Hawaii's real estate market presents unique investment opportunities for those looking to diversify their portfolios. The islands offer everything from luxury beachfront properties to affordable inland homes, each with varying potential returns. Investing in Hawaiian real estate can provide both significant appreciation over time and strong rental income potential, especially in areas popular with tourists and long-term residents alike.
When considering property investment in Hawaii, location becomes even more critical than in mainland markets. The limited land availability on the islands creates natural scarcity that can drive value, while the best places to invest in Hawaii vary significantly based on island, proximity to amenities, and local regulations. Understanding these market dynamics is essential before committing capital to this paradise real estate market.
1) Keaau (96749) – Best overall real estate investment market
Keaau, located on the Big Island of Hawaii, ranks as the top residential real estate investment market in Hawaii. It stands out with the 11th highest property value appreciation among markets analyzed.
The housing market in Keaau is notably affordable compared to other Hawaiian locations. With an average house price of $285,000 as of early 2025, prices have decreased by 39% year-over-year, creating an attractive entry point for investors.
The 96749 zip code offers investors a rare combination of growth potential and relatively low entry costs. This makes it particularly appealing for those looking to build a portfolio in Hawaii's normally expensive real estate environment.
Keaau's market is currently not very competitive, scoring only 14 out of 100 on competitiveness scales. This low competition environment gives investors better negotiating power and more options when purchasing property in Keaau.
Investment properties in this area benefit from proximity to Hilo and access to the natural beauty of the Big Island, making them attractive for both long-term rentals and vacation properties.
2) Waikoloa (96738) – Growing resort and residential area
Waikoloa is emerging as one of the best real estate investments in Hawaii. Located on the Big Island, this growing area combines resort amenities with residential neighborhoods, creating diverse investment opportunities.
The 96738 zip code offers strong potential for property appreciation. Waikoloa's increasing popularity stems from its beautiful scenery and strategic location on the Kohala Coast, making it attractive to both residents and visitors.
Tourism drives much of the local economy, creating steady rental demand. The area features world-class golf courses, shopping centers, and beaches that appeal to vacationers year-round.
Investors should consider both short-term vacation rentals and long-term residential properties. The Waikoloa Beach Resort area continues to grow in popularity due to its scenic beauty and robust tourism industry.
Development projects like Lofts West show the area's commitment to expanding housing options. These two-bedroom apartment rentals with ocean views cater to the steadily growing Waikoloa Village community.
Property values in Waikoloa have shown resilience even during market fluctuations. The combination of limited island land and continued interest from mainland buyers helps maintain strong demand.
3) Kohala Coast – High-end vacation rental opportunities
The Kohala Coast on Hawaii's Big Island has become a prime location for luxury vacation rental investments. This area attracts affluent travelers willing to pay premium rates for high-end accommodations and exclusive experiences.
The coast features several upscale resort areas including Mauna Kea, Mauna Lani, and Waikoloa Beach Resort. These locations offer investors access to high-end clientele that pay premium rental rates.
Property values here remain strong due to strict zoning regulations that limit new development. This restriction creates scarcity and helps maintain both property values and rental rates at attractive levels for investors.
The area's stunning beaches, championship golf courses, and luxury amenities make it particularly appealing to wealthy tourists. Many rental properties offer resort-style amenities that justify higher daily rates.
Investors should consider properties within Kohala Coast luxury resorts that permit vacation rentals. These often come with management services that handle guest needs while maximizing occupancy rates.
Year-round pleasant weather means consistent rental demand across seasons, though peak periods command even higher rates. Properties with ocean views or beach access typically generate the strongest returns.
4) Kona Coast – Popular with tourists and steady demand
The Kona Coast on Hawaii's Big Island offers investors a robust market backed by consistent tourism. Located on the western side of the island, this area enjoys sunny weather and beautiful beaches that attract visitors year-round.
Kailua-Kona serves as the main hub of the region and represents one of the top real estate investment areas in Hawaii. Property values here have maintained stability even during market fluctuations elsewhere.
Short-term vacation rentals perform exceptionally well in this market. The area boasts a vibrant tourism scene and attractive real estate market, making it ideal for Airbnb and VRBO investments.
Investors should focus on properties near popular attractions like Kailua Bay, Magic Sands Beach, and coffee farms. These locations command premium rental rates and experience minimal vacancy periods.
The median home price remains competitive compared to other Hawaiian tourist destinations, providing a lower entry point for investors. Many properties can achieve 6-8% annual returns with proper management and marketing.
Local regulations generally favor vacation rentals in designated tourist zones, but investors should verify zoning requirements before purchasing.
5) Hamakua Coast – Emerging market for affordable properties
The Hamakua Coast on Hawaii's Big Island offers investors a unique opportunity in an emerging market. This stretch along the northeastern side of the island features lush landscapes, stunning ocean views, and significantly lower property prices compared to more developed areas.
Investors are discovering affordable homes on the Hamakua Coast with properties selling for 30-40% less than comparable options in Kona or Kohala. Small communities like Ninole stand out as hidden gems for budget-conscious buyers.
The area's growing appeal stems from its authentic Hawaiian character and relative underdevelopment. Properties here typically come with larger land parcels, many featuring 1+ acres with agricultural potential.
Current market trends show homes on the Hamakua Coast ranging from $500,000 to $700,000 for nice houses on substantial acreage. This price point attracts both long-term investors and those seeking vacation rentals off the beaten path.
Infrastructure improvements and growing tourism interest in the area's natural beauty suggest potential for appreciation. The region's distance from major tourist centers also offers a more authentic experience for visitors seeking the "real Hawaii."
6) Kapolei – Diverse economy with strong rental potential
Kapolei, often called Oahu's "Second City," has emerged as a promising investment location for real estate investors. Located on the western side of Oahu, this growing area offers numerous advantages for property investors.
The city boasts a diverse economy driven by tourism, retail, and healthcare sectors. This economic diversity creates stability and consistent rental demand throughout the year.
Kapolei has seen significant development in recent years. Major retailers like Costco and Target have established locations here, contributing to the area's growth and appeal.
The population continues to expand, with over 21,000 residents now calling Kapolei home. This population growth directly translates to increased rental demand.
Investors find Kapolei attractive due to its strategic location on Oahu, which appeals to both long-term renters and vacationers. The area's proximity to beaches, shopping centers, and employment hubs makes properties here highly desirable.
New housing developments continue to emerge, offering investors various entry points into this market. From condos to single-family homes, opportunities exist for different investment strategies and budgets.
Transportation improvements, including expanded highway access, have enhanced Kapolei's connectivity to other parts of the island, further boosting its appeal and long-term growth potential.
7) Oahu (Honolulu & Waikiki) – Largest population and job diversity
Oahu stands out as Hawaii's economic powerhouse, hosting the largest population in the Hawaiian islands. This island offers investors a robust market due to its economic stability and diverse job market.
Honolulu, as the state capital, provides numerous investment opportunities with strong rental demand throughout the year. The city attracts professionals across various industries, creating a reliable tenant pool for long-term rentals.
Waikiki remains one of the most lucrative areas for short-term rental investments in Hawaii, commanding premium rental prices. Its world-famous beaches and tourist attractions ensure high occupancy rates year-round.
The diversity of neighborhoods across Oahu gives investors flexibility. From luxury beachfront condos to suburban single-family homes, property types vary widely to match different investment strategies.
Oahu's real estate market benefits from strong rental demand year-round, reducing vacancy risks. The island's popularity with both tourists and permanent residents creates multiple revenue streams for savvy investors.
Property appreciation on Oahu tends to remain stable compared to other Hawaiian islands, providing investors with potential long-term equity growth alongside rental income.
Key Factors To Consider Before Investing In Hawaii
Hawaii's real estate market offers unique opportunities, but investors must weigh several critical factors before committing capital to this island paradise.
Local Market Trends
Hawaii's real estate market varies significantly by island and neighborhood. Currently, the Kohala and Kona Coasts on the Big Island show strong investment potential due to their popularity with tourists and luxury buyers.
Vacancy rates remain low across most Hawaiian islands, hovering between 1-3% in desirable areas. This tight supply creates consistent rental demand.
Property appreciation has averaged 5.8% annually over the past decade, outpacing the national average. However, market volatility can be higher due to Hawaii's dependence on tourism.
Investors should track:
- Median home prices by neighborhood
- Days on market (DOM) trends
- Rental rate changes
- Tourist arrival statistics
Seasonal fluctuations affect rental income, with winter months typically seeing higher rates as mainland residents seek warmer weather.
Regulatory Environment
Hawaii has distinctive property laws that investors must understand. The state operates under a dual system of land ownership that includes fee simple and leasehold properties.
Non-resident investors face additional scrutiny when purchasing Hawaiian real estate. Out-of-state buyers pay a higher conveyance tax rate of 0.6% compared to 0.3% for residents.
Short-term rental regulations vary dramatically by county:
- Oahu has strict limitations on vacation rentals outside resort zones
- Maui County requires permits for rentals under 180 days
- Hawaii County (Big Island) allows vacation rentals in certain zones with proper permits
Zoning restrictions can impact investment strategies, particularly for property development or conversion projects. Many areas have limited land available for new construction, driving up existing property values.
Environmental regulations are stringent, with special attention to coastal properties and protected land areas.
Cost Of Living And Property Taxes
Hawaii maintains relatively low property tax rates compared to mainland states, with an average effective rate of 0.28%. However, high property values still result in substantial tax bills for investors.
Property tax rates vary by county:
County Effective Tax Rate
Honolulu 0.35%
Maui 0.19%
Kauai 0.25%
Hawaii 0.32%
Insurance costs run significantly higher than mainland rates due to risks from hurricanes, flooding, and volcanic activity. Investors should budget 30-40% more for adequate coverage.
Maintenance expenses exceed national averages due to Hawaii's humid climate, salt air exposure, and higher labor costs. Smart investors set aside 2-3% of property value annually for repairs.
Utility costs rank among the highest in the nation, with electricity prices approximately 2-3 times the mainland average. This affects both operating expenses and tenant affordability in rental properties.
The high cost of living impacts tenant income ratios and rental rate ceilings, potentially limiting cash flow for investors.
Financing And Ownership Considerations
Investing in Hawaii real estate requires understanding specific financial arrangements and property ownership structures unique to the islands.
Financing Options For Non-Residents
Non-resident investors in Hawaii face different lending requirements than locals. Most banks require larger down payments—typically 25-30% for non-residents compared to 20% for residents. Interest rates also tend to be 0.5-1% higher for out-of-state buyers.
Bank of Hawaii offers flexible equity lines of credit and loans secured by investment portfolios specifically designed for real estate investment. These can provide better terms than mainland lenders unfamiliar with Hawaii's market.
For foreign investors, working with lenders experienced in international transactions is crucial. Some investors use private money lenders who charge higher rates but offer faster closing times and fewer restrictions.
Cash buyers have significant advantages in Hawaii's competitive market, often securing discounts of 3-5% and faster closing times that appeal to sellers.
Leasehold Versus Fee Simple Properties
Hawaii has two primary property ownership types: fee simple and leasehold. Fee simple ownership gives complete property rights with no time limitations. This is the standard ownership type on the mainland and generally maintains better value.
Leasehold properties grant ownership for a fixed period (typically 55-99 years) with land rent paid to the landowner. These properties are significantly cheaper to purchase but have drawbacks including declining value as the lease term shortens.
Lenders often restrict financing on leasehold properties with less than 30 years remaining. Some leases allow renegotiation of terms at specific intervals, potentially causing unpredictable land rent increases.
Investors should carefully examine lease terms before purchasing. Converting leasehold to fee simple is sometimes possible but expensive, especially in prime areas like Waikiki.
Frequently Asked Questions
Hawaii's real estate investment landscape offers unique opportunities and challenges. Investors need to understand the specific market dynamics, legal requirements, and financial considerations before committing capital.
What are the potential returns on real estate investment in Hawaii?
Real estate investments in Hawaii typically yield annual returns between 4-8% depending on location and property type. Vacation rentals in prime areas like Waikiki's tourist hotspots can generate higher returns due to strong visitor demand.
Short-term rentals often outperform long-term rentals in popular destinations such as the Kona Coast and Kohala Coast. However, they require more active management and may face seasonal fluctuations.
Property appreciation in Hawaii has historically outpaced national averages, with some areas seeing 5-10% annual appreciation over the past decade. Keaau and Waikoloa have shown particularly strong growth potential in recent years.
How does the Hawaiian real estate market compare to other coastal markets?
Hawaii's real estate market features significantly higher entry costs than most mainland coastal markets. The median home price in Hawaii is approximately 2-3 times higher than the national average.
Limited land availability creates natural supply constraints, which helps maintain property values even during market downturns. This contrasts with some mainland coastal markets that experience more dramatic boom-bust cycles.
Hawaii's investment opportunities in newer subdivisions offer more stability than many other vacation destinations due to year-round tourism and the islands' unique appeal. Market competition is intense, particularly in prime locations.
What factors should be considered when purchasing investment properties in Hawaii?
Location remains the primary value driver, with proximity to beaches, amenities, and tourist attractions commanding premium prices. Properties in Ewa Beach and Wailuku offer better value than Honolulu while still providing good rental potential.
Natural disaster risks, including volcanic activity, tsunamis, and hurricanes, must be factored into investment decisions. Insurance costs can be substantially higher than mainland properties.
Property management logistics present challenges for off-island investors. Professional management typically costs 8-12% of gross rental income, impacting overall returns.
Water damage, termites, and salt air corrosion create higher maintenance costs than comparable mainland properties. Budget for increased repair and replacement expenses when calculating potential returns.
Can non-residents buy and own property in Hawaii, and are there any specific regulations?
Non-residents can freely purchase and own property in Hawaii with the same rights as residents. There are no restrictions based on citizenship or residency status for real estate ownership.
Property tax rates for non-residents are identical to resident rates. However, non-resident rental property owners face more complex tax filing requirements at both state and federal levels.
Vacation rental regulations vary significantly by island and neighborhood. Some areas have strict zoning laws limiting short-term rentals, while others encourage tourism-focused properties.
Leasehold properties exist in Hawaii, where investors own buildings but not the underlying land. These typically come with lower purchase prices but ongoing lease payments.
What are the tax implications of owning investment property in Hawaii?
Hawaii imposes a General Excise Tax (GET) of 4.5% on gross rental income, which is different from and in addition to standard income taxes. This tax applies to both short-term and long-term rentals.
The state income tax rates range from 1.4% to 11%, with investment property income subject to these progressive rates. Non-residents must file Hawaii state tax returns for rental income.
Property tax rates in Hawaii are relatively low compared to many mainland locations, ranging from $3.50 to $6.00 per $1,000 of assessed value depending on the county and property use.
Transient Accommodation Tax (TAT) of 10.25% applies to rentals under 180 days. This additional tax significantly impacts the economics of vacation rental properties.
What are the emerging areas in Hawaii for real estate investment?
The Hamakua Coast on the Big Island offers lower entry prices with growing appeal. This area features rural charm with increasing infrastructure development and improving accessibility.
Puna District presents opportunities for budget-conscious investors seeking higher cap rates. Property values here are among the most affordable in Hawaii but come with higher volcanic activity risk.
Up-and-coming neighborhoods in Kihei and Kahului on Maui are seeing increased development and interest from both locals and tourists. These areas offer a balance of affordability and rental demand.
Areas near planned infrastructure improvements, such as transit lines or commercial developments, present potential for significant appreciation. Research local government development plans when identifying emerging markets.
