Is It Better to Sell or Rent an Inherited House?

Should you rent or sell an inherited house? This guide weighs the pros and cons of each option to help you answer this question.

Let it navigate you through the intricacies of this decision and the key considerations for making the wisest choice.

Read on to explore the details.

5 Factors to Consider When Deciding to Rent or Sell an Inherited Home

Inheriting a house can be a bittersweet predicament, and deciding whether to rent or sell it requires careful consideration.

One of the most critical things to know about this dilemma is that there isn’t a cookie-cutter answer.

Each option has inherent pros and cons, and everyone’s case is different. So, the better choice depends on your circumstances and your evaluation of a combination of influencing factors.

Here’s a look at the aspects that come into play.

#1 Money Matters

Making an informed decision requires you to think about the financial picture. Selling provides a cash windfall, which is appealing in myriad situations.

You can use the lump sum to boost your financial health by clearing debt or adding to savings. Or, you could fund other goals like renovating your primary residence or paying for education.

Also, with liquidity, settling an estate can be simpler. If a property is in probate, it can be sold so that the cash will be split between multiple heirs. Here is how to sell a house during probate.

If you opt for selling the house to a real estate investor, you’ll save the commission, sell it fast, but get less than the market value.

If selling the property to one of the companies that buy inherited homes for cash is an option you consider, request and compare cash offers online to see what you can get for your house.

You may also face capital gains on an inherited house (see more below), further reducing your proceeds.

Alternatively, renting the house generates an ongoing stream of passive income. That can be a good way to supplement existing income sources.

However, you’ll need to cover property expenses. These include taxes, house payments (if you inherited a house with a mortgage), landlord insurance, upkeep, and any losses from tenant turnover.

So, a caveat is that the revenue and your resources must be adequate to sustain the rental.

#2 Property and Local Market Conditions

Having a clear picture of the local real estate landscape and the property’s condition also influences how you answer, “Is it better to sell or rent an inherited house?”

If property inventory is low and prices and demand are high, selling gets a tick mark as the preferable option as you may get the optimal price.

Conversely, renting out the property in a buyer’s market may be more prudent (at least until the sales market improves) if appreciation is important.

That presumes you can afford to do so and the rental market is stable or strong.

You can use a real estate investing guideline to estimate cash flow and profitability. It suggests that the monthly rent should be at least 1% of the total you’ve put into the property.

As you assess the situation, be mindful that the property’s condition is a related factor. Did you inherit a house that needs work?

If the property needs extensive or expensive repairs, selling an inherited house as is can save you time and money.

If you sell it to a real estate flipping investor, they will buy it even if you inherited a hoarder house that you don’t want to clean.

If it’s in good condition or you can invest in repairs, either option can be viable.

#3 Differences in Tax Obligations

When making your choice, it also helps to look at tax impacts.

Capital gains tax may kick in when selling the property. It applies to any profit you make.

You’ll generally pay tax on the difference between the sales price and property value at the time of inheritance. Therefore, when you can sell a house you inherited is important.

If you sell sooner rather than later, the market value when you inherit will likely be closer to the current worth, reducing your tax liability. For more detailed advice, refer to the article on how to avoid capital gains tax on inherited property.

Rental income is taxable as well and treated as ordinary income. However, you can get tax breaks through write-offs for owning and maintaining a rental property.

Standard deductions include expenses like insurance, mortgage interest, maintenance, real estate taxes, and property management fees.

You can also get additional tax relief through depreciation expense for property wear and tear. But depreciation can be subject to a recapture tax should you sell the home in the future.

Know the tax breaks you’re entitled to before you report the sale of your inherited home on your tax return.

#4 Willingness to Be a Landlord

Another consideration in deciding whether to rent or sell an inherited house is determining if you’re cut out to manage rental property. It’s arduous work.

If you take this on, you must find tenants, deal with renter and property problems, manage leases and rent collection, and address maintenance issues.

You must also stay up to speed on regulations to ensure compliance with landlord-tenant laws.

Doing this can be challenging, particularly if you have limited time, will be a long-distance landlord or both.

Selling the house eliminates these responsibilities. So, that choice can be attractive if a landlord’s duties are too daunting for you, or the numbers don’t work to hire out.

#5 Emotional Connection

It’s important to acknowledge that emotions can complicate your rent-or-sell decision.

If the house has substantial sentimental value, you may prefer to rent it out to retain ownership and the emotional connection.

If you’re ready to move on or the emotional strain of ownership is significant, the decision to sell your deceased parents’ home can bring you a sense of resolution and relief.

Ultimately, the better decision balances emotional ties and the practical considerations previously discussed.

That way, your choice aligns with your objectives, priorities, and preferences while respecting the sentimental significance of the inherited house.

Should You Rent or Sell Your Inherited House?

Your dilemma: I just inherited a house. Now what? Should I sell my inherited house or keep it as a rental?

The following is a summary of what happens when you sell a house you inherited or rent it out.

Selling the House:

• Getting immediate cash has a strong appeal.
• Cost of needed repairs is out of your financial reach.
• The local rental market is currently weak.
• You don’t have the time or desire to deal with tenants.
• You’re not keen on ongoing ownership or rental tax obligations.

If this is the route you prefer, read about how to sell an inherited house to know your options.

While generally you need a probate to sell a house, in some cases, selling an inherited house before probate is possible, making the whole process easier.

Renting It Out:

• You prefer an income stream over a lump sum of cash.
• You’re relatively confident the house will increase in value.
• The house is rental-ready, and there is high demand.
• You don’t mind dealing with tenants, their maintenance requests, and taxes.
• You want to keep the house as a family asset.

Whatever you choose, ensure that you’ve attentively thought it through. That way, your decision will align with your best interests and future goals.