What You Need to Know About Inheriting Property
Inheriting property can be an exciting moment yet also a time filled with emotions and stress. Understanding all the ins and outs is crucial in order to appreciate and manage your new inheritance thoughtfully.
What to Expect
Every scenario is different, but you won't technically own the property until your name is on the title. It is considered a "right to ownership." Depending on the previous owner's circumstances, if they had any outstanding debt, the asset may be used to pay the debt off before you can decide what to do with the property. The best way to move forward is to know your options and seek expert assistance navigating tax and legal requirements.
More often than not, there are multiple stakeholders in the inherited property, making decision-making more complicated and time-consuming. If so, you'll need to consider a few options, such as buying out, selling, or renting, and splitting the profit. If you are the only person inheriting, your options are more cut and dry, like deciding whether to move in, sell or rent.
Buying Out Other Parties
In this scenario, one party wants to keep the house, and the other wants to sell. In most of these cases, one party may not have the financial liquidity readily available to buy the other party out, so they would need to finance half of the home's value to complete the buyout. Using trusted real estate and mortgage professionals is key here.
You could also record a promissory note if you want to keep the property and the other person wants to sell it, and you don't have access to a mortgage. This note outlines how you will pay the other person, which is another way to buy them out. For any agreements, work with a qualified trust and estate attorney.
Packing Up and Moving In
You may or may not need a mortgage to secure the property that you inherited, depending on if the previous owner had paid off the house. If it is paid off, you would just need to pay annual property tax.
Before moving in, you may need to have an estate sale to make room for your things. Or you might consider making some renovations to make the space more yours. Keep in mind, even inheriting a home is owning a home and it comes with the cost of maintenance and other unexpected expenses.
Selling
The most straightforward option is to sell the property and split the profit. However, if the market isn't strong, you might want to consider renting the house and splitting the monthly income minus maintenance and property management costs. Like any home you would purchase for yourself, you will need an inspection to determine any big repair jobs before selling. You’ll also need to be clear in the sellers’ disclosures about all that you know regarding the history of the property.
Also, plan to cover any home-selling costs, including repairs, real estate services, photography, staging, and closing costs.
Renting
Getting a home ready to rent is time-consuming and requires some money to make it a lovely space, but it's a great option for building passive income instead of getting a lump sum out of the property.
While selling and moving in renovation costs could be higher, you don't necessarily need to spend much money fixing up the home to rent. Typically, renters care less about the long-term condition of the house than if they were purchasing it for themselves. You'll want to factor in additional costs like property management, maintenance, and tenant gaps.
Give us a call if you need some guidance on which option is best for your situation.
Inheriting property can be a blessing and a responsibility and could sometimes even mean taking on debt. If you're fortunate enough to inherit a home, it'd be wise to take the time to understand your options, both financially and emotionally, before making a decision.
