Inheriting a house that needs fixing up adds to your challenges in deciding its future. This article delves into four practical and effective options to help you navigate this inheritance scenario.
It provides invaluable insights into each choice and details the pros and cons, empowering you to make a knowledgeable decision aligned with your unique situation.
Let’s explore the possibilities to learn more about the available paths forward.
#1 Selling an Inherited House As Is Fast and for Cash
Selling to a company or an individual real estate investor specializing in buying homes in any condition is a quick and simple solution for many who have inherited a house that needs work.
These direct buyers have carved out a niche in the real estate market, targeting homes that others often do not want because of their disrepair.
Their business model consists of acquiring rundown homes and rehabbing them for rental income or resale at a profit.
One thing that sets these professionals apart is their fast, hassle-free transaction, which makes selling an inherited house as is easy and convenient for sellers.
Pros of Selling an Inherited House Fast and for Cash
- Fast-track transaction: Many cash purchasers can execute the sale in mere days, much faster than traditional selling methods, especially if you can sell an inherited property before probate. If your priority is to sell your inherited house quickly, even if you need a probate to sell a house, this is the way to go.
- Straightforward deal: You can skip property inspections, repairs, and borrower qualification processes by accepting a cash offer, even if you inherited a hoarder house and your priority is selling the home as is.
- Commission-free sale: Keep the 6% traditionally earmarked for real estate agent services. You can avoid paying this commission entirely if you can sell a house in probate without a listing agent involved. Otherwise, you can save at least half of the commission when dealing with a professional cash house buyer who doesn’t use a buyer’s agent, which is often among the main selling points of professional home buying companies.
- Zero settlement fees: A significant portion of cash buyers will cover the total amount of closing expenses. So when selling your parents’ house after their death, you won’t have to settle these fees.
Additionally, if you inherited a house with a mortgage, and the payments are delinquent, the house can be repossessed by the lender.
Selling the house that can be foreclosed on while in probate before foreclosure will help you avoid repossession of it by the bank. And investor cash buyers are experts in dealing with distressed properties.
Cons of Selling an Inherited House Fast and for Cash
- Low offer: The proposed purchase price will fall below the property’s current market value.
- Your best interests aren’t protected: Without a realtor, you won’t have someone with a professional duty to get you the best possible result.
If this option is the best for you, request and choose from several cash offers online. Otherwise, there is one more way of selling a house you inherited. Let’s discuss it now.
#2 Fixing the Inherited House Up and Selling It
Instead of selling your house to an investor, you may want to fix all the problems it has — this way, you can collect the highest possible proceeds from the sale.
Whether you opt for selling a house during probate or after it, enlist a contractor first. They can inspect the property, identify necessary repairs, and provide cost estimates. Then, you can use that professional assessment to prioritize the work.
Focus on critical problems like structural or safety issues. Some cosmetic flaws, such as outdated appliances, can often be left untouched.
The same applies to everyday wear and tear unless it’s highly noticeable and detracts from the home’s overall appeal.
When considering costly renovations, take the potential ROI into account. For example, adding a swimming pool may not be worth it — not everyone likes pools because they need maintenance. The same goes for solar panels.
Invest in economical curb appeal improvements versus pricey projects like driveway resurfacing.
Before you can sell heir property, the key is to focus on cost-effective repairs to align with market expectations and avoid over-improving.
So, what happens when you sell a house you inherited after making all these renovations? Let’s look at the benefits and drawbacks of this strategy.
Pros of Fixing and Selling
- Broader market appeal: A repaired home will appeal to a larger pool of prospective buyers.
- Increased property value: Fixing the home is an opportunity to boost market value and return on investment.
- Higher sales price: The better the home’s condition, the higher the price potential.
- Enhanced negotiating position: By addressing problems upfront, you reduce the likelihood of buyers attempting to negotiate a lower price due to needed repairs.
Cons of Fixing and Selling
- Repair costs: Fixing up an inherited property can be a financial strain, particularly with extensive repairs and unforeseen costs that arise.
- Waiting period: Repairs prolong the time until sale. This delay extends how long you have financial obligations associated with ownership.
- Housing trends: Market fluctuations can affect the home’s value during repairs, so your efforts may not yield the predicted return on investment.
- Taxation: Capital gains tax may reduce your proceeds. Here’s how to avoid paying capital gains tax on inherited property.
#3 Fixing the Inherited House Up and Renting It Out
You may also wonder, “is it better to sell or rent an inherited house?”. Renting, of course, requires making the home safe, functional, and appealing to tenants.
Addressing structural or safety problems with the roof, walls, or floors is a given. Essential systems are also key areas for your attention.
Electrical, HVAC, and plumbing systems must be in good working order, and malfunctioning appliances need to be repaired or replaced.
You’ll also need to deal with cosmetic issues (peeling paint, drywall damage, etc.) that can deter tenants and ensure the exterior (including fencing and landscaping) is in good condition.
Additionally, you must focus on safety features like smoke detectors and make sure the home meets all local rental regulations and building codes.
Pros of Becoming a Landlord
- Steady income: Monthly rent payments provide a regular income stream that can cover property expenses and generate a profit to fund other financial goals.
- Tax advantages: Many expenses related to property ownership, management, and maintenance qualify as write-offs, offering tax benefits other investments may not.
- Property appreciation: Real estate values generally increase over time. So, you can build equity and your net worth.
- Future flexibility: By keeping the property, you leave your options open for using the house later on based on your circumstances and needs.
Cons of Becoming a Landlord
- Rental management hassle: Being a landlord takes time, from finding and managing tenants to resolving maintenance issues. Even if you hire a property manager (which only makes financial sense with a considerable investment portfolio), you still need to perform ongoing oversight.
- Property bills: Whether the property is rented or not, you have to pay applicable carrying costs (mortgage, taxes, insurance, maintenance, repairs).
- Legalities: Complying with landlord-tenant laws can be complicated. The rules are generally complex, and you’ll face legal challenges if you’re not fully compliant.
- Taxes: Managing rental income and deductions requires careful tracking and reporting for taxes. That adds to your time commitment and expenses if accounting help is needed.
#4 Fixing the Inherited House Up and Moving In
This solution can be a viable option if you inherited a house that needs work, want to keep it, and repairs and relocation fit your lifestyle, budget, and goals.
After assessing the extent of repairs and renovations needed, you can more clearly see what it will take to make the house your primary residence.
An ideal situation is that you inherit the property free and clear and are the sole heir. Things can get more complicated if there’s shared ownership or a mortgage.
If there are multiple inheritors, you must work out an arrangement, such as buying them out.
If there’s a mortgage, you’ll need to see what your options are (assuming the loan, refinancing) and do the math.
Pros of Moving In
- Sentimental ties: If you have fond memories associated with the home, you can preserve that connection.
- Personalization: You can have a home that suits your preferences and needs by personalizing what you fix.
- Cost control: You can complete repairs in phases, starting with the most pressing, to spread expenses over time.
- Capital gains exclusion: Making it your primary residence avoids immediate capital gains tax on an inherited house. You may also be eligible for a future exclusion if you live there for two years.
- Potential financial benefits: Your current housing costs could decrease if the house has lower ownership expenses.
Cons of Moving In
- Renovation hassle: Planning and managing home repairs takes dedicated time and effort. It can disrupt daily routine and complicate other life priorities.
- Expenses: Costs can quickly add up and are often higher than anticipated. If you have to take out a loan to cover them, that can amplify financial pressure.
- Moving: In addition to repair costs, you must budget for moving expenses. You’ll also have to work out the logistics of relocating.
- Situation assessment: If you own a home, evaluating the market, assessing your current mortgage obligations, and deciding what to do with the property can be daunting.
- Managing two homes: Carrying two homes during the repair and moving process can be stressful and cost-prohibitive.
