Typically, one receives an inherited home from a deceased relative. Inherited homes can be a great opportunity for the inheritor, but sometimes the home can also pose a problem. Many inherited homes have not been taken care of and need many upgrades. When money needs to be put back into the home, it is likely that the inheritor will sell the property if they do not have the time, money, or means to renovate the home.
So, what should you do with your inherited property?
We’ve put together a guide detailing your options, including what you can do with an inherited property and things you need to know if you choose to rent or sell an inherited home.
- What You Can Do with an Inherited Property: Your Options
- Renting an Inherited Property: A Closer Look
- Selling an Inherited Property: A Closer Look
- Considerations When Selling Inherited Property
- Frequently Asked Questions About Inherited Properties
What You Can Do with an Inherited Property: Your Options
1. Rent the Inherited Property
One thing you can do with an inherited property is rent it. You should approach this option carefully, as it can have many drawbacks. There are many expenses that come with maintaining the property you rent. You have to pay for renovations, vacancies, and property taxes, just to name a few.
When you rent out a property, it’s estimated that about half of the revenue you earn from renting out the house will be put back into the house to cover these costs. For example, if you make $12,000 per year in rent, you will have to pay approximately $6,000 for remodeling, vacancies, and property taxes. While you may make a small profit over time, you will still have to put significant funds into making renovations, and you will need to keep paying property taxes.
Not everyone is cut out to be a landlord. If you’re an experienced landlord, this option may make sense for you. But if you’re a first-time landlord, it’s likely that you won’t be profiting off the home and you’ll only be able to break even on cash flow. If you’re considering renting out an inherited home, especially to family, think carefully.
2. List the Inherited Property with a Real Estate Agent
Another thing you can do with an inherited property is sell it with the help of a real estate agent. There are a few benefits to selling the home through an agent. They can help you hire home appraisers to determine the value of the home. An agent will also help you stage the home and help you through the closing process. Listing your home with an agent works best if the home you inherited is in good condition and ready to sell.
One drawback of selling through an agent is you will still have to pay commissions and closing costs for the home. These fees take away from the potential profit you could make off of the house. It makes sense to sell an inherited home with an agent if the home has been well cared for, but if the house needs many repairs and renovations, it may be on the market for a long time. It's also possible to sell the home yourself, by owner. You will still have to pay closing costs, but you won't have to pay a commission to the real estate agent, increasing your profit.
3. Sell the Inherited Property for Cash
You can sell your inherited property for cash and make a fast profit. Not only will you be able to make some money off the inherited house, but you also won’t have to handle the repairs. This is often what many people who have inherited homes do. It's the fastest and easiest option because many cash buyers can close in less than a week and make the process simple.
If the home is seriously in need of repairs and if you don’t have the time, money, or expertise to do it yourself, selling your home for cash is likely the best option. A cash buyer can fix up the house and make it new again.
4. Flip the Inherited Property Yourself
If the home you inherited holds sentimental value to you and you have the time, money, and expertise to remodel it, flipping the home yourself may be a good option. This option will help you make the most dollar-for-dollar profit, but it’s definitely not an easy process. It takes a lot of time to flip a home and prepare it for selling, but if you have the time and money to do so, it may make sense for you.
5. Move into the Inherited Property
If you plan on moving into the inherited property, you should get a home inspection in order to find out if maintenance or repairs are needed. If you are part of a group of inheritors, the other owners will have to agree to let you live in the home. If you can’t work out some sort of rental or buyout agreement, you may end up in court.
This option has the lowest tax implications along with the typical financial and legal responsibilities of owning a home. However, you can expect property taxes to rise because the house will be reassessed at its current market value.
Renting an Inherited Property: A Closer Look
Renting a house gives you an opportunity for income, but it has the highest amount of financial and legal responsibilities. You must first check out your city ordinances and any homeowners association rules about renting to make sure you’re in compliance. You’ll need a house inspection to address any safety issues, as well as a landlord insurance policy. If you don’t have any experience in this area, or just don’t want the hassle, you should consider hiring a property manager to deal with the marketing, leasing, and managing of the residence.
Renting Inherited Property to Family
You’ve likely heard renting to family is a bad idea. But it may be unavoidable in certain situations. For example, let’s say you inherit a home that was already being rented by your family to other relatives. Now you’re put in an awkward position of becoming a landlord to your family member or possibly selling the property and having to kick them out of the house. It may not be the ideal scenario, but that doesn’t mean it’s impossible to establish a landlord/tenant relationship with your relative. With some planning and initiative, you should be able to proceed with caution and even enjoy being able to help out your family member. Here’s what to do when you are renting inherited property to your family and how to manage this unique business transaction without causing tension.
1. Establish a Landlord/Tenant Relationship
There should be no question that you are the landlord and your relative is the tenant. As such, you should start off on the right foot with a rental agreement. This legal document creates a mutual understanding of the rules and boundaries between lessors and lessees. A rental agreement lays out all the details of occupancy limits, security deposits, right of entry, potential disturbances, etc. It allows you to build a proper framework and foundation from the beginning to avoid possible conflict down the road. Some terms to consider putting in your rental agreement include:
- Names of all family members who will occupy the home
- Occupancy limits that state who is allowed to live in the home
- Rental or lease term (month-to-month or long-term)
- Amount of rent, due date, and acceptable forms of payment, as well as a grace period, late-payment fees, and returned check charges
- Security deposits and non-refundable fees, such as pet and cleaning fees
- Right of entry: when and why you may be allowed to access to the home
- Rules for potential disturbances such as excessive noise, unwanted guests, pet issues, and illegal activities
- Repair and maintenance rules and responsibilities to keep the home in good condition
If you feel uncomfortable asking your relative to sign a rental agreement, just remember that those few minutes of uneasiness will protect both you and your family member—and possibly save your relationship.
2. Fulfill Your Duties as a Landlord
Now that the rental agreement is in place, you must hold up your end of the bargain as the landlord. You should make any necessary repairs promptly if you are responsible for maintenance. Most leases require the property to be “safe and habitable,” so it’s important to make sure the home is structurally sound, sanitary, and meets the required safety codes. As the landlord, you need to ensure property taxes and insurance premiums are paid on time. If you have a mortgage, your lender will likely require you to have certain types of insurance in case of fire, flood, or accidents. You should also inform your tenant that your insurance does not cover their belongings and advise them to get renter’s insurance. Another responsibility as a landlord is to hold your tenant accountable for making payments on time and respecting your property. If you make allowances or let things slip, you are enabling them to expect special treatment because they’re a relative.
3. Treat Your Relative Like a Tenant
What goes on in your relationship as a landlord and a tenant should stay private and only be discussed by you and your relative. You should not talk about the details of your rental agreement with other members of the family. You must not reveal your relative’s personal and financial information to anyone else. You need to avoid taking any liberties with your relative that you wouldn’t take with any other tenant, such as not requiring a security deposit. If you think you may have difficulty enforcing aspects of your lease agreement, hiring a property manager as a mediator might be a good idea.
Selling an Inherited Property: A Closer Look
Selling a house leaves you with the least amount of legal and financial responsibilities because the home won’t be yours anymore. You need to get a few real estate agents to assess the home for pricing and marketing. You’ll also want to get opinions on whether renovations are needed or if you can sell the home as-is. That’s one advantage of choosing to work with a cash buyer. They will purchase the home in any condition and close the deal much faster than a realtor. Selling the home has the highest tax implications. You will pay capital gains on the difference between the established fair market value at the time of inheritance and the selling price.
Selling an Inherited Property to a Family Member or Sibling
There is often one sibling or family member who wants to own or rent the house for either emotional or financial reasons. This can get emotional, so you should have a rational process to protect the family relationships from resentment. To ensure that the matter is handled fairly, you may need to get a third-party appraisal while the family member gets a pre-qualification from a lender to buy the home. To ensure the family member is serious, he or she could pay for the appraisal cost. You can get a realtor’s opinion, but keep in mind the realtor is incentivized to get the listing.
Oftentimes, the sibling who wants to purchase the inherited house cannot afford it. Avoid creative financing (i.e. rent to own) with a family member. Creative financing rarely ends in success. The most common mistake families make is renting an inherited property to a family member, who subsequently refuses to pay rent or otherwise comply with other family requests, which results in a family member having to be sued for eviction.
If you do choose to rent to a family member, you need to require a written lease agreement and decide who in the family will have the responsibility and authority to evict the family member if the need arises. In our experience, renting to a family member typically results in the parties going to eviction court, which almost always ends in broken family relationships. If you want to sell or rent inherited property to a family member, it is always best to make it an arm’s length transaction.
Selling an Inherited Property via a Realtor
Listing the property with an agent is often the best way to get the most cash from the house, but it’s not always the fastest or the most painless. If the inherited property has deferred maintenance, the buyers will likely have inspections that will lead to another round of negotiations or a canceled contract.
Many inherited properties need expensive updates and the inspection is a common reason for contracts to fall apart. Even when the buyer does not cancel a contract based on problems and maintenance issues discovered in an inspection, the buyer—or the buyer’s lender—almost always requires the family to repair all identified problems or defects, and that can be a substantial expense for the family trying to sell.
If you do list the property for sale with a real estate agent, make sure someone has the responsibility and authority to negotiate during the process, but be prepared for the closing to take time as most purchases will be contingent upon the buyer’s financing and the home inspection. You’ll also need to assign responsibility for getting the house ready for listing photos. The right agent can provide helpful guidance and negotiation through the process, but you can expect to pay 6% of the gross sales proceeds in commissions for their expertise.
You might consider remodeling the property to maximize the sales price, but know this option can also maximize your pain. If the family chooses to do this, make sure and answer the following questions:
- Who will have the authority to make the design and budget decisions?
- Who will manage the contractors and permits?
- If a family member is contributing project management or construction skills, how will they be fairly compensated for their time?
- How will you manage disagreements and resentment between family members?
- Who will fund the construction and who will assume the risk of going over budget?
- Who will fund the holding costs such as utilities, mowing, and property taxes?
- Are all the stakeholders in agreement on the timeline and who will have responsibility if the remodel isn’t completed on budget or on time?
Selling an Inherited Property for Cash (No Realtor)
Selling an inherited property for cash without a realtor is a popular choice because it is often the fastest and most painless option. With legitimate cash buyers, there won’t be any inspection or financing contingencies so they can close the sale of the property within one week.
Cash buyers can be an especially good option if the house needs work. The right cash buyer is able to add value through construction expertise that neither you nor homeowners can create.
Beware, however, of wholesalers. Wholesalers don’t add value to your property by investing in the property. Wholesalers don’t flip houses. Wholesalers flip contracts. Wholesalers act as a middleman by negotiating a contract with you and then selling (or assigning) that contract to an actual flipper. You can put the most money in your pocket by bypassing wholesalers and selling directly to a cash buyer who is going to add value to the house.
Many of the “We Buy Houses” yard signs you see at intersections are actually wholesalers. Ask any cash buyer for examples of houses they have purchased and remodeled. If they can’t provide multiple examples, they are likely a wholesaler who is going to sell your contract to someone else for a profit. If the wholesaler can’t find a buyer for your contract, they will walk away from the contract.
PRO TIP: Instead of selling to a middleman, bypass the wholesaler and sell directly to a reputable flipper or cash home-buying company.
Considerations When Selling Inherited Property
1. Market Conditions
If you consider delaying the sale of the property for better market conditions, keep in mind the costs of holding a property. In addition to property taxes, mowing, utilities, insurance, and maintenance, vacant houses don’t age well and are very vulnerable to vandalism. This is why it’s so expensive to get insurance on a vacant property.
Renting is an option, but there are significant holding costs with that, too. Unless you intend to hold the property for over 5 years, the best time to sell is probably now, because the condition of the property will only deteriorate unless someone is caring for the inherited house. You can always take the cash and invest it in another investment vehicle that doesn’t require mowing, plumbers, and property insurance.
2. Condition of the Home
When you inherit a house, understand water is the enemy. Water is the enemy of all houses and especially so in non owner-occupied houses. Termites and mold are the biggest risks in vacant houses and the cause of both is water. If you inherit a house, keep the gutters cleaned out and downspouts flowing away from the foundation. Most water damage can be traced to poorly maintained gutters, but that’s not the only source.
Make sure pipes are properly winterized in any vacant house, because a burst pipe can go unnoticed for days or weeks when a property isn’t occupied. Mold grows really fast where heat pumps are not circulating air. If there are upstairs bathrooms or air conditioning units in the attic, be sure the pipes are turned completely off because the worst kind of leak is the one that’s on the second floor.
The second worst is the one in the crawl space because termites are subterranean and bore vertically from the ground to the roof. If you are renting a house, the renters have no reason to check the crawl space for water intrusion and that is of critical importance. If the roof is old, consider replacing it, because this will both protect the property and add value to it.
3. Squatters in Inherited Property
Squatters are people who live and often do business in vacant houses. While you are deciding on how to sell your inherited house, keeping the yard mowed and lights on will help deter squatters. If you find someone living in the property, do not confront them without authorities present. Squatters have rights and you can be liable for handling the situation improperly.
Frequently Asked Questions About Inherited Properties
What should I do first after inheriting a house?
Your first move is to assess the home’s condition and take care of it. You need to contact the insurance company to update the homeowner’s policy and possibly do some comparison shopping with competitors. You should put all of the utilities in your name, cancel any services that aren’t needed, and keep paying the bills. You need to make sure the property taxes and mortgage continue to be paid. If there is yard work to be done, you should arrange for maintenance at least in the short term. Your main objective is to keep the lights on and not let anything lapse or go into default because you’re in limbo on what to do with the property. However, if you are in a situation where you cannot take care of these details, a cash buyer can quickly take the home off your hands.
What’s my next step after inheriting a house?
When you’re ready for step two, take inventory of the contents in the house. If you are the sole inheritor, what you do with the personal items is entirely up to you. But if you’re part of a group of siblings, for example, you must decide how to manage the belongings. One option is for each person to take a turn picking out an item to keep and continue that process until everything is accounted for or no one wants anything else. You could sell the remaining belongings in an estate sale and split the money. If there are still things left, you can donate them to charity or throw them away if they’re not in good shape. Warning: This part can be hard. You may not want to take this step right away (or ever), but keep in mind that putting it off will prevent you from moving on to the next stage. If you do not want to go through the house and sort the belongings, a cash buyer will accept the house as-is, contents and all.
How soon can you sell an inherited property?
The ownership of an inherited property typically must be transferred to heirs through the probate process. In most localities, if there is a Will involved, this process begins by going to the court clerk's office to file the Will via some method of probate.
The length and requirements of the process will depend on several factors, including whether there is a valid Will and how cooperative the heirs are in working together and completing the processes.
If there is a Will involved and the family has multiple types of assets to distribute—real estate, personal property, vehicles, bank accounts, etc.—then a full probate may be required. That process could take between six and twelve months to fully complete, and longer in some special situations.
If there is no Will involved, then you can often sell real inherited real estate by having an Affidavit of Heirship signed by two people who are not direct members of the family, but who know the members of the family and can identify the deceased person’s heirs. An Affidavit of Heirship is an affidavit that identifies the deceased person, states whether they were married, widowed, or single at the time of their death, and identifies their children, and perhaps other related family members, who are, by state statute, the heirs of the deceased person. When no Will is involved, it only takes a few days to obtain Affidavits of Heirship, so that is typically a quicker process.
Can you sell an inherited property before probate is completed?
In order to sell an inherited property, there must be a buyer, and any buyer will require a clear title. Title companies play an important role by ensuring a title is not clouded, meaning there are no other parties who could assert a claim or encumbrance on the property.
Before transferring ownership, title agencies will make sure no lenders, contractors, local governments, state governments, the IRS, Medicaid, nursing homes, or any other party has a claim against the property. Just because probate is complete does not mean there is a clear title. Oftentimes, a state agency will have provided health care benefits in return for an interest in the property. In other cases, there may be unpaid federal taxes that could cloud the title to a property.
If you have inherited a property, you may not know about any debts or creditors' claims until you go to sell the property. Because of that, it can be a good idea to purchase a title search through a title agency or real estate attorney to see if there are any issues that need to be resolved prior to selling.
If you have a clear title, it is possible to sell the property during the probate process. Cash investors can be particularly helpful in this scenario, as they often have the resources and flexibility to navigate the complexities of probate sales, ensuring a quicker and smoother transaction.
What’s the Fastest Way to Sell My Inherited House?
By now, you realize there are a ton of decisions to make and lots of work to do after inheriting a house. If you don’t have time to deal with the process of selling your inherited house on your own or with a realtor, there is another option. A cash buyer can close the deal in as little as seven days and take the home off your hands, contents included.
Interested in Selling an Inherited Property? Sell Your Inherited Home to the Cash Buyers at New Again Houses
New Again Houses makes the process of selling an inherited property simple. If you are ready to sell your inherited home, get a cash offer, and close in a matter of days, contact us today to get started.
