How to Choose an Investment Property in Waikiki - Part 2

How do you choose from the thousands of property options in Waikiki? In the last post, I wrote about choosing the right type of tenant. In this post, I’ll talk about another important factor—choosing the right length of stay.

There are three options in regards to length of stay—nightly rentals (also referred to as daily rentals), monthly rentals (minimum of 30 days) or long-term rentals (6 months or longer). Some buildings in Waikiki allow legal nightly rentals while other buildings require a minimum stay of 30 days. It is important to know this information about each building before looking at any units. If you want to do nightly rentals, you will waste your time looking at units in buildings that do not allow this type of rental.

Nightly rentals in Waikiki usually average approximately 5-10 nights per tenant so you could estimate flipping your unit 3-6 times per month if you have zero vacancies. Please note that nightly rentals are subject to the TAT (transient accommodations tax), which is 9.25% as of January, 2017, in addition to the GET (general excise tax) of 4.5% for a total of 13.75% in taxes.

Monthly rentals require a minimum of 30 days so at most you would flip your unit a maximum of once a month or 12 times a year. If tenants average a two month stay, you would flip the unit only six times per year.

Long-term rentals are considered six months to one year, which require 1-2 flips per year. However, please note that rents for this time frame are significantly lower (up to 40%).

Nightly rentals have the highest earning potential but require a lot more time and energy and have the highest tax rates. Tenants who are only in your units for a few days or a week will want their requests met as soon as possible so timeliness is most important for this group. If they request extra bedding or extra coffee cups, they will want it immediately as they will be checking out in a few days. Of course, you can decline any of their requests but they will still need a response very quickly.

When a tenant is renting for a month or longer, they no longer have the same urgency as the nightly tenant. They are not trying to pack in a lot of activities into a short period of time. They can spend time relaxing and leisurely checking out the island. They are in much less of a rush. They also don’t mind buying small things on their own since they will be able to use it for a longer period of stay. Beach equipment (snorkels, boogie boards, etc.) or kitchen items (colander for spaghetti noodles, hot water dispenser for tea, etc.)

Long-term tenants usually require a fair amount of initial communication but not much after they get settled into their unit, unless something breaks or there are plumbing issues. Within this category, you can choose to rent your unit furnished or unfurnished. Usually a furnished unit can bring in a few hundred dollars more per month but will cost you some money in the beginning to buy all of the furniture. If you include a bed frame, mattress, bedding, dresser, table, chairs, TV, couch, kitchen items and linens, you could easily spend a few thousand dollars furnishing even the smallest studio.

As you can see, there are positives and negatives in each category so you need to find the right fit for your income goals and how much time and energy you are willing to spend on the rental.