Buying A Vacation Rental In Hawaii Is Not A Good Financial Investment

written in January 2016, posted on this website in summer 2016

Almost every year since my wife Jenny and I moved to Seattle, we visited one of the major Hawaiian Islands (Oahu, Kauai, Maui, and Big Island). We love every one of them, and fell especially in love with Maui. We love everything Hawaiian from the music, food, language, unique fauna and flora… to the fantastic Maui beaches and ocean for boogie boarding, snorkeling, and SCUBA diving. In fact, when we step off the plane just breathing in the Aloha spirit in the air brings this sense of relaxation like no other place on earth. And you get all this without being in a 3rd world country, you are still technically in the USA, so your USD currency, internet/cell phone, medical insurance, your understanding of prices, and a lot more all still work/apply. So we decided to try and visit Maui twice every year. It was almost a natural consequence to decide to buy our vacation home there, so in April 2015 we purchased a 1-bedroom condo in Maui (and after a lot of research, we chose the best location: Kihei). In addition to using it for our vacations we also rent it out as a short term vacation rental for others, to help contribute towards our mortgage, and to spread the Aloha to others.


Whenever we share with our friends and family that we are renting the property out, every single one of them assumes that it is a (good) financial investment. In fact, some pondered if they should do the same and ask us for advice on how to get started. I have had to explain numerous times why that is not the case, so I decided to write down the explanation to reuse in the future, and to help anyone out there who is thinking of purchasing a Hawaiian home as a good financial investment - it isn't.

First I will enumerate the expenses, then the potential income, and then draw some conclusions on the return of investment.


Expenses for purchasing a condo in Hawaii as a second home include start-up costs and then ongoing costs. Let's look at startup costs first

  • Down payment for mortgage, or full payment if making a cash purchase. We purchased with a mortgage.

  • Closing costs, incl. inspections (home, termite, electrical etc.).

  • When you purchase a home to live in, you can take your time to make improvements, and in fact you may decide that some things are good enough for you. However, when you decide to rent it out in a competitive rental market, you need to ensure everything is top notch from the start. Also knowing that while work gets done the unit cannot be rented you want to minimize the calendar periods where it is off the market, so it is good to do as much as you can in one go at the start after purchase. That also helps with getting good photos for advertising from the moment you launch the property on the rental market.

    • In our case, we completed a kitchen remodel, upgraded all the outlets and other electric work, installed an A/C unit, smoke detector, keyless door lock that works with entry codes, plus numerous other side work items over the period of a month. Note that our kitchen remodel in Maui cost us more than twice our kitchen remodel in Seattle from two years earlier. Maui labor and parts are very expensive. To get a further idea see the list of all the updates made to Kihei Akahi D-211

    • Similarly, the property has to be fully stocked for the needs of a diverse array of guests, not just your own needs. Suffice to say that we have more kitchen utensils and equipment in Maui than we've ever had in any of the homes that we lived in ourselves. Another small illustrative example is that we have a Blu-ray player in Maui but not currently at our own home. There are many such examples of purchases that we wouldn't have made for ourselves, but the goal is that no guest will complain about the lack of something. To understand this more and get a feel for it, see the full inventory for Kihei Akahi D-211.

Now let's look at the monthly and annual recurring expenses

  • Maintenance & renovation costs . I just described on the previous section the need to keep the condo well maintained and equipped. For example, our next remodel will be the bathroom, and the next big thing we expect to fail is the washer/dryer combo. Beyond large expenses like that, there are ongoing smaller ones. In the last 4 months alone we've had to replace the coffee maker, the TV remote control, the A/C drip pan, toilet paper holder, fridge filter, and repair light fixtures, doors, screens, handles, unclog drains etc. With so many guest changeovers every week or two, and with the diversity of usage, the wear and tear is constant and accelerated… compared to a single family living in a home, a home they are directly responsible for maintaining.

  • Mortgage Payment if you have one, like we do. This will of course vary based on your down payment.

  • Property tax. This may be rolled in with the mortgage payment if you have one, otherwise it is a separate line item. Suffice to say that our Maui condo is less than half the size of our Seattle condo, and yet our Maui property taxes are higher. This is general trend; Maui property expenses are higher. Also note that property taxes are higher when the property is offered for short term rentals compared to living in it year-round (on about a 1 to 4 ratio).

  • Internet/Phone/TV. It is important that you have a plan that includes free calls to all US numbers plus at least to Canada, since most visitors to Maui come from Canada. Similarly, a fast internet connection is a must these days. Finally, even though we personally never need the TV while in Maui, we need to have the TV service since many guests require that. The prices for these seem to be the same as the mainland, but then again right now we are on the introductory rates.

  • Electricity. Electricity rates on Maui are among the highest in the country, and due to the heat there is very high use of ceiling fans, floor fans, and the Air Conditioner unit.

  • Home Owner Association ( HOA) dues. What is covered or not varies by condo association. In our case it covers expenses such as water, sewer, garbage, and gas. Note that the HOA dues for our Maui condo are higher than what we pay in Seattle, which like I already mentioned is twice the size. Did I already mention Maui is more expensive overall?

  • Property & Liability Insurance . Every home needs to have insurance, but when you are renting it out, you have an additional expense since the property insurance is not just for owner use but also for 3rd party guest use. Furthermore, you need to add as insured your property manager (and it is mandatory in Hawaii to have a local on-island contact), which further boosts this expense.

  • Entry code door lock annual fee . To avoid the hassle of handing out and collecting physical keys, and also for security purposes, you really need a front door lock that accepts entry codes. In our case we purchased a Kaba lock. You then use an online service that generates unique codes for each guest and their period of stay. It also offers auditing and other capabilities. Beyond the initial installation cost, there is an annual fee for this service.

  • Subscription to booking websites , e.g. Vrbo (which also charges the traveler a service fee). Some sites such as TripAdvisor/FlipKey or Airbnb do not charge a subscription fee, and instead charge the owner a commission fee per booking (and also charge the traveler a booking fee). Beyond the subscription and commissions to vacation rental websites, you’ll want your own website which incurs other web hosting and domain costs, as well as a facebook page with regular social posts.

  • Advertising, e.g. on Facebook, or Google AdWords. Getting eyeballs directly to your own website via external advertising is important, especially in the beginning and in the low seasons.

  • GET & TAT. To comply with Hawaii state law we file their taxes including General Excise Tax (GET) and Transient Accommodations Tax (TAT). There is a cost to get a license for those and then separate quarterly preparation and filing costs.

  • Federal tax return preparation costs . As we'll conclude we do not make any profit, so at the moment we do not need to pay federal income tax on top of any net profit. However, we still need to account for all the Hawaii expenses so that we can prove we are not making a profit, which is extra work for us and for our accountant. And in case you are thinking that the costs could offset other income, that is not the case because the property is not considered a second home (just a losing investment).

If we are looking to put a very rough number on it, let's say that every year the above represents an average of $40,000 of outgoings.


When someone books condo accommodation in Hawaii, a large portion of what they pay does not go to the owner. Let's break it down, assuming a guest booked a month in June at our condo for a total cost of $3611.60.

  • $59 damage protection insurance (non-refundable). The amount is held by Vrbo and is insurance in case of any accidental damage (up to $1500 worth of damages). Aside: the guest can opt instead for a refundable damage deposit.

  • $110 cleaning fee. The condo gets cleaned once between guest stays, so this is a cost that we pass on to each guest.

  • $15 resort fee. The condo is in what is known as a condotel complex, with swimming pools, tennis court, assigned parking stalls, front desk staff etc. There is a charge of $15 per stay, so we pass this cost directly to the guest (combining it with the cleaning fee not to have too many line items).

  • $25 booking fee. When a guest needs any kind of maintenance while they are in the unit, they can call or email our local on-island property manager, including a 24 hour emergency number. As owners we get charged a booking fee by the property manager, which we pass directly onto the guest. As mentioned earlier, having a local contact is a state of Hawaii requirement, but you may be able to have your housekeeping do this for you instead of paying someone.

  • $402.60 GET+TAT (13.42%). The state of Hawaii requires that owners collect and submit these taxes for vacation rentals, so we simply collect and pass these through. [EDIT: the tax now adds up to 14.42% plus another 3% for Maui, following a recent increase and there are more increases coming]

So at this point we are left with $3000 as income, in our monthly example. However, even this amount is not net income and is further diminished when you consider the following:

  • Credit card fees (3-5% of the total payment). No matter how the guest pays by credit card, the owner has to pay someone a credit card fee, which varies by merchant/system/website. Most owners pass the entire credit card fee to the guest, and request that they pay by check instead. We are tempted to do the same, but haven't so far when the guest books direct on our own website.

  • Property manager bookings. Earlier I mentioned the $25 booking fee that our property manager charges us. That applies for what is called "owner bookings". However, our property manager also "competes" with us to also book guests through their own website and their telephone system and travel network. When the property manager books a guest into our condo, instead of the low $25 booking fee they keep 30% of the income for that guest! Thirty percent.

  • Friend bookings. Our friends expect discounts when staying. The reality is that after 1-2 years we'll probably have to hold a tough line on that, but now at the start we do give discounts to friends. Not only we'd love for all of them to experience once the magic of Maui in the same way that we do, but we expect good public reviews from our friends which further help get new guests to choose our property online. We are also hoping for honest constructive criticism to help us improve the condo or its marketing.

The last element to internalize when projecting rental income is occupancy rates. The fact is that the unit will not be occupied by a paying guest on the following cases:

  • The owner stays in the property. In our case that is projected to be for around 30 days per year. [Edit: since 2020 we actually stay 3+ months per year]

  • There is significant maintenance work carried out in the unit. While we try to have things fixed while we are staying there, or quick jobs that are found during a guest's stay, larger items like the kitchen remodel we completed (or the bathroom remodel we are planning) require the unit to be vacant of tenants. We budget 1-2 weeks per year.

  • In between guest stays. When we get booking requests, it is rare that a guest asks to check-in on the same day that another guest checks out. This typically creates 1-4 night calendar gaps that are very hard, if not impossible, to fill. We are already experiencing this with an average of 5 nights per month being un-rentable.

  • Longer periods where there is simply not enough demand. We haven't owned it long enough to know what to expect, but our projections do not even account for this. Our expectation is that we will never have more than 7 continuous nights go unrented except for the conditions already listed above.

So we are aiming for around 80% occupancy rate.

Not particularly relevant for this discussion, but FYI Hawaii has roughly two rental seasons: high season (mid-December to end of March) and low season (April to mid-December). Some folks vary their rates more than that, e.g. with lower rates in May and September, and even higher rates in February, and in-between prices in April and November. So when I add the best case of monthly rates for each month, taking into account an upper bound occupancy rate, the annual income is below the average annual expenses. If we look at an average case scenario, then the income pays for all condo expenses listed above minus the significant mortgage payment. I don't even want to calculate the worst case scenario…


Even though I concluded in the previous section that the expenses are higher than the rental income, let's be overly generous and assume that expenses and income were equal. They are not, but to illustrate a point, let's assume that they were. What that would mean is that in 15 years when the mortgage is paid off, the only out of pocket expense would have been the initial down payment for the mortgage. Also from that point on we could theoretically start collecting a small profit annually, and then we'd have to deduct federal tax on that. What is not being accounted for above is the time to manage the property and deal with everything. It is like a small part time job. I'm not sure any small profit in the very long term would be worth it. If I was viewing the capital that I put in the down payment as investment funds, I think I'd rather put it in the stock market which has much greater returns over any 15-year period with no effort while the money is being invested.

The other element to this is how much the property would (hopefully) gain in value over time. But that is anyone's guess, and it could go down as well as up, and it assumes you will actually sell it at some point. When you are creating an estate and leaving the property to your descendants (children and grandchildren), you may be thinking of the real long term where in theory everything will go up… In my case, without children or even siblings, the purchase reason was emotional like I said at the start… we love Maui, and wanted a place of our own to stay when we go there every year… yes we also use it as a vacation rental and we do hope the rental income will contribute a little to our mortgage, but it is definitely not a good financial investment or the reason we bought it. A side perk now that we've been doing this for a while is that we get immense satisfaction in sharing our love of Maui with our guests... it is like sharing the secret of magical Maui with new friends... checkout our Maui Guide for what to do there... including what we love about Maui!

If you enjoyed reading this, you may also enjoy our 10 Things To Check Before Booking A Vacation Rental Condo In Maui

If you are planning on renting out your Maui condo, we cannot recommend highly enough OwnerRez vacation rental software!

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