Inheriting a house can be a great opportunity, but it can also raise a big question, “What do I do now?” Should I rent it, sell it, or something else? If selling makes sense, how do I do that? If you’ve never been a homeowner, these questions can feel complicated. The reality is that property ownership can be difficult.
In this article, we offer 8 tips to help you make a solid decision about what to do, one that fits your personality and needs. Personality? Yes, personality can have a big impact on your ability to successfully own and manage an inherited property!
First, a quick introduction. Anna Buys Houses is a Omaha real estate investor. We’ve known of many successes and failures when it comes to owning real estate. We sometimes get calls from folks who inherited a house and are looking to sell. That’s great, but we always advise them to think carefully through their options before deciding to sell.
I Inherited a House. Now what?
Basically, your decision will come down to keeping the property yourself (move in or rent it) or to selling the property. Here are 8 things you should consider:
1) Keep paying the monthly mortgage.
If the prior owners lived in the house for less than 30 years, they probably had a mortgage. It’s actually common for an inherited house to come with a debt. If the debt is paid off, you have a simpler and more valuable asset, but you need to look into this ASAP. Failing to keep the loan current can lead to many unnecessary complications. So, keep paying the bank (assuming you don’t want to surrender the property to the bank). The banks want to keep the mortgage payments coming in, so reach out and ask if you can assume the loan payments. Some will say yes, and others will require you to refinance into a new loan. If you don’t qualify for a new loan, keeping the property and renting it may not be an option for you.
2) The investment is only as good as the manager.
If dealing with brokers, maintenance, tenants, and rent collection seems overwhelming and stressful or isn’t the best use of your time, consider hiring a professional property management agency to help. Expect to pay up to 10% of your rental income for management. If you don’t want to do this, selling the property may be best. Some people who inherit homes decide to keep the house and rent it for extra income. That’s a great strategy if you’re prepared to manage the property and the hassles that can go along with tenants and toilets and midnight phone calls! This is where personality comes in sometimes – if dealing with these types of things make you upset or cranky and they don’t seem worth it to you, you’d probably be best hiring a property management company to handle maintenance for you.
3) Property ownership costs money.
It’s rare to see a building that’s been perfectly maintained. Many inherited houses need major repairs and/or improvements. You may need to make improvements just to make it a legal rental. Omaha requires that all rental properties are registered with the city and submit to regular inspections. Consider hiring a professional property inspector to give you a detailed rundown on what you’ll need to do ASAP and within the next five years, along with estimated costs. Surprises can be expensive.
4) Selling a property for top dollar requires investment.
If you plan to sell instead of rent, be prepared to spend quite a bit more to rehab the property. At a minimum, you should paint the house (inside and out), retire any tired appliances and cabinets, and ensure the water heater and HVAC are no more than 8 years old. If you don’t want to deal with making repairs, updating kitchens, improving landscaping, and overall cleanup, you may prefer to sell as-is. I have good news. We buy Omaha houses for cash, as-is.
5) Is the market growing fast? Keep as an investment.
We can help you analyze the value of your property today versus the long-term benefits of renting. If you can use the equity in your property in another way that outpaces the performance of the real estate market, that can be wise. If you don’t have anything better to do with the money and the neighborhood is rising in value, hang on – real estate can be a great investment if you know how to read the market.
6) Remember that taxes could affect your decision.
Depending on whom you inherited the property from, it’s likely that you have a “stepped-up basis” in the property. That’s accounting talk for “you may not owe capital gains taxes”. But you should talk to your lawyer and accountant before you take action. There may be major property and income tax consequences that will dramatically impact the cost of owning your investment. You should also consider that owning a rental property may require you to hire an accountant if you don’t already have one.
7) Consider all your options.
Sometimes people need cash today. Other times, they would prefer to receive payments over time. Before you commit to selling, you should spend a little time thinking about what would be best for you. A traditional sale may not be the best.
For example, we may be able to help you structure a lease-option agreement where highly qualified purchasers rent the property for an agreed time before buying. This approach lets you rent and sell at the same time – capturing the best of both worlds. These kinds of deals can be complicated, but our Omaha investment experience can help you find the right solution.
8) Compare a few scenarios.
We’ll help you determine prices for any property near Omaha – if you sold it today without doing any work, the highest price the market will bear, and the projected value of keeping it as a rental (along with the costs).
After reading this, you probably still have a few questions. Please know that we’d be happy to help you–even if that just means connecting you to the right accountant. If you’ve inherited a house and would like to discuss your options, we are happy to help.