Have You Inherited a House?
If you’ve inherited a house, you may be wondering, What are my options? What should you take into consideration if you keep it or sell it? If you don’t want it, how fast can you actually sell? What’s the impact on your siblings if you keep the house?
There are basically three options:
- You can move into your inherited home,
- You can rent it out for regular income,
- Or you can sell it, through a Realtor or to a direct home buyer for cash.
Each option comes with pros and cons. This article will help you think through some of the big choices. One clarification, this article assumes you aren’t still facing any challenges of probate and hold title to the house.
Should You Move Into an Inherited Property?
The first option is to move into it. Maybe the inherited home is the one you grew up in, and you’ve got great memories from that time in life, and you just don’t want to sell the house because of its sentimental value. There may be reasons to move into it. It could offer features your current home or apartment doesn’t have. It may be a better size or offer a more suitable floor plan than your current residence. Maybe the neighborhood has beautiful, mature trees that you love. A big plus of moving might be if you’re paying rent where you live now, and you can save rent money by moving into the inherited house (assuming it’s paid off or the mortgage is less than what you’re paying in rent). Moving in could free up cash for savings, paying down debt, or making an investment elsewhere.
On the flip side though, there will be costs to keeping the property. You don’t want to discover a mortgage on your inherited house when the bank starts foreclosure. Research the financial situation carefully. Also, before you move in, be sure to make a budget that includes all the costs of home ownership. For example, you’ll be responsible for paying property taxes, utilities, and on-going maintenance expenses. Depending on your age and your desire to work outside, you’ll want to factor in if you’ll need to pay for things like tree and yard maintenance and/or snow removal in the coming years. Depending on the home, you may find in the end, it’s cheaper to stay where you are!
If you already have a home or live in a different city, moving into the family home may have less appeal. But, it might be a great place to stay while you are in town to settle the estate. On the other hand, living in the house will impact your capital gains on the inherited house, should you later decide to sell it. Think about your options carefully if you only plan to stay in it for a short while.
Lastly, did you jointly inherit the property with siblings? Moving in could impact their inheritance. After all, if you live in the house, you are depriving them of this part of their inheritance. This can complicate the situation and put family relationships at risk. There are probably a lot of emotions swirling around the situation, with you and your siblings, so remember to think through the impact on your extended family if you propose to move in.
Could You Rent Out the Inherited Property?
A second option if you’ve inherited a home is to rent it out. This is a great option for some, but being a landlord isn’t always as easy as it might sound. Being a successful landlord may depend on your personality and disposition! There are a few key things to factor into your decision about turning the inherited property into a rental. The first step is making sure the property is actually in good rental condition … renters don’t usually care too much about things like a new roof or new wiring, but they do care about new (or at least clean!) carpet and fresh paint. Many cities, including Omaha, inspect rentals for minimum health and safety compliance with ordinances. This means all faucets and baths must work, hot water is available, any broken light fixtures are repaired, and carbon monoxide/smoke detectors are working. Those may be small issues, but if your inherited house hasn’t been updated or maintained for a while, it may need some infrastructure updates. It’s common for elderly owners to abandon a toilet if tree roots infest the sewer line. That’s not a problem for them, but it may mean you may have an expensive plumbing bill before you rent the property.
Perhaps the biggest barrier to renting is management. By that, I mean you managing the rental. After you have the property fixed up, you need to find good renters. This can sometimes be more challenging than it sounds. Time after time, when my husband and I were trying to find tenants for our rental, we would set an appointment to meet a prospective renter, take time off work, and drive to the property to meet them. We were surprised how often the applicants wouldn’t show up—and often, they never called to cancel. We lost an hour each time this happened.
Once rented, you’ll need to manage ongoing maintenance for the rental. Expect phone calls for clogged sinks on Saturday night at 6 pm or a broken furnace at 3 am on a holiday weekend (when repair rates are the highest)! If you don’t want to be the one who gets the phone call about property problems, you’ll want to hire a property manager. They’ll handle nearly everything for you and usually charge a management fee of about 10% of the monthly rent. If you’re bringing in enough income, that may be a small price to pay for the freedom you receive. The property management firm will also handle the growing multitude of laws and regulations that apply to rentals. But, you’ll still need to budget for repairs and maintenance as the property continues to age because whether you or a property manager is handling the property, these costs will still need to be paid for. Water heaters fail, furnaces die, and plumbing leaks! Be sure to set aside another 10% of your income to cover on-going maintenance.
Finally, when the tenants move out, what condition will they leave your rental home in? We know from our own experience that many tenants will take very good care of your property and will clean up carefully when they leave (especially if you give them a checklist to review so they know what you expect!). And these tenants are a true blessing! There’s nothing better than giving these good tenants their full cleaning deposit refund – they’re happy and you’re happy! Unfortunately, however, there are other tenants who leave a big mess that can cost you hundreds of dollars to repair and/or clean. Others will do significant damage, like making deep scratches in antique wood paneling. One renter we had left a hole in the kitchen wall … you know, the result of a drinking game and a big guy falling back into the wall. Many landlords have stories of tenants who caused thousands of dollars in damage and were indignant about it, insisting they didn’t do anything wrong.
On the positive side, renting your inherited house may allow you to keep an asset for many years, receive some income, and potentially enjoy appreciation (the house may be worth more in 20 years than it is now, but that matters only if and when you eventually decide to sell it). You’ll need to consider for yourself if you have the right personality and patience to become a landlord, and if it makes sense financially as well.
How Do I Sell an Inherited House?
We are now at the third option of what can be done with an inherited home, and that is, selling the home. Exactly how to sell your property will depend largely on its condition. You can think of properties in three general category conditions: After Rehab Value (new, pristine, or rehabbed), Current Market Value (well maintained, but dated condition), and Distressed Market Value (under-maintained and in need of significant repairs and remodeling). When you look at home sales in your market, you’ll see a wide range of prices for houses with identical specs. A quick check on Zillow shows recent sales of 2,000 square foot split ranch, 3 bedrooms, 2 bath homes in an Omaha neighborhood ranging from a high of $240,000 to a low of $42,000. A little more research shows the difference is primarily due to the condition of the property.
If your inherited house is pristine, newly modeled with current styles, you can expect to get top dollar. Hiring a Realtor is your best bet in this case, but look for one with a strong track record in sales. It’ll help you get top dollar if they have a strong marketing plan and the skills to showcase the house and command the highest price.
A house in Current condition has probably been remodeled in the past decade and will have the infrastructure (HVAC and water heater) that is less than 8 years old. Even if not remodeled, the house as a whole is in excellent condition (like you stepped into a museum or time capsule). The walls would be clean, with no damage (except maybe picture hanging nail holes). Cabinets should look nearly new, with no water stains, scratches, or grimy film that forms on cabinets from human touch. In short, the property is dated, but in really great condition.
Realtors love to sell homes in current condition, and they usually sell well – especially in a seller’s market like right now. You can expect a few suggestions from them that may improve the resale value, like updating the kitchen counter and bathrooms. These common knowledge assumptions about improving value can be effective, but be just be sure to get a second opinion before making any larger improvements to be sure it’ll really add the desired value. You may find that smaller expenses (like replacing yellowed smoke detectors) will have a greater impact. Depending on your market, it may be worth investing in a major rehab, but you may not recover your investment. If you do the research ahead of time, you can likely determine this.
Sadly, many inherited homes fall into the distressed condition category. These homes have been well-loved and very much used. Those in good shape may have the children’s height recorded on a doorframe and scratches on others, original counters and cabinets with visible wear, and more than a few scrapes on the walls. Those in rougher shape may have holes in walls or ceilings, mold, broken windows, non-functioning appliances, and signs of water damage that can include no-longer working plumbing fixtures. A small number of homes are not legally habitable according to local health departments. While an agent may offer to sell the house, keep in mind that lenders won’t approve a loan on a house that can’t pass their inspection. Even if you have a willing buyer, they won’t be able to get funding.
DIY – Fixing Up a Distressed Property
If your inherited home has a lot of deferred maintenance, you can either take on the repairs yourself or sell it as-is. If you are a good handyman or would enjoy managing contractors as a hobby, rehabbing a house can be a lot of fun (though it can also involve a lot of headaches). You’ll need time, money, and motivation to make the rehab a success (we’ve seen more than a few houses where the rehabbers ran out of time, money, or motivation and had to sell the house for even less than it was worth before they started). Be sure to start with a careful plan and budget and be sure the improvements will actually pay off in the sale price. Many TV shows make it look easier than it really is!
Selling your Inherited House “As-Is”
If you’re still reading, you probably have a home that can’t be easily sold or repaired. And that’s okay! About 5% of homes fall into this category. When we live in a home for a long time, it’s easy to let things go by. One elderly gentleman explained that his guest toilet didn’t work because tree roots grew into the sewer line. After fixing it twice, he gave up and converted the bathroom into a storage closet for old newspapers. It can be heartbreaking not to be able to keep up with things, but it’s completely understandable that it can be overwhelming to keep up with maintenance as we age. Fortunately, there is a segment of the real estate market that specializes in buying and repairing distressed homes.
Direct home buyers, like Anna Buys Houses, focus on buying houses in any condition. The purchase price is based on the repairs needed to bring the house back to a pristine condition where a new family can start building new memories. One of the advantages of working with a real estate investor is that they don’t use conventional mortgage loans, so you won’t have to comply with lending requirements or wait to see if the loan is approved. In many cases, direct home buyers will pay cash (through a bank at closing) and can close as quickly as you need.
Another thing to consider is that some investors will buy your whole estate (house, furniture, dishes, cars, and whatever else is left over). This allows you to pick out the family heirlooms and leave the pile of worn Navy towels from World War II (they just don’t make towels like that anymore!) for someone else to haul out. Selling the whole estate allows you to work with only one buyer and finish the sale quickly. If you don’t want to sort through every plate in the kitchen cupboards and every sheet in the closet, you may find this to be a more peaceful approach. Typically, the house buyer will take sellable items (furniture, kitchen pans, etc.) to a consignment shop, then take serviceable items to a donation center, and then throw out anything that remains. Some buyers will hold an estate sale or a “free” garage sale with local charities.
If the idea of fixing up your house and paying for the remodel is just too much to think about, you might want to consider a direct home buyer. Or perhaps you live out of state and can’t effectively manage a remodel remotely. They are a perfect solution for inherited homes that need a lot of love. If you’d like to learn more about your options, please fill out our information request form. We’re here to discuss your options and help if we can.