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By Bennett C. Whitlock III, Whitlock Wealth Management
If you stand to inherit a property, such as a family home or vacation condo, the gift presents a critical financial decision: whether to sell, rent, or keep it. While the inheritance itself may be a blessing, often it’s the result of losing a loved one who’s passed away, which could complicate matters from an emotional and practical standpoint. Do you wish to hold on to the property for sentimental reasons? Is it financially possible to maintain it if you already own or rent a residence? Do you own it outright, or is it a split inheritance with other beneficiaries (e.g., siblings) whose own financial situations and priorities will need to be taken into account?
Sorting through these and other questions can feel overwhelming, but don’t let that stop you. As with most major decisions, it helps to start with the facts. Here are some steps to consider:
Set up an appraisal to learn the property’s value.
Hire a professional appraiser who can determine the fair market value of the property on the date you assumed ownership. Having a solid idea of the value can not only help you decide whether to sell or keep the home today, but it can establish a cost basis should you decide to sell it in the future.
Calculate the cost to maintain the property.
If you decide to keep it, the property’s mortgage payments, annual property taxes and utility bills will be your responsibility, but it doesn’t stop there. Make sure to factor in other regular expenses, such as yard maintenance, snow removal, and housekeeping to get a realistic picture of what it will take financially to keep the home. Also, if in doubt, check with your attorney to ensure there are no tax liens or other assessments on the property.
Determine your ability and desire to maintain the home.
Do you have the time to handle the upkeep? Additionally, think about how you’ll manage the property in retirement if you’re unable to perform maintenance tasks yourself.
As you work through these actions, here are some additional considerations that come with the decision to sell, rent or keep the home:
Parting ways with a family home can be emotional — even when you know doing so is the right decision. Give yourself time to prepare the home for sale. This way you can sort through your loved one’s belongings and find closure at your own pace. When the time is right, a cleaning company, home staging services, and a realtor can help you put the property on the market. If you make a profit on the sale, apply the money toward your financial goals. The extra sum can help make your goals of retirement, college tuition for grandkids, or estate plans a reality. Selling the home has tax implications that vary by state, so talk to a tax professional for guidance.
If renting the home is appealing to you, research what the rental market is like in your area. Determine if a reasonable monthly rental price provides enough cash flow to cover upkeep costs. Hiring a management company to clean, make minor home repairs, or manage the rental process may be attractive, particularly if the property is miles away from your primary residence. Additional tax considerations may apply depending on the number of days you use the home versus rent the space to others. Consult a tax professional to understand if and how your tax situation may change. You should also determine whether the property is subject to rental restrictions related to local ordinances and home owners associations.
The ability to continue family traditions, have a future retirement space or a vacation getaway may make keeping the home the right decision for you. If you’re sharing ownership with a sibling or another family member, it’s critical to clearly communicate (ideally in writing) how you will split the financial and maintenance responsibilities. If you inherited the home outright, the choices are yours to make.
Consider the following financial steps as well:
- Purchase home insurance. If the property has a pool, trampoline, boat, or other recreational items, you may need additional coverage.
- Save strategically for a remodel or upgrades if you want to adapt the home to suit your family’s lifestyle.
- Update your estate plan. If you intend to keep the home in your family for another generation or two, don’t wait to prepare your legal documents. Advance planning can help pass the property smoothly to your inheritors. Have a conversation with your beneficiaries so they know what to expect.
Making decisions after the loss of a loved one can feel overwhelming. It’s okay to take your time and ask for help with choices along the way. Guidance from a realtor, attorney, and financial advisor may help you be thoughtful about how the inherited home fits into your lifestyle and financial plan.
Bennett C. Whitlock III, CRPC®, is a Private Wealth Advisor and CEO with Whitlock Wealth Management, a private wealth advisory practice with Ameriprise Financial Services, LLC. He specializes in fee-based financial planning and asset management strategies and has been in practice for 28 years. To contact him visit whitlockwealth.com, call 877-WHITLOCK or email email@example.com. Offices are located at 12848 Harbor Dr, Ste 101, Lake Ridge, VA 22192 and in Downtown Historic Manassas at 9073 Center Street, Manassas VA 20110.