Inheriting a Home: Should You Sell, Rent, or Keep It?

Receiving a home as an inheritance comes with a mix of opportunity and complexity. Often, inherited properties come with ongoing tasks and emotional connections. When considering selling, renting, or keeping the home, you will want to consider your financial situation and your current and future financial goals. In this blog, we will discuss the advantages and drawbacks of selling, renting, or keeping your inherited house. There will be insights into thoughtful financial planning that can guide you to the best choice for your situation.

Recognizing Your Options

a) Selling the Home

Selling the property would allow you to convert the property asset to cash. Yet this option may be hard for people to do when they have emotional connections to the home.

Some pros of selling the home include immediate cash flow, no cost of maintenance, no homeowner or landlord responsibilities, potentially good market conditions, and the simplification of the estate resolution process.

While the pros of selling sound good, you also want to consider the cons. Some cons of selling the home could be emotional attachment, tax implications, and potential income loss—for example, loss of rental income.

Pros

1. Immediate Cash Flow: This is likely the biggest benefit of selling the home. Having quick access to a large sum of money is a great way to pay off debt or invest in other ways.
2. Eliminating Homeowner/Landlord Responsibilities: Homeowner and landlord responsibilities can be a lot to handle. Selling the home would eliminate the need for these responsibilities.
3. Market Conditions: If the real estate market is high when making the decision, it may be a good idea to sell the home to get the most value out of it. Looking ahead and seeing if the market is expected to rise or decline is also smart to do when considering selling.
4. Simplified Estate Resolution: Many times, multiple parties inherit a home. Selling the home outright would allow an easy payment upfront. It can be a lot harder to split or buy out the house if all the parties do not agree.

Cons

1. Emotional Attachment: Many times, the inherited home comes with memories. This is a difficult decision to make if so. Weighing the pros and cons can be a good way to help make the decision.
2. Taxes: Taxes are important to consider when deciding whether to sell. Inherited properties often get a step-up in cost basis, which usually helps reduce or eliminate capital gains. It is important to seek advice from your CPA to discuss any potential taxes on the sale.

b) Renting the Property Out

Renting your inherited property may be a good option, depending on your situation. Some pros include passive income, potential tax advantages, and asset preservation. Some cons include your duties as a landlord, tenant variability, and costs.

Pros

1. Passive Income: Renting out your home will provide a passive income when occupied. This is great for extra monthly income.
2. Potential Tax Advantages: Rental properties have many potential tax benefits and deductions. Some of these include property maintenance, depreciation, and mortgage interest.
3. Asset Preservation: If your long-term goal is to keep the property, renting it out may be a good option. This will allow you to retain the property for future use or long-term appreciation.

Cons

1. Landlord Duties: Having a rental property comes with many landlord duties. This may inconvenience your life with all the necessary repairs and regular maintenance on the property.
2. No Tenants: One risk with rental properties is having no tenants and a disruption in rental income.
3. Upfront Costs: You may need to invest money upfront on marketing, any necessary repairs, and potential property management costs.

c) Keeping the Property for Personal Use

Keeping the property for personal use is the third option. Pros include keeping it for future use or value appreciation or keeping it because of your emotional attachment. As always, there are cons, such as sharing the property with family and the cost of keeping the home.

Pros

1. Emotional Attachment: Although this may not be the best financial decision, keeping the property because of your personal attachment is a valid reason. If you can afford the extra expenses, this is a feasible option.
2. Future Appreciation: Some people may want to keep the property to sell it after it appreciates.
3. Future Use: Many people keep a property for future use. They may want to retire there, use it as a vacation spot, or pass it on to their children.

Cons

1. Cost of Keeping: There are many different potential expenses with a property, including mortgage payments, homeowners’ insurance, and property taxes.
2. Family Complications: If you have multiple inheritors, you may face issues when deciding how to share the property.

Final Thoughts

After considering all the pros and cons, you will want to decide on an option. This process can be challenging when you have multiple inheritors. Assess the options together (if possible), and consider involving your financial advisor, accountant, real estate agent, and estate attorney. These professionals will help you determine your financial situation and goals, the costs of each option, and the current real estate market so that you find the best solution for your needs.

The opinion of the author is subject to change without notice and must be considered in conjunction with relevant regulation, as well as subsequent changes in the marketplace. Any information from outside resources has been deemed to be reliable but has not necessarily been verified. Each individual has unique circumstances to which this information may or may not be relevant. Under no circumstances will this information constitute an offer to buy or sell and it does not indicate strategy suitability for any particular investor.