Inheriting real estate can be a wonderful experience if the property is in good shape and debt free. That isn’t always the case, and inheriting a home often comes with responsibilities that may be extremely overwhelming. While your close friend or a loved one might have the purest of intentions for you, the property itself may be a financial or emotional burden, and you may feel that you can’t escape from it. Especially if it is falling apart or filled with a lifetime of “stuff” that needs to be removed. If you have inherited real estate, here are five important things you need to know.
1. Are You Ready for the Financial Responsibility?
It’s important to know that when you inherit real estate, you will be financially responsible for the property. One of the responsibilities includes paying the mortgage and other possible debt attached to the property, such as liens. If the property is an investment for rental income, you will take on the duties of a landlord – this includes collecting rent, which may be necessary to pay for the property’s expenses. If you are relying on rental payments to afford these expenses, you’ll need to have a backup plan if your tenant/s don’t pay their rent. There are also property taxes and association fees; homeowner associations often have strict guidelines that homeowners must comply with regarding the property’s maintenance and overall appearance. Even if the property is mortgage free, the holding costs are something you need to be prepared to pay, especially if there isn’t enough money in the estate to cover those expenses long term.
2. Prepare Yourself for Repairs (and their cost!)
The frequency and cost of repairs will increase as the home ages, or if it isn’t properly maintained over time. It is important to be aware of the structure and foundation of the house, especially if it’s not brand new or in good condition. Whether you’re planning to live in your newly inherited property or put it on the market, it is essential to inspect the house from the roof to the foundation, including everything in between! Hiring a professional home inspector will help you understand the condition of the property and identify any repairs that are critical for the safety and livability of the home. If you are planning to sell the property, the results of the inspection will help you prepare it for sale to ensure that potential buyers will be able to get financing. It may be difficult for buyers to be approved for a conventional loan if the property is in need of major repairs or is considered unsafe. Examples of conditions that may disqualify a property for a traditional mortgage include, major structural problems with the foundation, load-bearing walls, or roof, outdated plumbing or electrical systems, mold, pest infestations, and the presence of hazardous materials such as asbestos or lead-based paint.
If you find yourself facing any of these issues with the property, it is highly recommended to contact at least three professionals for every type of repair to ensure that you are getting a reasonable quote for the repairs. Estimates can vary widely depending on the contractor – cheaper isn’t always better, so ensure that you do your research and that they are a licensed and reputable company. Online reviews, the Better Business Bureau, and personal recommendations from people you know who have hired the vendor are good places to start. Considering that the holding costs are still compounding despite the status of the repairs, it’s important to be aware of the time that will be required to complete those repairs. Sometimes it can take weeks or months to get on a contractor’s schedule, particularly those who are in high demand. You’ll need to factor the holding costs of the property into your timeline for fixing everything that needs attention.
3. Be Emotionally Ready To Clear Personal Property
Inheriting real estate can be very emotional, and sometimes it’s difficult to enter the property, particularly if it was a home that you were raised in or a property with decades worth of fond memories. The most challenging part is sorting through the deceased’s personal property and determining what to keep. If it is a lifetime home, there may be an overwhelming amount of family heirlooms, photos, and general “stuff” that has accumulated. If sorting through the items in the house is too much of a burden, you may wish to hire a professional to do it for you.
There are companies who will handle your estate sale for a commission (typically between 30-50% of the proceeds from the sale). It’s important to vet potential estate sale companies to ensure your valuables are priced correctly and sold with integrity. Check references, look them up on the Better Business Bureau website, attend one of their sales to see how they are run, and always make sure to get your agreement in writing. You may wish to go through your belongings and have a room set aside for things that are not for sale. If items do not sell during the auction, make sure that you are clear about whether you want the auction company to remove them or leave them on the property. Online estate auctions are also growing in popularity and may help you reach a broader audience. It’s important to weigh the pros and cons of an in-person versus online estate sale.
Remember that delaying the process to avoid painful memories can be extremely costly, and delaying repairs on the property lowers the value as the house continues to deteriorate.
4. The Reality of Paying Taxes
It’s important to understand the taxes that come along with inherited real estate. According to the Unified Gift and Estate Tax System, the estate tax is calculated based on the value of the property that is being inherited, which is computed under specific criteria, including possible deductions. Although there is often federal estate tax owed by being the beneficiary, this is not always the case. In 2024, the first $13,610,000 of an estate is tax exempt. Note that this amount changes year to year. In addition, several states impose estate taxes. Inheritance tax rates vary depending on the state and each state has certain exemptions in place. It may be helpful to consult with an estate planning attorney who can provide expert guidance on your situation and possibly help reduce your tax burden.
5. Purchasing Other Property
Since you incur the financial responsibilities along with the property, an inherited home may impact your plans to purchase your dream house. One of the significant changes that can occur is how your lender sees your ability to repay your mortgage on the newly financed house. Because it will depend on the mortgage balance of the inherited home and other expenses under your name, your debt-to-income ratio now may no longer meet the guidelines for getting a loan for a new property. Furthermore, the outlay for repairs may deplete the savings you’ve accumulated for your down payment and other closing costs. If your inherited property is not your dream home and you do not wish to rent it or live in it, you might want to consider selling it.
Thinking of Selling Your Inherited Real Estate?
For some, holding onto inherited real estate is just too time-consuming, and not financially feasible. There are options to help eliminate your worries about inheriting real estate including consulting with a direct home buyer like Anna Buys Houses. We provide an alternative to a traditional home sale for homeowners who need to sell their homes as-is or do not wish to sell retail. And, because we’re the buyer, you won’t have to wait to see if we can get financing. We prefer to buy with cash, and we don’t rely on traditional bank financing. We can usually close when you want to close, often in as few as 7-10 days. If you need more time, not a problem! We offer a convenient option for selling your inherited property because we don’t require inspections, repairs or renovation, cleaning, or removing items from the home. All you need to do is decide which stuff you want to take with you and which items you want to leave behind. Our team will handle all the paperwork and make the entire process easy, fast, and hassle-free. We’ll give you a free, no-obligation offer for your house, and close on a timeline of your choosing. Learn more about how we buy houses.
You can contact Anna or call at 402-313-8700 to discuss the market value of the property and the possible options of selling your unwanted inherited property.
Additional Reading: Have you Inherited a House?
