It’s inevitable: Sooner or later most of us will receive that dreaded phone call announcing a death in the family. And, amid your grief, you might also hear that you’ve inherited property—perhaps the home where the deceased once lived. What to do? It’s hardly an easy question to answer.
“Making the decision about what to do with an inherited house is a challenge on multiple levels,” says Grant Gerhart, a Realtor® in Orange County, CA, and author of the “Inherited House Guide.” “There are a lot of financial, legal, and technical issues to consider during a particularly difficult time.”
To help ease this decision-making process, here are the options worth considering, along with the pros and cons of each.
Option No. 1: Refuse the inheritance
This might sound nuts, but there are cases where taxes and liens on a property, combined with the outstanding mortgage and taxes, mean there isn’t enough money in the deceased’s life insurance policy or savings and investments to cover the difference. That means that you, as heir, are responsible for paying those debts, and to do so before the house is yours. You could wind up actually owing money on the property you inherit.
If you find out that’s the case, you do have a handy escape hatch: You can bow out and let the executor handle the creditors.
Option No. 2: Fix up the property and sell it
If you’re not sentimentally attached to the home as a place filled with childhood memories, selling it is certainly a way to wash your hands of it and make some money (thanks, Grandma!). Just take into consideration the condition of the place. If the property has not been well-maintained—as is often the case with inherited homes—it may behoove you to make repairs and pretty it up before you put it on the market.
Hire a professional home inspector to make a detailed inspection, which will uncover any necessary repairs you’ll need to make, like replacing the roof or water heater or repairing damage caused by termites or rats, as well as how much these expenses will cost.
Meanwhile, a real estate agent or contractor can also ballpark the money you should spend on a new paint job, kitchen updates, and other cosmetic tweaks that will help you fetch top dollar. From there, you’ll just need to weigh the costs of these fixes with the amount you stand to make if you sell. If the expenses entailed are just too high, however, you do have other options. Read on…
Option No. 3: Sell the property as is
If you aren’t up for investing the time or money to upgrade or fix up the home, this is an easier alternative: Selling a home “as is” is often what’s going on when you see signs reading, “Estate Sale” at an older home in disrepair.
The heirs pull everything that’s usable out of the cupboards and closets, sell all the belongings for whatever price they can get, then clear it out and take bids, often from developers or flippers who specialize in turning these properties around for a profit.
Option No. 4: Keep the property and rent it out
There are pros and cons to this option, according to Gerhart.
“This is a good choice if you wish to earn consistent income without losing sight of the beloved one’s memory. The monthly rent increases the income for the family, and when the time comes that you decide to sell it, the market value could possibly be higher,” he says.
But: Rentals require maintenance—so prepare to receive some late-night calls to fix the boiler, last-minute expenses for repairs, tenant problems, water bug invasions (gross!), and other headaches. Make sure to read up on what it takes to rent out a home before you become a landlord yourself.
Option No. 5: Keep the property and live in it
In the best-case scenario, the property is paid off and comes to you, the sole heir, free and clear. In that case, you’ll be personally responsible only for property taxes moving forward, inheritance taxes (if any), and any repairs and improvements you choose to make.
However, if you’re not the sole heir and inherit the house with, say, your siblings, moving in will also mean compensating the other inheritors (and hoping they aren’t gung-ho to live there, too).
Whatever decision you make, try to base it on a balance of emotional and financial factors: While you may have always dreamed of keeping the place in your family for eternity, if that’s not possible, don’t beat yourself up. Remember, the deceased had meant this inheritance to be a gift rather than a miserable weight on your life. So do what makes sense for you.