If you inherit a house, or any other kind of property, you may feel as if you’ve been thrown into the deep end of real estate ownership. Not only must you deal with the loss of a loved one, but you’ll also have to wade through the legal and financial repercussions of inheriting a home. While this isn’t a rare situation, being a real estate beneficiary has a lot of moving parts.
So, if you do find yourself in this position, you’ll need to take some specific steps. We spoke to experts who explained exactly what you’ll need to do if you inherit real estate.
Meet With A Probate Attorney
When you learn that you have inherited a property, you should first meet with a probate attorney to determine who has assumed the various rights and responsibilities associated with the property. Doing so will help you assess the full picture of what you’ve inherited.
“Find out if there’s back taxes, liens, HOA dues, or other liabilities you’ll be assuming,” says Nate Smoyer, director of marketing at Avail. “Find out if there are any specific covenants regarding the property and its future use.”
Hire A Property Inspector
Experts recommend treating inherited property as you would a real estate purchase. Before buying a house, you would have it inspected. You should do the same with a home you inherit.
“This usually costs between $400 [and] $600, but it could save you a lot of headache,” says Smoyer. “Oftentimes, a real estate agent can be a great source for finding a recommended inspector.”
Find Out What Obligations, If Any, Are Attached To The Property
Ideally, the inherited property will be paid off, but that may not be the case. Real estate attorney Adam Gutin says that making yourself aware of any obligations on the property—including mortgage payments—is key.
“When a person inherits property, they are naturally going to want to know how much it is worth,” he says.
“However, the other question she should ask promptly is whether there are any ongoing or imminent obligations that need to be performed with respect to the property, such as payment of assessments or property taxes, or landlord-related obligations.”
In many cases, a family member or representative from the estate will have these answers. If they don’t, the person who inherited the property can hire professionals to help, for example, a real estate broker, property manager, or real estate attorney.
“If you inherit real estate that is subject to a mortgage, it really depends on the terms of the loan documents,” Gutin says.
“The first question is whether the death of the borrower triggers a default under the loan documents or a requirement for the loan to be immediately repaid. If the beneficiary wants to keep the property, then they need to consider whether they have the ability to pay off the loan or whether they have the credit to refinance the property.”
Decide Whether To Sell Or Keep The Property.
Once you have all of the information above, you’ll be ready to decide what to do with the inherited property.
“Determine the property’s current market value for both renting it and selling it,” Smoyer says. “Inheriting a property can give you a significant boost in building long-term wealth. It may be tempting to sell off, but consider the long-term cash-flow potentials if you were to rent it out. Talk through your options with a trusted local real estate agent.”
In most cases, experts say, people who inherit real estate ultimately opt to sell.
Terrence Freeman, an attorney with the South Florida firm Nason Yeager, says that’s because many beneficiaries don’t want to take the time and money to maintain the property.
“Most people who inherit property either aren’t local to the property, or don’t have the time, money, know-how, or desire to jump into real estate as a business, or to keep up a vacation home,” he says.
How Do You Know If You Should Sell The Property Or Keep It As A Rental?
Here are a list of factors to consider when deciding whether to sell or rent an inherited property.
- Is your property located in a buyer’s market? If so, hold on to the property as a rental until the market improves, Smoyer advises. You might even consider renting the home out for the long run, because rentals can have significant value. You can use free rental calculatorsto help to determine whether keeping the property makes financial sense.
- Is there growth potential? Do your research on the surrounding market, Smoyer says. “Does the property have appealing features, and is it in a location desired by renters?”
- What level of involvement is realistic for you? Property managers have a lot of responsibilities, including maintaining the property and making sure that your tenant is happy. You’ll need to factor that into your decision.
“If you hire a manager to oversee the rental, you’ll likely end up paying so much money in management fees that it makes the investment not worth it,” Smoyer says.
- Do you own any assets? Real estate can be a valuable asset, so keeping it for the long term might be worth it. Plus, if it comes down to it, you have the option to live in it (unlike stocks).
- How much money can you make off a rental vs. selling? “While selling right away can be tempting, you should consider the long-term value of the property,” Smoyer says. Try to determine how much money you can make off monthly rent payments (minus expenses) over the time you want to keep the property. “Very often, you’ll find that you can make more money over time by renting the property out.”
What Should You Do If You Inherited A Property With Other People?
In some cases, several people inherit a property jointly in a will. If this happens, you’ll have three basic options. First, you can keep the property and own it together. Second, one person can buy the other(s) out and take full ownership. Finally, you can sell it and split the profits.
Usually, experts agree, the third option will prevail.
“Voluntary partnerships are complicated enough,” Bob Kaufman, a real estate attorney at Fischel Kahn, explains. “Partnerships imposed upon people through inheritance are even less likely to succeed.”
If you do decide to keep the property jointly, Gutin recommends putting an agreement in writing to clearly state each person’s respective obligations and rights to the property.
In the end, as in all real estate transactions, deciding what to do with inherited property requires a decent amount of time and careful consideration, in order to make sure that you make the right financial decision.
By Kayleigh Roberts
Courtesy of Realtor.com