Should You Rent or Sell an Inherited House?

  • Jun 03, 2024
  • 7 min read
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Inheriting a house from a loved one can be an emotional rollercoaster. On one hand, it’s a gift that can provide financial stability or a place to call home. On the other hand, it comes with a lot of responsibility, emotional attachments, and economic implications.

And now, you’re faced with a big decision: is it better to rent or sell an inherited property?

Let’s look at the factors involved to see what makes the most sense for your situation.

Assessing Your Inherited Property Overall

Before you make any decisions about renting or selling, you need a clear picture of the situation.

Consider Your Emotional Attachment to the Property

First and foremost, it’s important to reflect on your emotional attachment to the inherited house. It might be that the home holds a lot of sentimental value and memories. Are you ready to let go of that connection through a sale, or would you want to hold onto it by keeping the property, renting it out, and keeping it in the family for future generations?

This one key factor could be the most crucial, in which case it would make the most sense to keep and rent the property.

Evaluate the Current Condition and Value of the Inherited Property

Hire a professional inspector to give the house a thorough once-over to determine its current condition. They’ll identify any necessary repairs or upgrades so you don’t get caught off guard later. This info is crucial regardless of whether you plan to rent or sell. Is it move-in ready, or does it need significant repairs and renovations? Things like a new roof and updated plumbing would be a substantial investment if you decided to rent it out, but you might offset those costs with rental income over time. Additionally, you will likely have to have an estate sale; this could bring in some additional income to cover any initial repairs.

Also, consult a real estate agent for a comparative market analysis (CMA). They’ll look at recent sales of similar homes in the area to determine a fair market value for your inherited property. Knowing what the house is worth will help you set a realistic rental listing or listing price.

Local Real Estate Market Conditions

Before you make a move, it’s crucial to understand the local real estate landscape. What’s going on with local property market conditions and real estate investing? Is it a buyer’s or seller’s market? What are the average rental rates in the area?

Research current rental market trends in the area, including average rent prices, occupancy rates, and demand for properties like yours. This will give you a sense of the potential income and challenges you might face as a landlord.

Similarly, if you’re leaning toward selling, analyze recent sales data and market trends to gauge the likelihood of a profitable sale. Consider factors like median home prices, days on the market, and the overall health of the local economy.

Keep in mind that real estate markets can be unpredictable and subject to fluctuations. What looks like a hot market today could cool off tomorrow, so it’s important to make an informed decision based on both current conditions and long-term projections.

Examine Your Financial Situation and Personal Finance Goals

Your personal financial circumstances will also play a big role in determining the best path forward. Take a close look at your current income, outstanding debts, and long-term financial goals. How will the inherited property help or hinder those objectives?

If you need a quick cash infusion, selling an inherited house offers quick access to funds. Instead of waiting for rental income to trickle in over time, you can get a lump sum of cash from the property sale and proceeds. This can be especially helpful if you have a debt to pay off or other financial obligations.

On the flip side, renting out the property could provide a steady stream of passive income if you’re financially stable and looking for a long-term investment opportunity. You’ll need to crunch the numbers to ensure the rental income will cover your expenses and provide a decent return on investment.

Weighing Property Taxes and Other Financial Implications

While renting can provide a steady stream of passive income, owning an additional inherited property means ongoing expenses like property taxes, homeowners insurance, and mortgage payments.

Property Taxes

Property tax is determined by the total value of the owned property, which includes the land and anything built on it. When considering what to set for your monthly rent, you’ll want to keep property tax implications in mind so you can build in the total cost for your new real estate and make a profit.

Capital Gains Taxes

Selling can give you a large sum of money to invest elsewhere or pay off debt, but you may face capital gains tax. If the property has appreciated in value since the original owner’s death, you may be subject to capital gains taxes on the sale. It’s a good idea to consult with a tax professional to understand your specific situation so you don’t pay capital gains taxes (or at least minimize what you pay).

Insurance Coverage

Whether you’re renting or selling the inherited house, you’ll need the proper insurance coverage in place; a standard homeowner’s insurance policy will not apply if it’s not your primary residence.

For rental properties, you’ll need a specific landlord insurance policy that covers things like property damage, liability issues, and loss of rental income. Shop around and compare quotes from multiple providers to find the best coverage.

If you’re selling the property, you’ll want to maintain your insurance coverage until the sale is finalized and the keys are handed over to the new owner.

Renting Out Your Property: The Potential for Long-Term Financial Gains

One of the biggest pros of renting an inherited house is the potential for long-term ROI. Rental income can provide a steady stream of passive income to help you build wealth over time. Plus, as the property appreciates, you can benefit from increased equity.

And while you will have to pay property taxes, another advantage of renting is the tax benefits for rental property owners. You can deduct expenses like mortgage interest, property management fees, utility bills, and maintenance repairs from your taxable income. These tax deductions can add up to significant savings over time.

Challenges of Selling an Inherited Property

Selling an inherited property can have some challenges.

If the inherited home is still going through probate court, it can delay the sale process. The probate process is where the deceased person’s will is validated, and their assets are distributed.

Probate court can be a complex and time-consuming legal process, so buckle up for some paperwork and potential delays. You may also have to deal with unpaid taxes or legal fees that eat into your profits. And if you’re selling the property with other heirs, getting other family members on the same page can be difficult.

Risks of Renting Out a Property

There are also challenges to consider when renting out a property. Liability issues, property damage, and non-paying tenants are potential problems you may face. As the new owner of a rental property, you also have certain legal responsibilities to follow. These include things like maintaining a safe and habitable property, making necessary repairs, and following fair housing laws.

That’s why having a solid lease agreement, landlord insurance, and a great property management company is crucial to protect yourself and your investment. A good property management company will help you find tenants, handle maintenance repairs, and deal with any other headaches that come with being a landlord so you can kick back and let your investment do the work for you.

Hire All County Property to Manage Your Inherited Home

Deciding whether to rent or sell inherited property is a big call. Renting can give steady cash and keep your home in the family. Selling inherited property provides quick cash and cuts ties. Think about your long-term estate plan and goals and how the inherited property fits into that picture. Will it be a valuable asset to future generations, or would you liquidate it and use the proceeds for other purposes?

If you’d like to rent it out but are not up for being a hands-on landlord, hire All County Property to handle the day-to-day tasks and tenant relations. With over three decades in this business, we are professional experts in long-term residential property management. We are client-focused and handle all aspects of your property, ensuring you peace of mind that your asset is performing to its fullest potential.

Give us a call to discuss your needs, and partner with us today!

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