Tenants wanted to help pay mortgage - buyers create new strategy to get their dream home

 

HONOLULU ADVERTISER , July 24 2005

BY LISA SCONTRAS

Custom Publishing Group

 

Investors are not the only people buying rental properties anymore. Low interest rates, creative financing and raw desire have motivated many to figure out a way to not only buy their first home, but become landlords — sometimes all at the same time.

 

Duplexes, or any property with two separate units, give regular-joe buyers a way to purchase a home while offsetting the mortgage payment with rental income. Living in one side and renting out the other offers plenty of financial advantages and, according to Prudential Locations agent Ellen McIlroy, it is a buying strategy that appeals to first-time buyers, as well as investors.

 

“The tenant is actually helping to pay off the home for them,” says McIlroy. “It’s a fantastic opportunity for someone who wants a certain lifestyle, but without exorbitant mortgage payments.”

 

In fact, it has become a trend among 20-something young professionals who have earning potential, but may not feel comfortable taking on a pricier mortgage when they are just starting out.

 

“We’d been house shopping for close to a year when we realized that the houses we liked were just out of our price range,” recalls one Honolulu couple when asked what motivated them originally to rent out part of their home. “So rather than scale back the house that we wanted, we decided to get a renter for a time until we felt comfortable making the entire payment.”

 

With the average home price on Oahu at $620,000, it has become harder and harder for the average person to buy a house, giving rise to some creative solutions.

 

“Buying a property that has a mother-in-law suite gives you options — especially now when a lot of people feel like they have been priced out of the market,” says Windward resident Kin Lo, who believes that sellers can really broaden their potential demographic base by advertising in-law quarters. “We found a property in Kailua that we really liked, but it was a little bit more than we wanted to spend. We rationalized it because renting out one side made it do-able.”

 

“It’s a sacrifice,” says McIlroy, “that young buyers will make to live in Hawaii.”

 

Other benefits of this type of residency arrangement may include tax advantages, as home exemptions and the ability to defer capital gains apply as owner occupants, but it’s recommended to talk to a tax consultant for details.

 

Administratively, Lo recommends you do some research as you’ll need to advertise the unit, do credit checks, write up lease documents and report taxable income. It’s a good idea to brush up on landlord/tenant codes and obtain a general excise tax license, as well, so that everything is on the up and up.

 

“It’s a good way to get into the market,” says McIlroy. “And allows many to do so who otherwise may not have been able to afford it.”

 

 

 

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