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June 27, 2017 | 82 | ! Check Trac

Business| Hawaii News

Tenants cash in on vacation

rentals despite risks
By Allison Schaefers
Posted June 21, 2017
June 21, 2017

BRUCE ASATO / BASATO@STARADVERTISER.COM

Tenants can face eviction under city rules, but for some, the temptation to make money is a chance they are willing to take. It
happened at 4548 Kilauea Ave., with property owner First United Methodist Church and its tenant. The city cited both on April
5.

Renters are the newest group trying to cash in on the protability of Oahus vacation
rental market by subleasing all or part of their units to visitors.

Its a legal way to make extra bucks or subsidize rent if the tenant has the landlords
permission and the property is in one of Oahus resort districts or has a city-issued
non-conforming use certicate. But legal opportunities on Oahu are limited by a 1989

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city moratorium that has reduced certicates to 775 vacation rentals and 41 bed-and-
breakfast homes.

Tenants who sublease their units as vacation rental properties without the owners
permission face eviction. Those who break city rules also face penalties starting with
an initial ne of $1,000 and up to $1,000 a day for continued violations.

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CRACKING DOWN IS HARD TO DO

The city Department of Planning and Permitting has made an eort to stop the spread of illegal vacation
rentals, but catching and punishing rule breakers under current laws has proved challenging.

YEAR COMPLAINTS CITATIONS FINES

2015 141 37 $13,700

2016 363 79 $13,550

2017* 83 16 $2,000

* Year to date

Source: Honolulu Department of Planning and Permitting

FOR A COTTAGE INDUSTRY, ITS BIG

In 2016, Hawaiis alternate accommodations industry supported:

$3.1 billion in visitor spending

$5.1 billion in total spending

$1.4 billion in household income

34,000 jobs

Source: JLL study prepared for Hawaii Tourism Authority

But for some, the possible nes are a risk they are willing to take. One-bedroom
rentals typically cost $1,000 to $2,000 a month, but they can fetch upwards of $1,000 a

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week when sold to vacationers, said Hawaii real estate analyst Stephany Sofos.

I had a tenant who moved out without my knowledge. I was shocked to nd out she
had put the unit on Craigslist and Airbnb, Sofos said. She was renting from me for
$1,500 a month and getting $1,000 a week. I told her that she had to leave or face
eviction.

Another reason for this latest vacation rental twist is that its hard for the city to prove
illegal use. Also, rule-breakers typically dont get hit with major penalties. Still, it
happens.

Kathy Sokugawa, acting director for the city Department of Planning and Permitting,
said the city recently cited the United Methodist Church and its tenant for using 4548
Kilauea Ave. for illegal bed-and-breakfast activity. The tenant and the church were
not ned for the April 5 violation because it was corrected within 30 days, Sokugawa
said. The church did not return a call from the Honolulu Star-Advertiser and the tenant
could not be reached.

Sokugawa said DPP has encountered a few of these situations, but Sofos and other
real estate professionals say its becoming a trend.

Subleasing is generally not allowed in standard rental contracts, but it goes on, said
Steve Larson, CEO, principal broker and co-founder of Koko Resorts. The next
generation of subleasing has emerged with the growth of online vacation rental sites
like Airbnb, HomeAway, VRBO, Expedia and Craigslist that provide more exible and
lucrative subleasing options. I suspect that some people are using sites like Airbnb to
pick out short-term roommates, he said.

Elizabeth Churchill, owner of tourism consultancy Churchill Group LLC, said tenants
sometimes have more leeway than owners, who may be bound by long-term lease
requirements.

Tenants are wily. If they can gure out a way, they will do it, Churchill said. My
friends daughter does it in Venice Beach, Calif. Shes been so successful that shes
even got group business clients.

Churchill said the practice is brilliant, but cautions that those who make money in the
alternative accommodations industry should follow regulations and pay their share.

Sokugawa said DPP is working with the city on Resolution 17-52, which would revise
ordinances to strengthen its enforcement strategy. DPP also is reviewing its civil nes
policy to determine if increasing initial and daily nes for illegal vacation rental and
bed-and-breakfast home activity is an option, she said.

Matt Middlebrook, Airbnbs public policy manager, said the company wants the city to
update vacation rental laws, which dont account for technological developments or
todays travel preferences.

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Airbnb started in 2007 when two of its founders were seeking a way to help pay rent
in San Franciscos hot market, Middlebrook said. The company now has 3 million
listings in more than 65,000 cities in 191 countries.

Airbnb ocials said they have 8,400 active Hawaii hosts who are part of the more than
$5 billion alternative accommodations industry in the state. Many local hosts use
home sharing as a way to make ends meet, Middlebrook said.

In Hawaii, an average host earns $11,800 per year. Hosts have told us this
supplementary income enables them to keep up with the high cost of living in the
islands, he said.

The Hawaii Appleseed Center for Law and Economic Justice acknowledges that renting
a property as a vacation rental may help a small percentage of struggling local families,
but said their data show that the practice disproportionately benets out-of-state
interests.

Our main issue is renting out an entire dwelling to visitors that local families could
rent. When a tenant does that, its equally concerning, said Gavin Thornton, Hawaii
Appleseed co-executive director.

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