It is a fact of life that some people will be fortunate enough to inherit things from a family member who passes on. For such people, one of the things that they might inherit is a house. Owning your own home is arguably one of the most important things that most people work towards, and it is something that often takes many years, or even decades to accomplish. Those that do come to inherit a house, the family member just may have done them a world of good. But then again, it is not impossible that the inherited property may constitute a pain and headache to the recipient. This is often the case when the inherited property comes with its fair share of maintenance and other costs that have to be borne by the inheritor. Sometimes, these people are just not willing to go through the trouble.
One of the first questions that usually arises is what to do with the inherited property. In other words, should you keep or sell it? As with most things in life, the best answer to that question is that it depends on a whole host of things. Reflect and determine whether you want or need the property? Another question to ask yourself is what the opportunity cost of keeping the property versus selling it is? The type of inherited property might also play a role in the decision to keep or sell it.
The Double-Edged Sword Of Inheriting A Property
There are both benefits and disadvantages to inheriting property. To this end, while the inherited property likely has a host of benefits, it is not impossible that it may require a lot of spent energy, money, and other resources to maintain the property, to the point where the benefits do not outweigh the costs. Hence the inherited property being referred to as a potentially double-edged sword.
A few examples of the issues that may come with ownership of an inherited property include:
- Legal and Financial Responsibilities: Financial responsibilities might include a debt obligation attached to the house, like a mortgage. It may also involve a loan from a financial institution that was securitized by the property. Both situations will require the inheritor to continue to service the debt if they intend to keep the property. Similarly, legal issues that may come with the house include things like legal disputes with other potential inheritors of the property. Whatever the case may be, chances are that both scenarios will require money out of the new owner’s pocket to resolve.
- Tax liabilities: All taxes that are due to be paid on the inherited property automatically fall to the inheritor to settle. Taxes may be in the form of capital gains tax which becomes due if the property is sold for a higher price than it was originally bought for. Or there may be property or millage taxes due to the local government. If by chance the property in question is of a very high value then chances are that the corresponding property taxes will equally be on the high side, a fact that may not go down well with the person left standing with this responsibility.
- Maintenance/Holding Costs: Chances are that an inherited property will require some degree of repairs. Even more important to note is the fact that all properties require regular maintenance or holding costs. These costs will have to be paid by the inheritor and in the event that it is not a regular income-generating property, then this is yet more money out of the pocket of the person who has inherited the estate.
What Are Your Options After Inheriting A Home?
Keep the Property
There are several considerations that might go into the decision to keep an inherited property. You might, for instance, decide to keep it as a vacation home. Alternatively, you might convert it into a rental property. There is also the possibility that you might decide to move into the property if you currently live in a rented space, or perhaps even if it is a better or more comfortable accommodation than you currently live in.
Having said that, it is not impossible that the last will and testament of the deceased relative might prevent you from doing certain things with the property. For instance, it might forbid you from selling it because they want it kept in the family.
Sell the Property
As previously mentioned, there are several financial, legal and other responsibilities associated with keeping an inherited property. It is for these reasons that some people opt to rather sell the property and in this regard there are, generally speaking, two possible routes to follow:
- For Sale By Owner (FSBO): The decision to sell your house by yourself and bypass a third party like a real estate agent or broker is what is often referred to as a For Sale By Owner (FSBO.) For anyone who has no experience selling a property, the ability to go through the process of selling a house from start to finish will be quite daunting. The lack of experience and the potentially many moving parts are some of the challenges that a novice will not know how to navigate.
Some of the previously-mentioned moving parts in an FSBO process include things like overseeing and managing any needed repairs to the property, conducting and managing property staging and viewings, the drafting of the property purchase agreement, or alternatively, dealing with a real estate attorney to draft this contract, negotiating with a potential buyer, and more.
Anyone who has decided on the FSBO option and has had to go through all these processes and tasks will tell you that they are not as easy as they sound. One way, however, to avoid going through many of the above-mentioned tasks is to directly sell the property for cash to a home buying company. For many people, this is often a very attractive proposition.
- Use a Real Estate Agent: For people who are not willing to try and sell the property by themselves, they usually opt to use the services of a real estate agent or broker. This option usually involves passing on the responsibility of selling the property to someone who is, in all probability, more experienced than you are. This also means that this agent will have to take care of all the previously-mentioned tasks involved in the sale process, as well as other challenges. This is exactly why such a real estate agent usually charges between 3% to 6% fee of the property purchase price for their service.
The decision on what to do with your inherited property will likely be determined by your specific circumstances and what your goals are. Of course, you also have nothing to lose by seeking the advice of an appropriate professional who is knowledgeable and can guide you accordingly to help you best achieve your objective.
Guest article is written by Kanayo Okwuraiwe a digital marketing professional and the founder of Telligent Marketing LLC, a digital marketing agency that provides SEO services for real estate companies, lawyers and other such professionals to help them grow their businesses. Connect with him on Linkedln.