Do you keep your home as a long-term rental or do you sell? Do you purchase a second home for a long-term rental or short-term rental? These are great questions that depend on your individual situation and goals. I’m going to focus this article on long-term rentals and walk you through some things you need to know before making the best decision for you.

Obviously, the longer you hold onto real estate the more it appreciates over time. If you can manage to keep your property, I would. But sometimes people need to cash in the equity they’ve gained in order to purchase a new home or they don’t want the headache of maintaining, paying taxes, and dealing with issues that arise from owning a rental property.

I managed 55 long-term rentals in West Hawai’i for a few years (2019-2022), so I can tell you what you need to know when it comes to going that route.

You are required to have an on-island Agent. That is, if you do not live on-island you must have an on-island agent to manage your rental property. If you do live on island, then you have the option to manage the rental yourself.
You must abide by the landlord tenant code. Every landlord in the state of Hawai’i must follow the law laid out here. Study it. Know it well. Refer back to it whenever you need to. You want to have your a** covered so you can protect yourself and your assets. A property manager will make sure you’re following the code, but it’s also your due diligence to know it was well.
Don’t expect a profit. This really depends on what price you purchased your home, what your interest rate is, how much you pay in property taxes, how much money you’ve invested into renovations, if you’re paying monthly property management fees, HOA fees, special assessments etc. Most times, owners are breaking even on their rental properties. In my eyes, this is great news! You have someone else paying off your mortgage (hooray!). But if you’re looking to make a profit, Hawai’i might not be the best option for you. From the portfolio I managed, the property owners who were making a profit had owned their property for decades and it was finally paying off for them.
There will be problems. Whether you manage it yourself or you pay a Brokerage to manage it for you, there will be problems that arise. Appliances will need to be replaced, leaks will happen, tenants will damage something, neighbors will complain and the list goes on. Worst case scenario, you have a tenant that misses rent payments or stops paying rent altogether. You have to be prepared, mentally and financially, to deal with these problems as they arise. Having a property manager will help you navigate these problems, but he/she will still be coming to you to ask for money or direction for how you’d like to handle things.
You are required to pay General Excise Tax on your rental income. When you own a rental property, you will need to register for a General Excise Tax license and report your rental income to the Department of Taxation and pay the GET rate on that income. At the time of writing this blog post, the rate is 4.712%. This is commonly a pass through tax, so you can charge this tax on top of rent (example: $3,000 + 4.712% GET). There are additional taxes to report and pay for short-term rentals (TAT and HCTAT).
Keep proper contracts. THIS IS THE MOST IMPORTANT!!! You need a Rental Agreement, Security Deposit Statement, Pet Addendum (if you allow pets), initials on a copy of the House Rules & Regulations for the HOA (you could also make your own if it’s a home). I’d also recommend a move out checklist that details what your expectations are at move out. You will need to make sure the rental documents are kept up-to-date, so if there is a fixed term lease you need to begin a renewal agreement 45 days prior to the end to their rental term.
Don’t rent to friends or family. This advice was given to me when I first started property management and I stuck to it. I was told that friends or family will think you’re going to cut them a break. Whether that’s on paying rent on time, rent increases, move out inspections or whatever! Something to consider before going down that road.

If you have more questions about something I didn’t cover in this article, please ask! Managing can be quite stressful and risky business. I’m happy to share the wisdom I gleaned from my time doing it and help in any way that I can.