We all know of someone who has inherited real estate in Hawaii, and we typically hear of the difficulties that some go through during this transition. Understanding the fundamentals, starting early with a plan of action and surrounding yourself with key advisors — such as an attorney, tax professional, mortgage lender and real estate agent — is key in making this a smooth transition.
When inheriting real estate, you want to clearly and honestly ask yourself what your goals are with this property. Is it someplace you would like to live, or do you see it better suited as a rental property? Are you prepared to take on the responsibilities of being a landlord? What are the tax and financial ramifications to these decisions and how will it affect your quality of life?
A NEW HOME FOR YOUR FAMILY
If you’re planning to occupy it, you want to realistically ask yourself if it will fit your family’s needs. Many times, family properties have sentimental value, but over time the reality of your living situation can overshadow the sentiment, so make sure it’s the right fit. Determine if it is the right size, location, school district, as well as address any deferred maintenance or upgrades to the property.
During the time of transition is typically the best time to address any of your mortgage financing needs. Obtaining a mortgage, or home equity loan can help clear out any existing liens on the property and buy out any other beneficiaries who may have ownership in the property. If there is enough equity in the property, you can typically add on additional funds to your needed loan amount to help with any deferred maintenance, debt consolidation or even a full renovation or rebuild. If you are planning to occupy the property, you will want to ensure you will receive the homeowner’s exemption on your property taxes. The deadline to file for this exemption is Sept. 30 preceding the tax year for which you claim the exemption.
INCOME PRODUCING PROPERTY
Inheriting a property to rent out can have substantial tax benefits and improve your monthly disposable income, of course always consult with your tax professional as to how it affects your specific situation. You will still want to check on deferred maintenance but also decide if any upgrades are needed to make it a competitive rental property for your area. If the property is in poor condition compared to other rentals in the area, it may take much longer to obtain a quality tenant, which can become costly. Many times, a thorough cleaning, paint job, revamped flooring and lighting can make a substantial difference to potential tenants. If zoning allows, building an accessory dwelling unit or arranging multiple living areas can also maximize how your investment performs.
Securing a property in Hawaii brings its own sets of challenges, so it is best to work with professionals who handle similar situations to yours on a day-to-day basis. Since 1998, Myers Capital has helped thousands of homeowners with experience and care to ensure their home financing goals are met. For more information or to schedule a personal consultation, please click the link below.