Many people inherit a home unexpectedly and sometimes pretty quickly. For many, this can be a blessing. In this scenario, the home is in good condition and full of equity. However for many others, an inherited house can cause unwanted financial and emotional stress. Either way, knowing your options even before you take ownership of the new home is key to avoiding potential disaster.
I Just Inherited a Home … What The Heck Do I Do Now?
Consider this: One day you are sitting in your current home, entirely content with where you stand financially with regard to your rent or mortgage, as well as the utility bills needed to maintain the home. Then suddenly you learn that you are inheriting another property. Are you prepared to potentially make payments on this new home? Is the home even worth the amount still owed? Do you have a little extra in your monthly budget to keep the lights on or make any necessary repairs to the new home? For some that answer will be yes, but for others a resounding no.
Should you face this scenario, the most important thing you can do is begin gathering as much information as you can, as quickly as you can. What is the home worth? What is the current balance owed on the home? How much is the mortgage payment each month? Does it have sufficient insurance coverage? What about the physical state of the home, does it need repairs? Are there any other stakeholders who are inheriting a share of the home?
As you start to collect answers to these and other questions, you will likely start to better understand what you can and should do with this inherited home. Depending in part on financial and circumstantial factors, as well as the strength of the local market, you may choose to move in to this home (either selling your existing or terminating a lease), rent the home to others, sell the home (either by listing it on the open market or selling for a quick cash sale), or holding on the home in hopes of gaining larger financial gains in the future.
Option 1: Move In
For many, inheriting a home is overall a positive thing. Should all of the cards align and the inheritor is able to simply move from one home to the new one seamlessly, this is likely the easiest and perhaps most financially responsible option. However, there are many variables that come in to play, most notably in regards to timing. Are you able to coordinate the timelines appropriately so that you are not doubling up on payments for your current living situation along with your new one? Will you need time sell your current house? Will a property manager charge you a penalty for early termination of a lease? And as for the home itself, does it need any cosmetic or functional improvements before it is “move in ready?” Are you able to align contractors to complete the work in a timely manner so that you don’t end up with the inconvenience of living through a renovation? Depending on how you answer these questions, moving in may – or may not – be the best option for you.
Option 2: Rent It
Should moving into the home not be the most practical option for you, perhaps you will want to consider renting it out. Speak with any investor and he/she will speak to the merit of the passive income that owning a rental investment can produce. However, speak to that same investor long enough and he/she will likely address some of the challenges as well. First, the home will need to be rental-ready. While you may make different rehabilitation choices for a rental, at the very least you will need fresh paint, clean or new flooring, working appliances, functional systems (heating/cooling, electric, plumbing), a sturdy roof and perhaps even some new light fixtures to attract renters. You will also need to think about the cost of property taxes, any association or CDD fees, insurance costs, property management or landlord fees (assuming you don’t want to be responsible for 24/7 maintenance calls), the potential challenge of tenant placement, rent collection, or even the cost of eviction should you need to remove a tenant. For some, none of these issues are too big. For others, it’s not worth the hassle. It will be up to you to determine whether or not this option works for you.
Option 3: Keep It and Keep It Vacant
Should neither occupying the home yourself, nor renting to a tenant be the right choice for you, you may simply decide to inherit the property and leave it vacant for the time being. You often see this option when the home may not be worth enough to cover the mortgage, and the inheritor does not want to go through a short sale or foreclosure. So, the new owners continues to make payments on the home, hoping it will increase in value over time. You may also commonly see this option when someone inherits a home that was owned free and clear, so there is no monthly mortgage payment owed on the home. What you must remember, though, is that while there may be no mortgage payment, you still have to pay property taxes along with any association or CDD fees on the property. You will also likely choose to maintain a vacant home insurance policy, and will be responsible for the upkeep of the home. The city will add fines to any home that is not properly maintained and continue to issue fines until they are paid off in full and the maintenance or repairs are completed to their standard. Finally, you need to consider the security of the home. It’s not uncommon for vacant homes to be broken into, vandalized or damaged by those who know “no one’s home.” Is the cost to regularly repair or maintain the home eating into your equity? At some point the scales can tip quickly from good to bad investment.
Option 4: Sell It
So, you have inherited a home, but the timing isn’t right to move in, you can’t stomach being a landlord to a renter, and the holding costs for keeping it vacant are too high so that is not an option. What else can you do? What most people do when faced with this scenario is sell the home and cash out any equity you may have inherited with the home. Should you ultimately decide to sell the home, you have a couple of different options. First you can list the home on the open market with a real estate agent. However before doing this, you will most likely need to do any major repairs to get the home show ready. On average, your home can take between 30-60 days before you receive an acceptable contract, and then another 45-60 days to close. During this time you will be responsible for all holding costs and utilities, while also paying the rent or mortgage on your existing home. Then, at closing you will responsible for all seller-related closing costs, including commissions to the listing and buyer’s agent, owners title policy, title search, survey, and more. On average these costs and be around eight percent of the sales price.
For many, they don’t have three months worth of holding fees on hand to be able to maintain two homes at once. Further, they may not have enough equity in the inherited home to warrant paying up to 8% towards closing costs (not to mention any repairs that come up during inspections) so a better, more practical option for them is to sell quickly to a real estate investment company for cash.
Should you consider this option, there is no better company to work with then Mac Home Development. We have vast experience in working with those who have unexpectedly or quickly inherited a “problem” home. We understand how emotionally hard this process can be on you and your family, and our promise to you is to make this as quick and easy as possible if you decide to sell us your property. We will give you an all cash offer within 24 hours, and can close as quickly as you need us to. Need to close next week? Done. Need a month to get all of your belongings out? Not a problem. Your timeline is our timeline.
Please know that ultimately, our goal is simply to help you out. Should you need to talk through any of these options, we are here 24/7 to take your call, text or email. Whether we buy your home or not, we will make sure that whatever option you select is the one that makes most sense for you at this time – guaranteed!