Inheriting a house can be quite a gift. Whether it’s a relative or a close friend who has left you this asset, it means there’s a valuable piece of property that you now must decide what to do with. Maybe you’ll move into it yourself. Maybe you’ll sell it.
Or, maybe you’ll rent it out.
If you’re not sure what to do with a house you’ve inherited, take some time to think about where you are in your life right now and where you’d like to go. This could be the start of something profitable. It could even launch you into the direction of a growing presence in the real estate market.
Why not?
Let’s talk about what to do if you inherit a home. We’ll discuss your options and how Action Properties can help.
Inheritance Logistics: Confirm Ownership and Review Responsibilities
Before deciding what to do and diving into finances or renovations, give yourself some space and time to understand the legal and financial situation. Make sure the property is legally in your name and only yours. Are there any other heirs who may have claim to it?
Depending on the specifics of the will, these logistics might involve probate court or may simply require the filing of a deed transfer. Consult a probate attorney to ensure the transfer is clean and final.
Next, review the mortgage and the liabilities associated with this property. Is the house fully paid off? If not, you’ll inherit the mortgage too. Some loans include a “due on sale” clause, which means the lender could require full repayment upon ownership transfer. In many cases, especially with family homes, lenders allow you to take over payments, but you’ll need to confirm that.
Check for the property taxes that may be owed, look for liens or debts attached to the house, and get organized around HOA dues, if they apply to this property that you’ve inherited.
Options Around Inheriting a House
When a person inherits a house, they generally have several options, each with financial, legal, and emotional implications. The most straightforward choice is to keep the house, either as a personal residence or as a rental property. Keeping it as a primary home might offer emotional value and stability, while renting it out can provide ongoing income. However, this option also comes with responsibilities like maintenance, property taxes, and potential repairs.
Another common option is to sell the house, which can provide immediate financial benefits, especially if the property has appreciated in value and is in generally good condition. Before selling, it’s important to understand potential tax implications, such as capital gains tax, although a step-up in basis (which resets the home’s value to its fair market value at the time of the decedent’s death) often minimizes this. Lastly, the heir could choose to disclaim the inheritance, which means legally refusing it. This might be done to avoid tax burdens, debts attached to the house, or if the heir simply doesn’t want the responsibility.
Each of these choices are sure to involve legal paperwork, potential probate proceedings, and questions. We recommend consulting with real estate and financial professionals. We’re a good starting point at Action Properties, so get in touch and we’ll work through the options with you.
Evaluate the Property’s Condition
Whether you’re going to keep, sell, or rent the house you’ve inherited, you need to assess what you’re working with.
Hire an inspector who can uncover any hidden issues such as plumbing, electrical, or structural problems. These could become costly if you don’t take care of them right now. It helps to budget and prioritize repairs.
If you’re leaning towards renting out the property, there may be some upgrades or updates that are necessary to ensure the property is attractive to tenants. The improvements you make will also increase the home’s rental value.
Finances: Run the Numbers
Turning the property into a rental is a business decision, so it’s important to approach the acquisition of this property as an investment.
- Calculate Potential Rental Income
Research comparable rental listings in the area to establish what the earnings will likely be in monthly rental income. It’s important to focus on the specific neighborhood that the inherited house is in; the rental market is extremely local. Look at what similar homes rent for and how long they typically stay vacant before someone moves in. A property manager can help with providing accurate and informational data.
- Estimate Expenses
Renting out an inherited home is an excellent way to earn consistent and recurring income. If the house is paid off, you’re in an especially strong position. But, there are also expenses that come with renting out a property, and it’s important to budget appropriately. Monthly and annual costs might include:
- Mortgage payments (if any)
- Property taxes
- Insurance (consider landlord insurance)
- Maintenance and repairs
- Utilities (if you plan to cover them)
- Property management fees (typically 8–12% of rent)
- Vacancy rates (plan for 1–2 months a year)
Subtract these costs from your expected rent to determine what the monthly cash flow might look like.
Long-Term Wealth and Real Estate
Renting out an inherited home can provide some great monthly income. But there’s another benefit: the opportunity to build long-term wealth.
Benefits of renting out an inherited house include:
- Appreciation. Property values tend to rise over time, especially in desirable areas.
- Loan Payments. If the house has a mortgage, your tenant is effectively paying it off for you.
- Tax Advantages. Rental income is taxed differently, and you can deduct mortgage interest, property taxes, repairs, depreciation, and more.
- Cash Flow. Over time, as rent increases and expenses stabilize, your profits can grow.
By keeping and renting out the property, you can also explore strategies like refinancing to access equity or 1031 exchanges to grow your portfolio.
Inheriting a house can open the door to passive income and long-term financial security if you approach it strategically and decide to turn it into a rental. By understanding the property, making sound financial decisions, and treating the rental process like a business, you can turn what might have been a stressful event into a smart investment.
Whether you are leaning towards selling or renting out the home you’ve inherited, contact us at Action Properties. We’d be happy to share what we know about this opportunity you now have.
