Options for an inherited property
What you choose to do with the house depends on how it may fit into your lifestyle. Here are some options to consider:
- Move into the house. If you'd like to live in the home you inherited, this could be a simple solution. Be aware that the house will be reassessed 2 when the owner changes and the property taxes may increase. You should also do a comparison of the costs of maintaining the house compared to where you live now.
- Sell the house. Depending on the value of the house and the remaining mortgage balance, you may be able to sell it for a profit. First, though, you'll need to clean out the house and you may need to pay for some repairs to get it ready for buyers. Be prepared to pay closing costs of 1% to 5% of the home's sales price and real estate commissions. If you're selling a house long-distance, it's especially important to hire a real estate agent who knows the market well and can position the house for a profitable sale.
- Rent the house. To offset the cost of maintaining the house, you could choose to rent it to long-term renters or for short-term rentals. You'll need to follow the rules in the jurisdiction where the house is located, maintain the property and buy landlord's insurance. If you live far away from the house, you may want to hire a property management company, which will cut into the profits from the rent.
- Use the house as a vacation property. You can also use the property yourself as a vacation home and to rent occasionally for other vacationers, but you'll need to see if that's allowed by local regulations and perhaps a homeowner's association. Insurance needs and tax implications vary according to how often you rent the property.
- Keep the house as an investment. If you want to keep the property for awhile (to benefit from increase in value over time) but don't want to deal with renting it out, you can keep the property without renting it or using it yourself. However, there are some costs associated with this. This includes mortgage payments (if any), property taxes, homeowner's insurance, maintenance, and utilities for security-lighting and temperature-control (to prevent mold and potential damage from burst pipes). You'll also need to check on the property regularly (or hire someone to do that for you), and you may want to invest in an alarm system to protect the house from potential vandalism.
Complications with multiple heirs
While each of the options above is something to consider, the choice becomes more complex if your inheritance is shared with multiple heirs. For example, if you want to live in a house that now belongs to you and your siblings, you'll need to come to a legal agreement with them and either buy out their share3 or pay rent to them. If you plan to keep the property as a vacation home, it's best to have a written agreement with your siblings about how you plan to share the expenses and use of the home.
You and your siblings will also need to agree on any renovations to the property and how to pay for them, regardless of whether you are selling or keeping the house.
If the house has a mortgage, you will need to determine how to make the payments on the loan until you decide whether to keep or sell the home. In most cases, you can assume the mortgage on an inherited house4 without needing a new loan approval, but you will need to keep up with the payments.
However, if your relative has a reverse mortgage5 on the house, you may need to pay the balance of that loan or 95% of the appraised value, whichever is less, according to the Consumer Finance Protection Bureau. If you don't have the ability to pay the reverse mortgage balance, you'll most likely need to sell the property and then receive any remaining equity after closing.
Regardless of whether you decide to keep or sell your inherited home, there are legal and tax implications for the inheritance. Consult a tax advisor and an attorney to manage the transfer of the house to mitigate taxes and to follow all appropriate legal steps for you and any other beneficiaries.