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According to The Center of Wealth and Philanthropy at Boston College, Baby Boomers are due to inherit upwards of $27 trillion over the next four decades. A portion of this number is their parent’s house. Inheriting a home generally comes with its own financial and personal burdens. The more heirs involved the more stress involved. Generally, there are three choices that you have once you inherit a home: Sell it, Rent it out, or Live in it.
Selling your parents home can be tricky. A recommendation would be to check comparable properties that have recently sold in the area. This can help you determine what an appropriate asking price is for the home. It is also recommended to be sure that the homeowner’s insurance is up to date and the estate, or trust, is named as the insured. Mortgage payments and property taxes should be up to date as well. Once you sell the property, you will need to pay the remaining, if any, mortgage balance as well as any commissions, taxes or other closing costs. We actually have a ton of experience in buying inherited properties for cash, so contact us if you’d like to see how we can help.
Moving into your parents home is another option that you have. You may have the desire to reside in the family home and continue the memories you have therein. It is best to discuss this with your family well before it is necessary to be sure that everyone is on the same page. It would be worthwhile to look into what’s known as a Family Legacy book. In it, parents can leave clear instructions for assets such as a home will be administered. This helps deal with disputes that may arise between siblings or other family members when it comes time to settle the estate. Moving into your parents home may mean an increase in cost as well. Property taxes, repair or maintenance, or utilities can increase. Bear this in mind should you decide that you wish to move into your recently inherited home.
Renting out the newly inherited home can also lead to its own benefits. This can often be a way to earn a secondary income. One way to help boost the potential earnings is to be your own property manager. This strategy only reasonably works if you live close enough to the property to do so, otherwise it may be better to hire a property management firm to take care of the property for you. A property management firm can cost anywhere from 10% to 30% of the potential rent depending on many factors. You will also need to update the insurance policy on the property. A Landlord policy will cover the structure and personal property as well as medial and legal liability. This can cover you in the event that a tenant gets hurt or sues you, as well as loss of rent, or if the property becomes uninhabitable due to covered loss. When it comes to taxes, the house itself can be considered a depreciable asset and a percentage of the value of the home can be deducted annually. It is possible to also depreciate improvements, such as roof repairs, provided the improvements add value or extend the property’s life. You will, however, have to pay back the depreciation to the IRS should you decide to sell the property. This does mean that you will owe more in capital gains taxes.
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