I talked to a modular home company in my area, and he said to build a 4 / 2.5 2200 square foot home would be 215k, and then foundation and utilities would be another 160k.

@Kyle Trotman If you purchased with a hard money loan conventional lenders will require extensive seasoning to utilize the new appraised value for cash out. 

Replacement homes will be climate hardened, smaller, functional and include consideration for the type of infrastructure, architecture and sustainable/durable materials utilized. 

If the didn't do that then they have converted to LTR or MTR rentals at a steady monthly income and have the tenants take over the utilities which offsets the loss of more income.

Are you taxed on the net or the gross income produced as a non-resident ?

The rent plus his retirement will actually produce positive cash flow.

Why would one choose value adds that produce lower returns than can be achieved in other markets?

As noted above, up to 50% of gross rental income normally gets eaten up by expenses (taxes, management fees, utilities, landscaping, repairs, capex, etc).

Stats can be foundhttps://www.ramaui.com/housing-statisticsOr for all islands herehttps://www.hawaiirealtors.com/resources/housing-trends-2/Your realtor can produce more specific stats on your area of interest.

This property is gonna cash flow over $1000 a month after we're all said and done with utilities mortgage and more.