Kauai Rental Property ROI: What Investors Need to Know Before They Buy
Kauai Rental Property ROI: What Investors Need to Know Before They Buy
Expectation-setting post investors need.
The metric used for investments is your return on investment (ROI). I’m going to add a little more mathematics with the next part because I’m a retired high school mathematics teacher.
Return on Investment (ROI)
ROI = (current value – cost of your investment) / cost of your investment) x 100 = % of investment
Example:
Initial cost of your investment = $500
Current value = $800
ROI = (800 – 500) / 500) x 100 = 60% return on investment
It’s a simple concept. If you get nothing in return, the chances of spending more money on that investment are almost nothing. Let’s look at real estate investments.
Long-Term Investment vs Short-Term Investment
In my previous post, I talked about the differences between long-term and short-term investments. Fortunately or unfortunately, the Hawaii economy, as well as the economy on Kauai, is dependent on visitor spending in the state and on Kauai.
With a 64.8% occupancy rate (from my previous post), vacation and short-term rentals rely on steady occupancy. That means if you had a 10-unit vacation rental, three or four units will be vacant for the year. Those are the numbers.
If you have no mortgage on the vacation rentals, you might be able to absorb the revenue loss from 30% – 40% of the units being vacant. However, if you have a mortgage on your vacation rental, that makes it harder for you to see a return on your investment.
With long-term investment, you might be okay if you’re a newer investor. It all depends on finding the right tenant to rent your long-term rental. If you find a tenant who stays 10 – 15 years, pays their rent on time, and keeps the unit clean and maintained, your return on investment might be something worthwhile.
It is not to say that there is no cash flow with short-term rentals in visitor destination areas (VDAs) on Kauai. It is a matter of finding the right short-term rental and the right investment you can afford. With a 64.8% occupancy rate in Hawaii, and generally on Kauai, you can make money from your short-term rental.
Think long term.
Real estate appreciates about 4.5% annually. Again, being a former high school mathematics teacher, let’s look at the numbers.
A = P(1 + r)t; exponential function model
A = amount in value, r = interest rate, t = time in years
A = $380,000(1 + 0.045)20 = $916, 451. 33
Let’s say you pay down about 36% of your $380,000 mortgage. The mortgage left to pay on your short-term investment will be $243,200. The return on investment on the short-term rental will be:
ROI = ($916,451.33 – $243,200) / $243,200) x 100 = 276.8% return on investment
For other tax deductions to help you with your real estate investment, contact your CPA or tax attorney for advice.
It might be a good idea to hold onto your short-term rental for the long term to take advantage of Hawaii’s 4.5% real estate appreciation.
Tax Ramifications
But, if you’re a short-term rental property owner, you will be taxed a lot more than a long-term property owner (see my previous post on 3/19/2026).
Long-Term Expectation
According to the University of Hawaii Research Organization (UHERO, 2026 Qtr 1), the occupancy rate for visitors on Kauai will remain relatively unchanged through 2028.
| MAJOR INDICATORS | 2024 | 2025 | 2026 | 2027 | 2028 |
|---|---|---|---|---|---|
| Nonfarm Payrolls (Thou) | 639.3 | 643.0 | 644.0 | 645.3 | 647.0 |
| % Change | 1.1 | 0.6 | 0.2 | 0.2 | 0.3 |
| Unemployment Rate (%) | 3.0 | 2.7 | 2.3 | 2.3 | 2.3 |
| Population (Thou) | 1,434.4 | 1,432.3 | 1,432.2 | 1,431.5 | 1,431.2 |
| % Change | 0.0 | -0.1 | 0.0 | -0.1 | 0.0 |
| Nominal Personal Income (Mil $) | 102,699.8 | 107,836.0 | 111,793.8 | 116,103.1 | 120,395.3 |
| % Change | 5.9 | 5.0 | 3.7 | 3.9 | 3.7 |
| Inflation Rate, Honolulu MSA (%) | 4.4 | 2.6 | 2.8 | 2.7 | 2.5 |
| Real GDP (Mil 2025$) | 117,627.4 | 121,283.4 | 123,236.8 | 124,966.3 | 126,570.3 |
| % Change | 5.9 | 3.1 | 1.6 | 1.4 | 1.3 |
| Real Personal Income (Mil 2025$) | 102,699.8 | 105,092.2 | 106,025.9 | 107,248.2 | 108,453.0 |
| % Change | 1.5 | 2.3 | 0.9 | 1.1 | 1.1 |
| Real Per Capita Income (Thou 2025$) | 71.6 | 73.4 | 74.0 | 74.9 | 75.8 |
| % Change | 1.5 | 2.5 | 0.9 | 1.2 | 1.1 |
| TOURISM SECTOR DETAIL | |||||
| Total Visitor Arrivals by Air (Thou) | 9,706.0 | 9,645.2 | 9,586.2 | 9,741.2 | 10,020.1 |
| % Change | 0.5 | -0.6 | -0.6 | 1.6 | 2.9 |
| U.S. Visitors | 7,384.1 | 7,413.3 | 7,479.6 | 7,539.6 | 7,669.1 |
| % Change | -1.6 | 0.4 | 0.9 | 0.8 | 1.7 |
| Japanese Visitors | 707.6 | 769.4 | 793.8 | 819.0 | 806.5 |
| % Change | 20.1 | 3.9 | 4.4 | 6.5 | 10.8 |
| Other Visitors | 1,613.9 | 1,496.6 | 1,338.7 | 1,383.5 | 1,444.6 |
| % Change | -1.7 | -7.3 | -10.6 | 3.4 | 4.4 |
| Average Daily Census (Thou) | 230.5 | 227.5 | 226.8 | 232.4 | 239.6 |
| % Change | -1.8 | -1.3 | -0.3 | 2.5 | 3.1 |
| Average Daily Room Rate ($) | 363.4 | 366.5 | 366.0 | 366.6 | 372.5 |
| % Change | -3.7 | 0.8 | -0.1 | 1.0 | 1.6 |
| Occupancy Rate (%) | 66.2 | 65.0 | 63.2 | 64.7 | 66.6 |
The most positive outlook for real estate investors in short-term rental property is to think long-term and take advantage of the 4.5% real estate appreciation. If you’re familiar with the “Buy, Sell, Hold” metric used in buying stocks, it is a “hold” for short-term property owners.
However, risk tolerance varies from person to person. You decide what you need in terms of your return on investment (ROI).
Summary
Visitors to Hawaii and to Kauai will remain relatively the same, as will the occupancy rate on Kauai. With today’s forecast on visitors to the island and the real estate market, it might be a good idea to hold on to your short-term rental for a few more years until you can find the right price point if you sell your real property.
If you own a long-term real estate property and have a long-term tenant who pays on time and takes care of your property, keep your rental income flowing.
For current real property owners in long-term and short-term rentals, holding on to your real property might be a good move until you can assess your return on investment and determine if it is worthwhile to stay or sell your investment property.
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