Thinking about buying a vacation rental near Waimea and wondering how to finance it the right way? You are not alone. The Big Island offers unique opportunity, but lenders and regulators expect clear proof that a short-term rental is legal and well run. In this guide, you will learn how to verify legal use first, how lenders underwrite short-term rentals, and how to model TAT and GET correctly in your pro forma so your loan stands up to underwriting. Let’s dive in.
Verify legality first in Waimea
Before you talk numbers, confirm that the property can legally operate as a short-term rental. Lenders often will not count rental income or even close until you show proof of legal use.
Start with the basics. Confirm the TMK and exact zoning through the county. Check whether transient use is an allowed use, a conditional use, or not allowed in that zone. The easiest first stop is the Hawaii County Planning & Permitting Department.
Ask whether the property has any special approvals or nonconforming status. Some homes may operate as legal nonconforming units. If so, confirm that status is documented and transferable to a new owner. Get copies of any transient vacation use permits or letters on file.
Review overlays and setbacks if the parcel is coastal or in a special area. Historic or coastal overlays and SMA rules can limit changes or expansions. Do not assume current use is compliant just because it has been used that way in the past.
HOA and condo rules
County approval is only part of the picture. Many associations restrict or ban short-term rentals regardless of zoning. Review the CC&Rs, bylaws, and recent meeting minutes. A lender will likely ask for a condo questionnaire and written confirmation that STRs are allowed.
Building permits and occupancy
Lenders and insurers want proof that living areas used for guests were built with permits and have passed final inspection. Pull building permits and certificates of occupancy. The Hawaii County Building Division keeps records you can reference during diligence.
Septic, water, and safety
Many rural properties near Waimea rely on septic or older systems. The Hawaii Department of Health sets on-site wastewater rules and can point you to required inspections or upgrades. Water supply, fire flow, and basic life safety items affect insurability and lender comfort.
How lenders underwrite short-term rentals
Every lender has its own playbook, but most look for the same core items: clear legal standing, verifiable income, sensible leverage, and correct insurance.
Common loan types
- Conventional agency loans: Stricter on STR income and often prefer owner-occupied or long-term rental use. Extra documentation or overlays may apply.
- Portfolio and local community lenders: Often more flexible and familiar with island STRs. May underwrite to a shorter operating history or use DSCR-style analysis.
- DSCR and cash-flow loans: Focus on property income relative to debt service. Useful if you rely on the rental’s cash flow to qualify.
- Private or bridge financing: Can be faster and more flexible, but usually with higher rates and lower maximum LTV.
- FHA/VA: Usually geared to primary residences, not pure STR investment.
What lenders verify
- Ownership and title: Clean title and no deed restrictions that prohibit transient rentals.
- Zoning and permits: Documented right to operate short term. Expect to provide county approvals, registrations, or letters.
- STR income history: Many lenders want 12 to 24 months of P&Ls, booking statements, and bank deposits. If history is thin, some will use a conservative pro forma.
- DSCR and LTV: Many products target DSCR above roughly 1.0 to 1.25 and LTV in the 65 to 80 percent range. Thresholds vary by lender and risk profile.
- Reserves: Expect to show months of mortgage payments in reserve. Higher reserves can help offset limited history.
- Insurance: Provide evidence of coverage that specifically allows short-term rental use and adequate liability coverage.
- HOA review: For condos, lenders will review governing documents, budgets, reserves, and STR policies.
How lenders count STR income
Lenders prefer documented, recurring STR income. Strong files include 12 to 24 months of OTA payout statements, bank deposits, and occupancy reports. If you must use a pro forma, expect conservative occupancy assumptions or higher down payment and reserve requirements.
Some lenders look at gross receipts and apply an expense factor. Others want a full NOI view. Be ready to show both your gross revenue and a clear operating statement with realistic line items.
Build a pro forma lenders respect
A thoughtful pro forma supports your loan and your business plan. It also helps you set the right price and avoids surprises after closing.
Start with revenue
Estimate gross guest revenue using average daily rate times occupied nights. Use comps from similar properties near Waimea and align assumptions with seasonal patterns you can source from market data or your manager’s records. For tourism trends and context, review the Hawaii Tourism Authority.
If the seller provides past performance, reconcile OTA statements and bank deposits. Lenders will look for consistency between bookings and actual cash receipts.
Include true operating costs
Model the typical cost lines for short-term rentals so your NOI is realistic:
- OTA platform fees: Often 2 to 15 percent depending on platform and fee model.
- Management fees: Commonly 15 to 30 percent for full service; lower if self-managed.
- Cleaning and turnover: Often passed to guests, but budget for owner-paid turns when needed.
- Utilities and internet: Short-term guests use more power and water; use actual bills or a percent of revenue.
- Maintenance and reserves: Set aside 5 to 10 percent of revenue for ongoing upkeep and replacements.
- Property taxes and insurance: Pull the county tax bill and request an insurance quote specific to STR use.
- Marketing and supplies: Keep a small line for consumables and paid placements if used.
Add debt service below NOI to test your DSCR against the lender’s requirement.
Where to put TAT and GET
Two taxes matter for STRs in Hawaii: TAT and GET. The Hawaii Department of Taxation explains current rates, registration, and filing. Owners must register and remit these taxes.
- TAT applies to transient lodging charges collected from guests.
- GET is a gross receipts tax that applies to business revenue and can include amounts collected for TAT, which creates a tax-on-tax effect. Confirm current guidance before you finalize numbers.
You can model taxes two ways. Be explicit about your choice so lenders can follow it.
- Option A, conservative: Treat TAT as a direct expense that reduces owner revenue, and calculate GET on total receipts if required. This approach shows lower NOI and is lender friendly.
- Option B, cash-flow view: Model gross guest revenue excluding TAT for ratios, then show TAT and GET as separate operating lines. Make sure GET reflects the correct taxable base.
Because rules and rates change, confirm your final modeling with the Hawaii Department of Taxation or a local CPA before you present numbers to a lender or make an offer.
Pre-offer due diligence for Waimea buyers
Use this checklist to save time and prevent deal derailers. Much of it mirrors what lenders will ask for anyway.
Property and title
- TMK and zoning confirmation from the county GIS or Planning. Verify permitted uses and any overlays.
- Current deed, easements, CC&Rs, and any recorded restrictions impacting transient use.
- Property tax bill, tax class, and any assessments from the Hawaii County Real Property Tax Office.
- Flood zone, survey, and plat maps.
STR legal and operations
- Written county approvals or permits for short-term rental use. Confirm any nonconforming status is active and transferable.
- Business registrations and tax licenses. Obtain TAT and GET registration numbers and 12 to 24 months of filings if operating.
- 12 to 24 months of P&Ls, OTA payout statements, bank deposit ledgers, and occupancy calendars.
- Copies of management, housekeeping, and maintenance agreements, plus insurance policies with STR endorsements.
- HOA or condo docs and minutes confirming STR policy and any fines or compliance issues.
Condition and code compliance
- Building permit history and final inspections for any additions or conversions used for guests.
- On-site wastewater or septic inspections and approvals. Consult the Hawaii Department of Health for rules and upgrade guidance.
- Electrical, plumbing, and life safety compliance, including smoke and CO alarms.
Lender readiness
- Title exceptions that could block STR use or financing.
- Evidence that STR authorization is legal and transferable. Many lenders will not close without it.
- For condos, provide budgets, reserves, delinquency data, and the percent of units allowed as STRs if available.
Common deal stoppers
- Claims of informal or verbal permission with no documentation.
- Unpermitted structures or bedroom additions used for guest stays.
- Noncompliant septic systems or unresolved code violations.
- HOA bans discovered late in escrow.
- Missing or delinquent TAT/GET filings.
Practical next steps and local resources
You can move faster and reduce risk by front-loading key verifications.
Pull the TMK and confirm zoning and allowed uses with the Hawaii County Planning & Permitting Department.
Ask the seller for STR approvals, TAT/GET registration proof, and 12 to 24 months of returns and STR financials. Cross-check OTA payouts against bank deposits.
Order a preliminary title report and look for restrictions or unrecorded leases.
Schedule septic and water inspections and a county permit search for unpermitted work. Coordinate with the Hawaii County Building Division as needed.
Obtain preliminary terms from a lender experienced with Hawaii STRs, including DSCR options if you plan to qualify on property income.
For current tax rules and filing steps, rely on the Hawaii Department of Taxation. For visitor trends that influence ADR and occupancy assumptions, review the Hawaii Tourism Authority.
When you align legal status, lender requirements, and a clear operating model, you lower risk and increase your odds of smooth financing. If you want help coordinating diligence, connecting with lenders, and shaping a lender-ready pro forma for Waimea, reach out. You will get practical guidance grounded in local process and operations.
Ready to take the next step? Connect for local, lender-savvy support on your Waimea vacation rental search. Reach out to Unknown Company and let’s start a conversation.
FAQs
What makes a short-term rental “legal” in Hawaii County?
- You must show county approval for transient use based on zoning and any required permits, plus comply with HOA rules if applicable. Document TAT and GET registration and filings.
How do lenders treat short-term rental income when qualifying me?
- Most prefer 12 to 24 months of documented STR revenue and bank deposits. If using a pro forma, they often discount assumptions and require higher reserves or down payment.
What is DSCR and why does it matter for STR loans?
- Debt service coverage ratio compares NOI to your annual debt payments. Many products look for DSCR above roughly 1.0 to 1.25, but exact targets vary by lender.
Where should I model TAT and GET in my pro forma?
- List them as separate lines. Use a conservative approach that reflects current Hawaii Department of Taxation guidance, and be explicit about your assumptions.
What documents should I request from a seller before making an offer?
- Ask for county STR approvals, TAT/GET registration and returns, 12 to 24 months of STR financials, bank deposit histories, HOA docs, insurance policies, and building permit records.
