All Forum Posts by: Pavel Bennett

Great points. As a tenant, I too would hope to get lucky with a landlord who allows the rent to drift lower in real terms, so hearing anything about increases would be relatively unappealing.

And @Greg M., even though I am expecting higher inflation, I hope that you are right and that it will get under control.

Hi folks,

I think it is suboptimal that we price our rentals in a currency that continues to lose a lot of its value. I'm sure that approaching your tenants to tell them that their rent is going up is highly unpleasant because it makes you look like you're demanding more, when in reality, the tenant has unknowingly been paying you less and less, and for the most part, you would like to continue being paid the same in real terms as you were before.

As a possible solution to tenants being shocked by a 20% increase all at once after a year of significant inflation caused in part by Jay Powell's printing press, has anyone considered creating a simple formula that takes your estimate of inflation for the next year and gradually increases the rent every month (or quarter) to avoid large percentage changes all at once?

Example 1: Automatic increase of $75 every quarter. Note: Over time, fixed dollar increases will likely fall behind the market, but they are simpler for the tenant.

Example 2: Automatic increase of (15%/12) = 1.25% each month.

Example 3: Pick some public index (e.g. average rents for 1 bedroom units in your area) and see how far apart your unit should be from it. Fix that delta (as a %) and calculate a new rent price every month. In some cases, the tenant would actually see a decrease on a month-to-month basis.

Then, re-visit it periodically to see if any changes are needed.

I am considering offering this to a tenant who was surprised by a big jump all at once, but I'm wondering if there are issues with this that I may be overlooking. Are there some legal challenges with it?

It's more complicated for the tenant, but for predictable rents (examples 1 and 2), I could provide them with a table of rent due dates and amounts for the next 12 months so they can look up how much to pay each time without having to do the math.

I recently did what you are considering and am now in South Kihei. Have you decided on which area of Maui is best for you?

Thank you for the replies! It sounds like I should be able to DIY this (and I do enjoy it and have done taxes for a tiny corporation) once I research the correct and optimal way to separate the business from the residence. I have been tracking the expense applicability to each "unit" and just deferred figuring out the exact ratio until later. I would still be interested in finding a great CPA who would be open to answering questions over a video call and be paid for the time. I would take full responsibility for any audits, etc, since I'd be preparing the taxes.

Hi BP,

I recently acquired my first property, which is a house in Hawaii where I'm renting a portion of it to a tenant. As the tax season is coming up, I'm starting to think if it's worthwhile to hire a tax planner (mostly going forward, as 2021 is nearly over) and tax preparer (same person?). I think I could handle the tax preparation myself, but I have some questions around how to divide up the house between the rented portion and my own, and how to depreciate some renovations I am doing before renting out more of the space. The property is in my name (no other entities).

Is there much value in having the tax planner be local to the state where the property is located, or anywhere in the US is fine? I'm fine with meeting remotely over a video call.

Also, where could I learn about what format to keep my records in so that they are easy to import/use by a CPA or by myself at tax time? Any recommended software for this? I'm talking about records like rent revenues, expenses, and depreciation schedules. I've been keeping detailed records so far in spreadsheets.

Thank you 🙂

I'm renovating a unit that I plan to own for a long time and trying to decide what type of flooring to go with. It's for a mid-to-high-end rental in a relatively dry climate of Hawaii. I'm mostly interested in getting something that would last a very long time and be durable and/or easily repairable if tenants happen to damage it. Best value for a rental with a long time horizon. Labor is expensive here, so it makes sense to pay more for something that won't need to be replaced any time soon.

I'm considering using the same type of flooring for the kitchen, living room, bedrooms, and possibly the bathroom, unless there's a reason to select different ones.

Some options I'm considering:

1. Ceramic tile such as https://www.homedepot.com/p/MS...

2. Travertine around $5/sqft.

3. Luxury vinyl plank (except in the bathrooms)

I'd appreciate feedback based on your experience for anything to add to or remove from the list given the above criteria. So many options out there and this is a pretty important one to get right.

Thanks in advance!

Hi BP,

I would like to better understand the details of the Second Home Rider for Freddie-backed mortgages. It reads:

If we're talking about a house that has 2 floors, but is not officially a duplex, would I be permitted to rent out (long term) the downstairs as long as I keep some portion of the house (like the upstairs, or even just 1 room) exclusively for myself and reside there for at least some portion of the year? Where do we draw the line before it stops being a valid "second home"?

The wording "will not subject the property to ... any agreement that requires Borrower to rent the property" seems like it might get in the way of that, but I'm not a lawyer. Wondering if someone has gotten this clarified with enough confidence to do this form of house-hack.

Thanks!

Hi folks,

I'm closing on a property in Hawaii using a Second Home conventional loan and intend to live there for at least a part of the year. My lender sent me a bundle of documents to preview before signing and I am not sure if the wording on this "occupancy and financial status affidavit" is correct (for the Second Home section):

While it has the "for at least 1 year" wording for the Principal Residence, this wording is missing from the Second Home section. There is also a Second Home Rider in the bundle and that one correctly states that it will be used as a second home "for at least one year". I would be signing both documents.

My concern is that what I pasted above (from the occupancy affidavit) technically leaves the effect duration ambiguous. As it is written, it sounds like even if on year 5 of ownership, I don't use it as a second home but instead choose to rent it out, I'd be violating this affidavit, but that goes against what I understand about second home loans and also against the Second Home Rider.

Is this okay to sign as is or should I ask the lender to amend the document by adding "for at least 1 year" to the Second Home section? It's apparently some standard form, at least for this lender.

Thanks in advance :)

For anyone else looking at doing the same, I found this here:

"If the lender identifies rental income from the property, the loan is eligible for delivery as a second home as long as the income is not used for qualifying purposes, and all other requirements for second homes are met (including the occupancy requirement above)."

So it looks like what I'm trying to do is allowed. This info is specific to conforming loans and may or may not apply to jumbo and other products.

The reason for this type of loan is interest rates that are as low as primary residence in my case. I would occupy it for at least 6 months during the first year, and intend for it to become my primary later on. I am just unlikely to qualify for a primary residence mortgage with my current job until they allow permanent remote work or I switch to a company that does.