Should I Buy a Long Term or Short Term Rental on the Big Island?
Are you considering an investment property in Hawaii? Buying an income property on the Big Island is a smart investment for many reasons. After you decide to look for homes for sale on the Big Island, you need to determine whether a short term or long term rental is the right fit for you.
The decision to opt for a long-term rental or a short-term vacation rental comes with its own set of pros and cons. Understanding these factors is crucial for potential property owners to make informed decisions based on their goals, preferences, and market dynamics.
Long Term Rentals
There is a steady demand for housing on the Big Island, making it likely that you can find long term tenants for your property. Here are some of the pros and cons if you go that route.
Stability and Predictability
Long-term rentals provide a stable and predictable income stream. With tenants signing leases for an extended period, property owners can enjoy consistent monthly rental payments, contributing to financial stability. If the unpredictability of a short term vacation rental's occupancy rates will put too much financial strain on you as the owner, a long term rental might be the less stressful route.
Lower Turnover Costs
Long-term rentals typically experience lower turnover rates compared to short-term vacation rentals. This translates to reduced costs associated with cleaning, maintenance, and marketing to attract new tenants.
Easier Property Management
Managing long-term rentals is generally more straightforward. Once a lease is signed, property owners have fewer day-to-day responsibilities, and the property can be somewhat hands-off between tenant turnovers.
Potentially Lower Income
While long-term rentals offer stability, the monthly rental income may be lower compared to short-term vacation rentals. This is especially true in popular tourist destinations on the Big Island, where vacation rental rates can be significantly higher.
Limited Personal Use
Long-term rentals restrict the flexibility for property owners to use the property for personal vacations. The property is typically occupied by tenants, limiting the owner's ability to enjoy the space whenever desired. If your plan is to buy an income property that can also be your own place to land when you visit the island, a short term rental is the better fit.
Short Term Vacation Rentals
Operating a short term vacation rental comes with its own benefits and drawbacks. Here are some things to keep in mind.
Higher Revenue Potential
Short-term vacation rentals on the Big Island generally command higher nightly rates than long-term rentals. The demand from tourists looking for a unique and immersive experience can result in more lucrative rental income.
Flexibility for Personal Use
Vacation rentals allow property owners to use the property for personal vacations when it's not booked by guests. This flexibility can be appealing for those who want to enjoy their investment property while still generating income. Rather than buying your own vacation home, operating a short term vacation rental and blocking off some dates for personal use allows you to offset the costs while enjoying the benefits.
Potential Tax Benefits
Vacation rental owners may be eligible for certain tax benefits, including deductions for expenses related to the rental property. Consulting with a tax professional can help maximize these potential advantages.
The demand for short-term vacation rentals can be seasonal, with peak tourist seasons followed by slower periods. Property owners may experience fluctuations in rental income depending on the time of year. While Hawaii beckons tourists all year round, you may not experience consistent demand across all months.
Higher Turnover Costs
Turnover costs in short-term vacation rentals are typically higher. Cleaning, maintenance, and marketing expenses can add up, especially during busy periods with frequent guest turnovers.
Intensive Property Management
The constant turnover, expectation for furnishing and decor, and hospitality demands of owning a vacation rental should all be factored in to your decision. Managing a vacation rental requires more hands-on involvement. Coordinating guest check-ins, responding to inquiries, and addressing immediate concerns are part of the day-to-day responsibilities for vacation rental owners.
Choosing the right rental format for you is crucial to enjoy a successful real estate investment experience. The decision should align with your financial goals, personal preferences, and the unique dynamics of the local real estate market. When you are ready to find your investment property in Hawaii, contact us any time.