Inheriting a house can be complicated. Because both emotions and finances are involved, it could potentially become a minefield.

You need to make important decisions when you inherit a house – whether to sell it, rent it, or live in it. Making the wrong decisions now could cause serious financial hardships later on or can lead to family feuds.

1.  Don’t let the house stand empty

Get someone to look after the house until you decide what to do with it. An empty house can only cause you headaches. Is there a family member or friend that could stay in it? Do you need to install a security system? You need to ensure that the house keeps its value while you decide what to do with it.

2.  Determine what the house is worth

Whether you decide to buy, sell or rent it, find out what the current market value of the house is. You can get various estimates from local realtors who are familiar with the current market conditions.

3.  Is there a mortgage on the house?

If the home is worth less than the remaining mortgage amount, you may decide to let the house go into foreclosure or do a short sale. If the value is worth more than the mortgage, you can maintain the mortgage payments if you can afford to and wish to keep the house. If you don’t maintain the mortgage payments, the lender has the right to foreclose on the property.

Find out whether the home has a reverse mortgage. In this case you can only keep the home if the estate (or you) can pay it off. If not, the bank will sell the house and you’ll inherit the remaining equity. Reverse mortgages cannot be assumed by heirs.

4.  The condition of the house

Often when the previous owner has lived in the house for many years, it will need some repairs. From a financial perspective it’s usually best to do the minimum amount of repairs to secure a buyer. If the house has a sound structure and only minor cosmetic repairs are needed, you can consider fixing it up to sell or renting it.  If you feel this may be an option for you, do you have the money to invest in fixing it up?  Are you willing to take the risk that you will get your money back?  Do you have a contractor you trust to do the work?  If you answered “no” to any of these questions, this option may not for you.

Sometimes the house may need extensive repairs before you can sell it.  You may not have the time or money to oversee these repairs. In this case you may want to sell it “as is”, even if this may mean accepting a lower price. You could consider marketing it to an investor who’s looking to buy a home “as is” and flip it.  Most investors are cash buyers and can close fast so you can move on with your life.  Also consider the distance you live from the house. If it’s too far away you need to consider how you will be able to provide for the house’s upkeep.

5.  Income potential and taxes

You can consider renting out the home and keeping it as an investment property, especially in areas with a hot rental market. Keep in mind that you may have to pay tax on the rental income. If you have no prior experience renting out a property this could be quite complex. You could source a reputable local management company and have them manage the property for you. You also need to consider that if you rent the home, this is an investment venture and not the family home anymore. How would you react if you end up with a nightmare tenant who causes damage to the property?  Do you have the funds available to repair the damages?  Also, if you decide to manage the rental yourself, are you familiar with the Landlord Tenant Laws?  Again, if you answered no to any of these questions, you may want to pass on getting into the rental biz.  Most landlords only last 2 years, then the for sale sign goes up in the yard.

If you inherit a home with a tenant already in it, you have certain responsibilities as a landlord. You will need to take their legal rights into account if you want to sell the property. It is advisable to get advice from an attorney in this regard.

Whatever you decide to do with a house, it would be wise to consult a tax professional and attorney to make sure that you make the right decision moving forward. For instance, you can only get capital gains tax relief on one home. If you decide to keep the inherited home in addition to your own home, you will need to let your tax office know which home will be your main home.

If you have no use for the property or will gain no financial benefit from the property you can disclaim the inheritance. This means that you refuse to accept the inheritance. You must deliver this in writing to the executor of the estate. The property will then go to whoever is next in line for the inheritance.

 

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