register separately for the MCTAT with the County of Maui.
Find more information about how frequently you are required to make your tax payments and how to calculate your tax payments at the County of Maui government website by clicking here. Once you register for your GET license, you will receive a Welcome Letter in the mail with your license number. Most Property Management companies will require the Welcome Letter if they are filing GET, TAT, and MCTAT for you.
2. Interview Property Management Companies
Not only will having a property manager give you peace of mind that your investment is protected, but the State of Hawaii requires that all properties have an emergency contact located on-island to handle any repairs and maintenance. Whether guests or tenants get locked out, if there is an emergency plumbing leak, or if you need to prepare for a storm, an on-island contact is key. There are only a handful of reputable property management companies on Maui, so take the time to contact several of them and compare their services and fees. Trinity Properties LLC, Hawaii Life Vacations, PMI Maui, Quam Properties, and Maui Paradise Properties are some of the most established local property management companies that should be able to offer the following services:
Vacation Rental Property Management Fees average around 25% of the rental income:
- Marketing and listing the vacation rental
- Managing reservations, payments, and security deposits
- Coordinating departure and deep cleaning services
- Maintenance and repairs
- Accounting services such as paying vendors and direct deposit of rent income
- Collecting Guest Reviews to build a book of business
- Transferring listings and guest reviews from a previous owner or property management company
- GET, TAT and MCTAT mentioned above are all paid upfront by the guests along with departure cleaning fees. This income is still collected by the property management company and disbursed to owners. *Pro Tip, ask your property management company if they offer to pay taxes for an additional fee.
Long Term Rental Property Management Fees average around 10% of the rental income:
- Listing and marketing the property
- Screening and securing qualified tenants
- Managing lease agreements and lease renewals
- Coordinating repairs and maintenance
- Accounting services to pay vendors (cleaners, carpet cleaners, window washers, cesspool pumping, etc.) and direct deposit of rental income to owner/payee account
3. Purchase Homeowners Liability Insurance
Have a minimum of $500,000 in coverage of comprehensive liability insurance. Add your property manager as co-insured. State Farm, Pyramid, and Liberty are a few insurance companies with reputable local agents that can provide this coverage.
4. Pay for Professional Photos and a 3D Matterport Tour
Request the listing photos from the listing agent that sold you the investment property. If the photographer is not willing to share the rights to the photos, then have professional photos taken for your property’s online rental listing. Photos should show your property’s location, views, amenities, appliances, bed sizes, and any unique features that will help your rental stand out from the competition. 3D Matterport tours enable online viewers to tour the property floor plan, and they portray the property layout better than static pictures can. VRBO and certain listing sites have a specific section for 3D Matterport Tour to be listed. *Insider Tip – Ask your property management company if they offer professional photography and 3D Matterport services for a discounted rate.
Takeaways
1. Register for a GET license and other applicable tax licenses
2. Hire a Property Manager
3. Purchase a minimum of $500k comprehensive liability insurance coverage and add your property manager as a co-insured contact.
4. Pay for professional photos and a property video tour
2. Hire a Property Manager
3. Purchase a minimum of $500k comprehensive liability insurance coverage and add your property manager as a co-insured contact.
4. Pay for professional photos and a property video tour
Want to Know More?
Contact me for more information about purchasing an investment property on Maui, property management services, and to inquire about competitive rental rates for your investment property.
