His answer involves distinguishing between properties that fictional characters 'hold', and those which they 'have'. Sherlock Holmes 'holds' the property of being a detective. He does not 'have' that property. The only properties that fictional characters have are existence and self-identity. Thus one interpretation of 'Sherlock Holmes does not exist' is 'no one has all the properties the fictional character Sherlock Holmes holds'.
This is not a comfortable solution for a few reasons. Here are two. (i) The distinction between 'have' and 'hold' is arbitrary and the only reason for making seems to be to avoid a serious difficulty with his theory. (ii) The primary motive for Inwagen's theory was the principle that formal logic is simply a regimentation of ordinary English. But then it turns out we cannot express perfectly arguments in ordinary English such as
Fictional characters exist, Sherlock Holmes is a fictional character, therefore, Sherlock Holmes exists
by any simple translation or 'regimentation'. Indeed, according to Inwagen, the argument above should not even be valid.