Inheriting a House: Should You Keep or Sell
Justin Reynolds
Key Takeaways
- Understand the financial implications of selling vs. keeping an inherited home
- Consider rental income as a potential source of passive income
- Navigate multiple heir scenarios with buyouts, shared rentals, or partial sales
Skip ahead — run the numbers now
Tax treatment varies by country and state. Please consult a tax advisor familiar with the laws in your jurisdiction.
Working Backwards Test
Determine if you can afford to keep the home without affecting your current financial situation or lifestyle.
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Estimate Your Closing Costs
Educational estimate only -- actual costs vary by lender, title company, and state.
- Buyer cash to close
- $52,000
- Down payment $40,000 + est. closing costs $12,000
- Seller net proceeds reduction
- $30,000
- Net proceeds after costs: $370,000
With less than 20% down on this loan type, expect PMI in your closing costs and monthly payment until you reach 20% equity.
Sell versus Keep Costs
| Sell | Keep | |
|---|---|---|
| Closing costs | $5,000 - $15,000 | Ongoing property tax and insurance |
| Real estate agent commission (6%) | 6% of sale price | Annual maintenance: 1-2% of home value |
Rental Income vs. Owner-Occupied Options
Example rental cash flow:
- Monthly rent: $1,500
- Mortgage payment (if any): $700
- Annual maintenance: $2,400
- Net annual income: $18,600
Multiple Heirs
Sibling Buyout: Negotiate a fair price and buy out other heirs.
Shared Rental: Split rent, expenses, and profits among siblings.
Partial Sale: Sell part of the property to other heirs for their share.
Tax Implications
Consult a tax advisor to understand inheritance, capital gains, and other relevant taxes.
Disclaimer
This guide offers general considerations. Always consult a tax advisor or attorney for legal advice specific to your situation.
What is the annual maintenance cost I should expect for an inherited home?
Answer: The average annual maintenance cost can range from 1% to 2% of the home's value. This includes expenses like property tax, insurance, utilities, and minor repairs.
How much tax will I have to pay on the income generated from renting out an inherited property?
Answer: Tax treatment varies by country and state. In some jurisdictions, rental income is subject to income tax. Consult a tax professional for specific details regarding your situation.
What are the pros and cons of keeping versus selling an inherited home?
Answer: Keeping the property offers potential long-term appreciation and emotional attachment, while selling provides immediate cash and eliminates ongoing maintenance costs and taxes. It's essential to consider both personal and financial factors when making a decision.
Can I sell my share of an inherited home to my siblings if I want to exit the ownership?
Answer: Yes, it's possible to buy out a sibling's share in the property. You'll need to negotiate the price, agree on terms, and potentially seek legal advice to ensure a fair and smooth process.
What is the process of renting out an inherited home, and what challenges might I face?
Answer: Renting out an inherited home involves marketing, tenant screening, managing property maintenance, and dealing with potential vacancies or disputes. It may require additional time, effort, and expense, but can also generate steady income.
What are some factors to consider when deciding whether to sell or keep a home with multiple heirs involved?
Answer: In cases of multiple heirs, it's crucial to communicate openly about each family member's preferences, financial situations, and long-term goals. You may also need to agree on a fair method for dividing the proceeds if the property is sold or determining rent distribution if kept as a rental property.
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