Recently, there has been an increase in inquiries from clients preparing for retirement who are looking to manage their assets while asking about depreciation and tax benefits. Honolulu is a market where it is difficult to separate depreciation from other factors. Due to the high purchase prices, it is often necessary to revisit the purchase structure before calculating taxes. According to RentCafe, the average rent in Honolulu is projected to be $2,151 in 2026, which is a 4.57% increase from the previous year. Other sources indicate that the average rent in urban Honolulu could be as high as $2,700, but this figure includes a mix of condos and single-family homes, leading to significant differences.

Property tax is one of the most unique aspects of Honolulu. The tax rate applicable from July 2025 to June 2026 shows that for homeowners receiving a home exemption, the net taxable value is $3.50 per $1,000. In contrast, residential properties classified as investment properties (Residential A) are taxed at $4.00 per $1,000 for the first $1 million, and a high rate of $11.40 per $1,000 applies to amounts above that. This means that whether a $1.5 million home is classified as a primary residence or an investment property can result in a tax difference of nearly $7,000 annually. While this aspect is not favorable, calculating the tax structure in advance can help avoid unexpected burdens.

In terms of tenant protection, Hawaii's Residential Landlord-Tenant Code, HRS Chapter 521, requires landlords to notify tenants at least 45 days in advance of any rent increase for month-to-month tenants. While there is no cap on the amount of rent increase, raising rent without notice or retaliating against tenants for exercising their rights is prohibited. Although it is not a rent control measure that regulates the rate of increase, the procedural structure tends to favor tenants.

Loan conditions are not significantly different from other areas. Investment properties require a down payment of 15% to 25%, and credit scores starting from 620 are eligible for consideration, but favorable rates typically require a score above 740. However, given the high purchase prices, the absolute amount of the down payment is also substantial, and considering that only 75% of rental income is recognized as income, the loan limits may be tighter than expected. Since the purchase prices are higher than the national average, maintaining a credit score above 740 can be advantageous in negotiations for better rates.

When adding property management fees of 8% to 12%, annual maintenance costs of about 1% of the property value, and landlord insurance premiums, the net income is certainly lower than the gross rent. In markets with high purchase prices, it seems more realistic to first consider the property tax structure and cap rates rather than relying solely on tax savings from depreciation. If you are planning to reposition your assets, it may also be worth considering a 1031 exchange to defer capital gains taxes.

Among the recent cases reviewed, there were instances where clients reconsidered their plans after realizing the tax differences between registering a property as a primary residence versus an investment property. Checking the classification and tax rate of a parcel on the county's property tax website before purchasing can help reduce such missteps.

Honolulu's purchase prices and rents are both among the highest in the nation, making it easy to perceive the numbers as attractive at first glance. However, I have repeatedly confirmed through actual cases that the effective cap rates, when accounting for property taxes, insurance, and management costs, are often lower than in many cities on the mainland. Nevertheless, for long-term investors prioritizing capital appreciation, it is still a market worth watching. Given the nature of tourist areas, short-term rental regulations vary by location, so it is important to consider which type of rental—long-term or short-term—you are interested in, as this will affect the documents you need to check before purchasing. Families considering school districts should also remember to verify GreatSchools ratings and assigned schools before making a purchase. This article is not investment or legal advice, and it is recommended to consult real estate and tax professionals before entering into any contracts.