Major Island Markets

• Oahu: Highest population, military presence, urban density, strongest rental demand
• Maui: Premium tourism market, luxury properties, strong vacation rental potential
• Hawaii Island (Big Island): Largest land area, most affordable, varied microclimates
• Kauai: Limited development, exclusive neighborhoods, strong appreciation potential

Each island offers different advantages for investors, from Oahu’s stronger long-term rental market to Maui and Kauai’s vacation rental potential. The Big Island provides the most affordable entry points but with more geographic diversity requiring careful location selection.

Urban vs. Resort Markets

• Urban Areas: Honolulu, Kahului, Hilo – stronger long-term rental demand
• Resort Areas: Wailea, Ko Olina, Princeville – vacation rental potential, luxury market
• Mixed Areas: Kihei, Kailua-Kona – blend of long-term and vacation potential
• Emerging Areas: Puna, Pahoa, Kapolei – more affordable with growth potential

Urban markets typically offer more stable long-term rental demand while resort areas provide higher gross rental income potential through vacation rentals but with higher volatility and operating costs. Mixed-use areas often provide the most flexibility for adapting investment strategies over time.

Key Market Analysis Metrics

• Tourism Statistics: Visitor numbers, average length of stay, seasonality
• Military Housing Allowance: BAH rates for service members by area
• Inventory Levels: Months of inventory indicates market balance
• Rental Demand: Vacancy rates below 5% indicate strong demand
• Vacation Rental Regulations: Legally permitted areas vs. restricted zones
• Development Pipeline: Planned projects indicate market confidence
• Infrastructure Projects: Transportation improvements, community facilities
• School Performance: Important for family rental properties

The most successful Hawaii investors develop systematic market selection criteria aligned with their investment strategy, whether focused on luxury vacation rentals, military housing, or affordable long-term rentals. Each island and neighborhood has distinct characteristics requiring localized research.

Expert Tip: When evaluating Hawaii submarkets, pay close attention to the legal status of vacation rentals in the area. Many investors purchase properties expecting vacation rental income only to discover the property lacks the necessary permits or is in a zone that prohibits short-term rentals. Always verify the property’s current vacation rental permit status (if any) and whether those permits transfer with sale. Areas with “grandfathered” vacation rental rights often command significant premiums.

Long-Term Buy and Hold

Best For: Passive investors seeking stable long-term appreciation and modest income

Target Markets: Urban Honolulu, Kapolei, Kahului, Hilo, military housing areas

Property Types: Condominiums, single-family homes in residential zones

Expected Returns: 2-4% cash flow, 5-7% appreciation, 7-11% total return

Minimum Capital: $150,000-$200,000 for down payment and reserves

Time Commitment: 1-2 hours monthly with property management

This strategy focuses on acquiring properties in stable locations with reliable rental demand and holding through market cycles. It requires patience but delivers consistent appreciation and modest income. Hawaii’s long-term rental market is supported by local residents, military personnel, and workers in the tourism industry.

Vacation Rental Strategy

Best For: Investors seeking higher gross income with part-time personal use

Target Markets: Legally permitted vacation rental zones in Waikiki, Kihei, Kailua-Kona, Poipu

Property Types: Condos in resort zones, properly permitted vacation homes

Expected Returns: 4-7% cash flow (highly variable), 5-8% appreciation, 9-15% total return

Minimum Capital: $200,000-$300,000 for down payment, furnishing, and reserves

Time Commitment: 5-10 hours monthly with property management

This strategy takes advantage of Hawaii’s strong tourism industry to generate higher gross income than long-term rentals, though with higher expenses and management requirements. Success depends on selecting properties with legal vacation rental status in desirable tourist locations. Seasonality and tourism fluctuations create more volatile income streams than long-term rentals.

Value-Add Renovations

Best For: Active investors willing to manage renovation projects for equity growth

Target Markets: Older properties in appreciating neighborhoods across all islands

Property Types: Dated condos, single-family homes needing modernization

Expected Returns: 15-25% on renovation capital, 5-7% cash flow after improvement

Minimum Capital: $200,000-$250,000 including renovation budget

Time Commitment: 10-20 hours weekly during renovation phases

This strategy involves purchasing undervalued properties, renovating to increase value and rental rates, then either holding for improved returns or selling for profit. Hawaii’s high construction and labor costs make careful budgeting essential, but limited housing supply ensures strong demand for well-renovated properties.

Military Housing Focus

Best For: Investors seeking stable income with reduced vacancy risk

Target Markets: Areas near military bases on Oahu (Mililani, Ewa Beach, Kailua)

Property Types: Single-family homes, townhomes matching BAH housing allowances

Expected Returns: 3-5% cash flow, 4-6% appreciation, 7-11% total return

Minimum Capital: $175,000-$225,000 for down payment and reserves

Time Commitment: 2-4 hours monthly with property management

This specialized strategy focuses on properties suitable for military tenants, typically offering stable tenants with government-guaranteed housing allowances. Properties should match the needs of military families (3-4 bedrooms ideal) and be located within reasonable commuting distance to bases. Understanding BAH rates for different ranks helps target the right price points.

Real Estate Agent

Role: Local market knowledge, property sourcing, neighborhood expertise, negotiation

Selection Criteria:

• Experience with investment properties in specific islands/areas
• Understanding of vacation rental regulations (if applicable)
• Knowledge of non-resident investor needs
• Understanding of investor metrics (cap rate, cash-on-cash, etc.)
• Access to off-market opportunities

Finding Quality Agents:

• Referrals from other successful investors
• Hawaii-specific real estate investment forums
• Agents with property management experience
• Professionals with investment property ownership themselves

Look for agents with specific island and neighborhood expertise, as Hawaii’s hyperlocal microclimates and regulations create significant variations even within short distances. The right agent should have deep understanding of zoning, vacation rental rules, and local market trends.

Property Manager

Role: Tenant screening, rent collection, maintenance, compliance, accounting

Selection Criteria:

• Experience with your specific property type (long-term vs. vacation)
• Strong tenant screening processes
• Clear fee structure without hidden charges
• Technology platforms for reporting and communication
• Established vendor relationships
• Understanding of Hawaii landlord-tenant laws

Typical Management Fees in Hawaii:

• Long-term rentals: 8-12% of monthly rent
• Vacation rentals: 20-30% of gross rental income
• Additional leasing fee: 50-100% of one month’s rent
• Setup/onboarding fees: $250-500 per property

Property management is particularly critical for Hawaii investments due to the state’s unique landlord-tenant laws and the logistics of managing properties from afar. For vacation rentals, choose managers with proven marketing capabilities and knowledge of compliance requirements.

Financing Team

Role: Securing optimal financing, navigating non-resident lending challenges

Key Members:

• Mortgage Broker: Access to multiple loan options and lenders familiar with Hawaii
• Local Bank Relationship: Hawaii-based lenders often have more favorable terms
• Credit Union Options: Several offer competitive investor programs
• Insurance Agent: Specialized in Hawaii property coverage

Financing Considerations for Hawaii:

• Higher down payment requirements for non-residents (25-30%+)
• Relationship-based lending with local institutions
• Specialized insurance needs for hurricane, flood, and lava zones
• Higher closing costs than many mainland states

Hawaii presents unique financing challenges, particularly for non-residents. Working with lending professionals who understand both Hawaii-specific considerations and non-resident investor needs is essential for securing favorable terms.

Support Professionals

Role: Specialized expertise for various investment aspects

Key Members:

• Real Estate Attorney: Hawaii-specific legal guidance, entity setup, transaction review
• CPA/Tax Professional: Non-resident tax filing requirements, GET tax compliance
• Home Inspector: Knowledge of Hawaii-specific issues (termites, lava zones, etc.)
• General Contractor: For renovations, repairs, maintenance coordination
• Vacation Rental Compliance Consultant: If pursuing short-term rental strategy

Due to Hawaii’s unique regulations, environmental considerations, and tax structure, having specialized professional support is even more important than in many mainland markets. This is particularly true for vacation rental investors who must navigate complex and changing regulatory landscapes.

Expert Tip: For non-resident investors in Hawaii, establishing a relationship with a local bank can significantly improve your financing options for future acquisitions. Even if your first purchase uses mainland financing, consider opening accounts with local institutions like First Hawaiian Bank, Bank of Hawaii, or local credit unions. Having established banking relationships with local institutions can provide access to more favorable terms on subsequent purchases and refinances, as local lenders often have more flexibility with Hawaii properties than mainland banks.

Location Analysis

Neighborhood Factors:

• Microclimate considerations (rainfall, sun exposure, prevailing winds)
• Proximity to beaches, shopping, and amenities
• School district quality if targeting family rentals
• Flood and tsunami evacuation zones
• Lava flow hazard zones (Big Island)
• Vacation rental zoning status
• Distance to major employment centers
• Public transportation access

Hawaii-Specific Considerations:

• Leasehold vs. fee simple ownership
• Special Management Area (SMA) restrictions for coastal properties
• Historical cultural site proximity
• Agricultural zoning limitations
• Cesspools vs. septic vs. sewer service
• Catchment water vs. county water service
• Homeowner association rules and fees

Hawaii real estate varies dramatically by location, often within very short distances. Understand the specific microclimate, infrastructure, and regulatory environment of each property’s exact location.

Financial Analysis

Income Estimation:

• Research comparable rental rates (check multiple listing services)
• Verify rates with local property managers
• Account for seasonal variations (especially for vacation rentals)
• Consider future rent growth potential
• Analyze current lease terms if property is tenant-occupied

Expense Calculation:

• Property Taxes: 0.28-0.40% of value annually (varies by county and classification)
• Insurance: 0.4-0.6% of value annually (higher in coastal/lava zones)
• Property Management: 8-12% for long-term; 20-30% for vacation rentals
• Maintenance: 10-15% of rent (higher than mainland due to climate effects)
• Capital Expenditures: 5-10% of rent for long-term replacements
• Utilities: Higher than mainland (electricity especially)
• HOA/Maintenance Fees: Often substantial for condos
• GET Tax: 4.5-4.712% of gross rental income (Hawaii-specific tax)
• TAT Tax: 10.25% additional for vacation rentals
• Vacancy: 5-8% for long-term; 30-40% for vacation rentals

Key Metrics to Calculate:

• Cap Rate: Net Operating Income ÷ Purchase Price (expect 3-5%)
• Cash-on-Cash Return: Annual Cash Flow ÷ Total Cash Invested (aim for 3%+)
• Gross Rent Multiplier: Price ÷ Annual Gross Rent
• Price Per Square Foot: Compared to area averages
• Total Return Projection: Combined cash flow and appreciation

Hawaii investors should be particularly careful with expense estimations, as operating costs are typically higher than mainland markets due to the tropical climate, shipping costs for materials, and specialized tax structure including GET (General Excise Tax) on rental income.

Physical Property Evaluation

Critical Systems to Assess:

• Structure: Post and pier vs. slab foundation, termite damage
• Roof: Age, condition, hurricane resistance
• HVAC: Type of cooling systems, humidity control
• Plumbing: Copper vs. galvanized, evidence of leaks
• Electrical: Panel capacity, wiring type, code compliance
• Windows: Hurricane resistance, seal integrity in salt air
• Lanais/Decks: Structural integrity, weather damage

Hawaii-Specific Concerns:

• Termite damage (endemic throughout Hawaii)
• Salt air corrosion on metals and finishes
• Mold/mildew issues from humidity
• Hurricane preparedness features
• Solar water heating and PV systems
• Catchment water systems (Big Island)
• Lava zone determination (Big Island)

Professional Inspections:

• General home inspection ($450-650)
• Specialized termite inspection ($150-300)
• Sewer/septic/cesspool inspection ($250-500)
• Electrical system evaluation ($150-300)
• Mold assessment if concerns exist ($300-800)

Hawaii’s unique climate creates property condition challenges different from mainland markets. Salt air corrosion, termites, and moisture issues are particularly common and require specialized assessment. For properties on catchment water or with cesspools/septic systems, additional specialized inspections are critical.

Expert Tip: When analyzing potential investments in Hawaii, pay special attention to the condition of lanais (balconies) and exterior components. Hawaii’s salt air environment accelerates corrosion on metal elements like railings, fasteners, and electrical fixtures. What might be a minor issue on the mainland can become a major expense in Hawaii’s climate. Structural repairs to concrete lanais in high-rise buildings can easily run $50,000+ if spalling concrete has damaged reinforcement steel. Look for properties with recent lanai renovations or budget accordingly for replacements within your investment timeline.

Contract and Negotiation

Hawaii-Specific Contract Elements:

• Hawaii Association of Realtors (HAR) forms standard
• Multiple counter-offer process common
• Extended inspection periods for non-resident buyers
• Disclosure of historical cultural sites required
• Oceanfront property shoreline certifications
• Leasehold disclosure forms when applicable
• Vacation rental permit status disclosure

Negotiation Strategies:

• Focus on inspection period length for remote buyers
• Request comprehensive disclosure package upfront
• Include vacation rental income verification in contract
• Specify furnishings included in detail (especially for vacation rentals)
• Request seller to address termite/moisture issues identified
• Include contingency for non-resident financing when needed

Hawaii real estate transactions often have extended timeframes compared to mainland markets, particularly when involving non-resident buyers. Understanding the standard procedure and negotiating appropriate contingencies is essential, especially for remote investors unable to personally visit the property.

Due Diligence

Property Level Due Diligence:

• Professional home inspection (schedule immediately)
• Termite inspection (essential in Hawaii)
• Review of seller’s disclosure (verify all systems functional)
• Verification of vacation rental permits/history (if applicable)
• Utility costs verification (request previous 12 months’ bills)
• Condominium/HOA document review (fees, reserves, rules)

Title and Legal Due Diligence:

• Title report review (verify fee simple ownership)
• Leasehold terms review if applicable (lease duration, rent renegotiation terms)
• Easement and encroachment identification
• Shoreline certification status for oceanfront properties
• Permit verification for structures and improvements
• Zoning confirmation (especially for vacation rental use)

Environmental Due Diligence:

• Flood zone and tsunami evacuation zone verification
• Lava zone determination (Big Island properties)
• Historical cultural site proximity checks
• Special Management Area (SMA) status for coastal properties
• Cesspool/septic system compliance status
• Soil stability assessment in steep terrain

Hawaii due diligence periods are typically 15-30 days, longer than many mainland markets to accommodate non-resident buyers. Schedule inspections promptly as qualified inspectors are in high demand, and specialized inspections may have limited availability, particularly on neighbor islands.

Closing Process

Key Closing Elements:

• Escrow companies handle closings (not attorneys)
• Typical closing timeline: 45-60 days from contract
• Remote closing options for non-resident buyers
• Notarized deed signatures required (international notary considerations)
• Cashier’s check or wire transfer for closing funds
• Prorations of property taxes, HOA fees, and utilities

Closing Costs:

• Conveyance tax: 0.1% to 1.25% based on price and owner-occupancy status
• Title insurance: ~0.75% of purchase price
• Escrow fee: $500-1,000
• Recording fees: $100-200
• Lender fees: Per lender (if financing)
• Notary fees: Higher for international documents

Post-Closing Steps:

• File tax map key adjustment with county
• Transfer utilities and services
• Change locks/security codes
• Register with HOA/AOAO if applicable
• Set up property management onboarding
• File non-resident tax forms if required

The Hawaii closing process is generally similar to western mainland states but with some unique tax considerations and higher closing costs. For non-resident buyers, plan ahead for document notarization, as international closings require additional lead time and specialized notary services.

Expert Tip: For non-resident investors purchasing Hawaii property, consider using a 1031 exchange intermediary familiar with Hawaii transactions. The state’s conveyance tax structure includes a higher rate tier (0.85-1.25%) for investor properties over $1 million, but proper transaction structuring can sometimes mitigate this impact. Additionally, having funds in a Hawaii-based bank before closing can streamline the process and avoid wire transfer delays that are common with international or even mainland U.S. banking institutions.

Long-Term Rental Management

Tenant Screening:

• Income verification (3x monthly rent minimum)
• Credit check (minimum score typically 650+)
• Criminal background check
• Rental history verification (previous 2-3 landlords)
• Employment verification (length of employment, stability)
• Military status verification if applicable

Lease Agreements:

• Hawaii-specific lease forms compliant with state law
• Security deposit limited to one month’s rent
• Required disclosures (lead paint, flood zone, etc.)
• Tenant property condition acknowledgment
• Clear policies on maintenance responsibilities
• Utilities and GET tax responsibility clearly defined

Maintenance Systems:

• Regular preventative maintenance schedule
• Rapid response for air conditioning issues
• Quarterly pest control treatments
• Humidity and mold prevention protocols
• Salt air corrosion mitigation strategies
• Vendor network for specialized repairs

Long-term property management in Hawaii requires understanding the state’s specific landlord-tenant laws, which generally provide stronger tenant protections than many mainland states. The tropical climate necessitates more frequent maintenance and different preventative care than mainland properties.

Vacation Rental Management

Permit Compliance:

• Maintain required permits and registrations
• Display tax ID numbers in all advertising
• Follow occupancy limit restrictions
• Comply with noise and parking regulations
• Track changing regulatory requirements

Marketing and Booking:

• Professional photography and virtual tours
• Listing on multiple booking platforms
• Dynamic pricing strategy for seasonal demand
• Minimum stay requirements during peak periods
• Guest screening procedures

Operations Management:

• Professional cleaning between guests
• Regular inventory and supply restocking
• 24/7 guest support availability
• Preventative maintenance schedule
• Security and access control systems

Financial Management:

• Collection and remittance of GET (4.5-4.712%)
• Collection and remittance of TAT (10.25%)
• Regular financial reporting and analysis
• Expense tracking and categorization
• 1099 generation for tax filing

Vacation rental management in Hawaii has become increasingly complex with county-specific regulations and compliance requirements. Professional management with regulatory expertise is strongly recommended to avoid potentially significant fines for non-compliance with Hawaii’s vacation rental laws.

Non-Resident Owner Considerations

Communication Systems:

• Regular reporting schedule from management
• Digital document access and storage
• Time zone considerations for communications
• Video inspection technology for remote oversight
• Clear emergency decision protocols

Financial Management:

• Hawaii bank account for rental income
• Electronic fund transfers for distributions
• Currency exchange considerations
• Non-resident tax filing requirements
• Record-keeping for GET/TAT compliance

Periodic In-Person Visits:

• Schedule annual property inspections
• Meet with management team in person
• Review and approve capital improvements
• Network with local service providers
• Evaluate market trends firsthand

Managing Hawaii investments from afar requires additional layers of oversight and systems. The time difference between Hawaii and mainland/international locations (Hawaii does not observe daylight saving time) adds complexity to communications, and the state’s unique tax structure requires specialized knowledge for compliance.

Expert Tip: Hawaii’s tropical climate creates unique maintenance challenges that require proactive management. Establish a quarterly preventative maintenance schedule that includes checking window and door seals, inspecting for water intrusion, testing smoke detectors, clearing drain lines, checking for pest activity, and verifying HVAC performance. For non-resident owners, consider scheduling these quarterly check-ups to coincide with detailed walkthrough videos from your property manager. This approach can prevent minor issues from becoming major expenses—particularly important given Hawaii’s higher-than-mainland repair costs and limited contractor availability.

Hawaii-Specific Taxes

General Excise Tax (GET):

• Applies to gross rental income at 4.5-4.712% (varies by island)
• Different from standard sales tax (applied to gross receipts)
• Required registration and filing for all landlords
• Can be passed through to tenants if specified in lease
• Filing frequency based on annual revenue

Transient Accommodations Tax (TAT):

• Additional 10.25% tax on rentals under 180 days
• Applies to vacation rentals, B&Bs, short-term rentals
• Separate registration and filing requirements
• County surcharges may apply in addition
• Significant penalties for non-compliance

Property Taxes:

• Among the lowest effective rates in the US (0.28-0.40%)
• Tiered classification system with higher rates for non-owner-occupied
• Highest rates applied to vacation rental properties
• Condominium properties individually assessed
• County-specific exemptions and programs

Hawaii’s tax structure for real estate investors is significantly different from mainland states, requiring specialized knowledge for compliance. The GET in particular often surprises mainland investors, as it applies to gross rental receipts rather than net income and is in addition to standard income taxes.

Non-Resident Tax Considerations

Hawaii Income Tax Filings:

• Non-resident N-15 tax return required
• Income taxes on Hawaii-sourced rental income
• Progressive tax rates up to 11% on taxable income
• Potential estimated tax payment requirements
• Passive activity loss limitations

HARPTA Withholding:

• Hawaii Real Property Tax Act (HARPTA) withholding
• 7.25% of sales price withheld at closing for non-residents
• Potential for exemption or reduced withholding
• Form N-289 filing required
• Refund claim process for excess withholding

Federal Tax Implications:

• Federal income tax on rental income
• State income taxes deductible on Schedule E
• GET not directly deductible as tax (business expense)
• Depreciation recapture on sale
• 1031 exchange potential for future acquisitions

Non-resident investors face additional tax compliance requirements both federally and with Hawaii state authorities. Working with tax professionals specialized in Hawaii non-resident taxation is essential for proper compliance and optimization.

Entity Structuring for Tax Efficiency

Common Entity Options:

• Individual Ownership: Simplest structure but with highest liability exposure
• Single-Member LLC: Liability protection with pass-through taxation
• Hawaii-Registered LLC: Required for vacation rental properties in some counties
• S-Corporation Election: Potential self-employment tax savings
• Limited Partnership: Multiple investor structure with tax advantages

Entity Considerations:

• Hawaii registration requirements for foreign entities
• Annual filing compliance for Hawaii entities
• Hawaii GET registration for business entities
• Property insurance requirements for different structures
• Banking relationship implications

Hawaii-Specific Factors:

• Some counties require local entity registration for vacation rentals
• Different property tax classification potential based on entity type
• Hawaii requires resident agent for registered entities
• Tax ID publication requirements for vacation rentals
• Liability considerations for high-tourism areas

Entity structuring for Hawaii investments requires balancing liability protection, tax efficiency, and regulatory compliance. For vacation rental investors, local entity formation is increasingly important due to regulatory requirements in certain counties requiring local business registration.

Expert Tip: For mainland investors with Hawaii vacation rentals, consider setting up a two-entity structure: a mainland LLC that owns a Hawaii LLC. The Hawaii LLC holds the property and handles the rental operations, addressing county requirements for local business registration and providing a clear point of contact for regulatory matters. The mainland LLC serves as the parent company, potentially offering additional asset protection layers and simplifying estate planning. This structure requires additional setup and maintenance costs but can provide significant compliance and liability protection benefits in Hawaii’s increasingly regulated vacation rental market.

Traditional Sale

Best When:

• Significant appreciation has accrued
• Local market conditions favor sellers
• Major renovations/updates are approaching
• Investment goals or portfolio strategy has changed
• Personal financial needs require liquidity
• 1031 exchange into other property is planned

Preparation Steps:

• Strategic improvements for maximum ROI
• Professional photography and virtual tours
• Timing based on seasonal market patterns
• Tenant coordination or vacation rental income optimization
• Tax planning to minimize HARPTA withholding
• 1031 exchange preparation if applicable

Cost Considerations:

• Real estate commissions (typically 5-6%)
• Escrow and closing costs (1-2%)
• HARPTA withholding for non-residents (7.25%)
• Hawaii capital gains taxes (up to 7.25% state)
• Federal capital gains taxes and depreciation recapture
• Conveyance tax (varying rates based on property type and value)

Hawaii’s seller’s market often provides favorable exit opportunities, particularly for properties in desirable locations with limited supply. However, non-resident sellers must plan for HARPTA withholding, which temporarily reduces sale proceeds until tax returns are filed.

1031 Exchange

Best When:

• Significant capital gains have accumulated
• Continuing real estate investment is planned
• Moving investment to different locations or property types
• Upgrading to higher-value properties
• Consolidating multiple properties into fewer larger assets
• Transitioning from vacation rentals to long-term investments

Key Requirements:

• Like-kind property (broadly defined for real estate)
• Equal or greater value to defer all gain
• 45-day identification period
• 180-day closing period
• Qualified intermediary to hold proceeds
• Same taxpayer/entity on title

Hawaii-Specific Considerations:

• Hawaii follows federal 1031 guidelines
• Can exchange Hawaii property for mainland (or vice versa)
• HARPTA withholding may still apply (can request exemption)
• Potential to exchange into multiple replacement properties
• Hawaii state capital gains deferral aligns with federal

The 1031 exchange strategy is particularly valuable for Hawaii investors who have experienced substantial appreciation and wish to preserve equity while diversifying their portfolio geographically or transitioning between property types.

Vacation Rental Conversion

Best When:

• Vacation rental regulations become more restrictive
• Tourism market experiences downturns
• Operating costs outpace rental income growth
• Long-term rental demand increases in the area
• Personal management capacity changes
• Property condition requires significant reinvestment

Conversion Considerations:

• Removal of excess furnishings and supplies
• Modification of insurance coverage
• Tax registration changes (GET remains, TAT ends)
• Property tax classification adjustment request
• Targeting different tenant demographics
• Different property management requirements

Converting vacation rentals to long-term rentals represents a common transition strategy as properties age or as regulations tighten. This approach preserves the investment while shifting to a more stable, lower-management model with potentially lower returns but greater predictability.

Owner Financing / Installment Sale

Best When:

• Higher sale price is priority over immediate cash
• Steady income stream is desired
• Tax benefits from installment sale desired
• Buyer pool expansion needed in tight credit markets
• Property has challenges for traditional financing
• Higher interest returns compared to other investments

Hawaii-Specific Considerations:

• Hawaii foreclosure laws if default occurs
• HARPTA implications for each payment received
• Non-resident tax filing requirements continue
• GET potentially applicable to interest income
• Remaining liability for association fees if default occurs
• Title insurance recommendations for seller protection

Owner financing can create win-win situations in Hawaii’s high-priced market by helping buyers overcome financing challenges while providing sellers with premium pricing and tax advantages through installment sale treatment. However, non-resident sellers must continue Hawaii tax compliance throughout the financing period.

Expert Tip: When planning your exit from a Hawaii investment property, consider timing your sale during the prime buying season from December through April. This period brings the highest concentration of mainland and international buyers to Hawaii, often resulting in premium pricing. For vacation rental properties, selling with a strong booking history for the upcoming high season can significantly increase buyer interest and value. Provide detailed rental income history, occupancy rates, and future reservations as part of your marketing package. If you’re considering a 1031 exchange from Hawaii to mainland properties, work with exchange intermediaries familiar with HARPTA withholding strategies to maximize your reinvestment capital.