What’s the ROI on a Short-Term Vacation Rental in Hawaiʻi?
Hi, I’m Dan Polimino with Keller Williams Big Island and The Hawai‘i Team. Today, I’m sharing part three of our series on short-term vacation rentals.
If you missed parts one and two, you can find them on our YouTube channel. Part one covers what homes or condos qualify for short-term vacation rentals. Part two discusses how to manage one of these rentals from afar. Today in part three, we’re diving into the big question: What’s the ROI—return on investment—for a short-term vacation rental in Hawaiʻi?
Let me be honest right up front: most investment properties in Hawai‘i do not cash flow.
Here’s a quick example. Let’s say you buy a $600,000 condo in a resort zone. If you’re financing the purchase, your yearly costs—including mortgage, HOA dues, taxes, insurance, and property maintenance—could total around $60,000.
After operating it as a short-term vacation rental, you’re likely to net about half of that—maybe $30,000. That surprises a lot of people. With so many vacation rentals on the islands, it seems like everyone must be making money. But in reality, most people are simply trying to offset their costs. Many buyers are okay with that because they want a place to enjoy several times a year—and if they earn a little money in between, that’s a bonus.
So, why don’t these properties cash flow well?
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High Property Costs: Home prices are steep, and you can’t charge enough nightly to make up for it.
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High HOA Dues: In many resort areas, HOA fees range from $1,000 to $3,000 per month. That’s almost as much as your mortgage.
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Property Management Fees: If you’re hiring a company to handle booking, guest communication, and upkeep, expect to pay 15%–30% of your gross income.
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Taxes: Hawai‘i has several taxes tied to short-term rentals, including transient accommodation tax and conveyance tax, which eat into your profits.
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Occupancy Rates: You can’t rent it 100% of the time. Banks typically use a 70% occupancy rate to estimate income, knowing the property will sit vacant or be used by the owner for part of the year.
Put all of that together, and the math usually works out to you getting back about 50% of what it costs to own the property each year.
Of course, there are exceptions. You might have a highly exclusive property and be able to charge a premium rate. You might manage it yourself via Airbnb or VRBO, saving on fees. Or maybe you’re part of a high-end vacation club like Inspirato. In those cases, your profit could increase.
And in today’s post-pandemic market, demand is strong. Renters are willing to pay premium nightly rates, so maybe your ROI is closer to 60% or even 65%.
I hope this gives you a clearer picture of what to expect when investing in a short-term vacation rental here in Hawai‘i. If you’d like more information or want to discuss buying, selling, or investing, contact us at TheHawaiiTeam.com or call us at 808-913-0899.
Aloha!
