Vacation Rental Investment in Kona: A Large, Actively Regulated Market

The Scale of Kona's STVR Market Is Real

Kailua-Kona is estimated to account for roughly 40 to 43% of Hawai'i Island's entire short-term vacation rental inventory across different real-estate-industry estimates -- an outsized concentration reflecting the town's position as the island's main tourism gateway through Ellison Onizuka Kona International Airport, which handled roughly 4.17 million passengers in 2025. That volume is the fundamental demand driver behind any Kona rental investment thesis: this is a market with genuinely large, consistent visitor throughput, not a speculative bet on tourism arriving. It's also, precisely because of that scale, the epicenter of the county's current regulatory attention -- a market this saturated with short-term rental use is exactly where local housing-availability concerns and county policy pressure concentrate first.

Zoning and Registration: Confirm Eligibility Before Assuming Rental Income

The foundational rule is Bill 108, adopted in 2018 as Ordinance 2018-114, which defined where STVRs are permitted by zoning, established operating standards, and created a Nonconforming Use Certificate (NUC) pathway for rentals that existed outside permitted zoning districts before the ordinance -- allowing them to continue operating under grandfathered status rather than requiring immediate closure. More recently, Ordinance 25-50 (Bill 47) created a formal registration requirement for transient vacation rentals, with the compliance deadline extended to September 1, 2026. And in 2024, the state legislature expanded county authority further, empowering counties including Hawaii County to regulate the time, place, manner, and duration of transient accommodation use, and to amortize -- meaning phase out over a defined transition period -- such uses in residential or agricultural zones. That last point matters enormously for investment underwriting: a property that is currently, legally operating as an STVR is not guaranteed to remain eligible indefinitely if it sits in a zone the county later decides to phase the use out of, even under a grandfathered NUC.

Compliance among existing operators is genuinely mixed as of the most recent figures found: county estimates suggest only around 3,500 of the island's roughly 8,008 STVR units were registered, meaning roughly half the existing inventory may be operating out of compliance with current rules -- and the county estimates it is missing approximately $12 million in Transient Accommodations Tax and $1.6 million in General Excise Tax annually as a result. A buyer evaluating any Kona property marketed with existing rental income should treat the seller's or listing's rental history as informational only, and independently confirm the property's actual current zoning eligibility and registration status directly with Hawaii County's Planning Department before underwriting future income off it -- an unregistered or noncompliant rental history isn't a reliable baseline for projecting legal future income.

The Tax Math: Three Layers, Not One Combined Rate

Rental income from a Kona STVR is taxed through three separate, additive layers, none of them optional for a compliant operator. The state Transient Accommodations Tax rose from 10.25% to 11%, effective January 1, 2026. Hawai'i County layers its own separate 3% county TAT on top. And the state's General Excise Tax, 4% in Hawaii County (versus 4.5% on Oahu), applies to the rental income itself. These layer onto whatever platform or property-management fees a specific operating structure involves, and onto the property tax bill itself -- which, notably, is not necessarily assessed at the lower owner-occupied rate for an investment property used primarily for short-term rental; expect the non-owner residential tiered rate ($11.10-$17.00 per $1,000 depending on assessed value for FY2026-27) or potentially a distinct classification, which this research pass could not fully confirm exists separately -- to apply instead. Run the full tax stack, not just the headline TAT figure, before modeling projected net rental yield.

Insurance Is a Real, Current Underwriting Risk for Condo Investments Specifically

Anyone considering a Kona condo specifically as an STVR investment should weigh Hawaii's documented 2024-2025 condo insurance crisis as a real underwriting factor, not a side issue. Legislative testimony in 2024 put the number of underinsured Hawaii condo buildings statewide at 375-390, with some association premium increases as high as 1,000% in a single cycle -- and Fannie Mae and Freddie Mac generally won't purchase loans for units in a building that isn't insured to full replacement value, meaning an underinsured association can freeze conventional financing for every unit in the building, complicating both the initial purchase and any future resale. Before committing to a condo-based rental investment, get the association's current master-policy coverage-to-replacement-value ratio and its recent premium and claims history in writing, and confirm with a lender directly that financing is actually available for that specific building under current terms.

Demand Drivers Are Real and Diversified, Not a Single Seasonal Peak

Kona's visitor demand isn't tied to one narrow seasonal draw -- it's spread across several genuinely distinct, real attractions that pull different visitor segments at different times of year, which this site's Fishing, Things to Do, and Seasonal Recreation pages for Kona cover in more depth. The manta ray night dive draws an estimated 80,000 visitors annually, functioning as a consistent, year-round draw rather than a single-season peak. The Hawaiian International Billfish Tournament, running since 1959, concentrates demand in the summer fishing season, though it's worth noting the tournament was reportedly canceled for 2026, with organizers hoping for its return -- a real, recent disruption to one specific demand driver, disclosed here rather than assumed to still be running on schedule. The Ironman World Championship, held in October since the event moved to Kona in 1981, drives a real, concentrated surge in demand and visitor spending around race week specifically. Coffee tourism tied to the Kona Coffee Belt draws a steadier, less seasonally concentrated visitor segment. This diversification is a real strength for an STVR investment thesis relative to a market dependent on one narrow season -- but the HIBT's 2026 cancellation is a useful, concrete reminder that even well-established Kona events aren't guaranteed to run on schedule every year.

What This Means for an Investor

The honest summary: Kona offers real, large-scale, diversified tourism demand and a genuinely sizable existing STVR market, but it also sits at the center of Hawaii County's most active current STVR regulatory attention, with a live registration deadline, expanded county phase-out authority, and roughly half of existing island-wide STVR inventory reportedly out of compliance as of the most recent figures. The tax stack is real and additive -- 11% state TAT, 3% county TAT, and 4% GET, on top of a property tax bill likely assessed at the higher non-owner residential rate rather than the owner-occupied rate -- and condo-specific insurance risk is a live underwriting concern given the state's documented 2024-2025 insurance instability.

Before committing capital to a Kona STVR investment, confirm the specific parcel's current zoning eligibility and registration status directly with Hawaii County's Planning Department, run the full three-layer tax stack rather than the headline TAT rate alone, get a written insurance quote and, for a condo, the association's coverage details before assuming financing will be straightforward, and treat any existing rental income history on a specific listing as informational rather than a guaranteed baseline. Nothing on this page is investment, tax, or legal advice.