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Inheriting real property can change a person’s life for the better or for the worst. A common issue for those who inherit property is the decision to either sell or keep and maintain the property to generate rental income. Each person’s circumstances will determine whether maintaining the ownership of the property is more advantageous than selling the property. The following are some of the more important factors to consider prior to making the decision if you should sell or rent a home you inherit.
The first thing you should consider is whether there is an outstanding mortgage against the property. If so, you must determine whether you could afford to maintain the payments to cover the mortgage in addition to your own personal liabilities. While the intention may be to rent the property in order to cover the mortgage payments, you must also account for whether the rental income will be sufficient to cover those payments. You must also consider the possibilities that the house may sit vacant at times, or you may have a nonpaying tenant.
Assuming there is no mortgage, or that you could afford to maintain the mortgage, it is important to evaluate the current condition of the property and determine whether the house requires a significant amount of work to be inhabitable. Living in and growing accustomed to the condition of a home for several years does not mean the home is suitable to rent to third parties. There are many liability concerns that must be considered. Thus, if you recognize that updates must be made prior to being able to rent the property, you must first determine whether you are able to complete the necessary work and whether you could afford to do so.
You must also take into account where you live in proximity to the property. Are you in a different state? Are you several miles away? You must bear in mind that if you choose to keep the property for rental purposes, it means you will be tasked with managing and maintaining the property as well. This could prove to be difficult if you live far away. With that being said, you must determine whether you are able to adequately manage the property and whether you have the time to do so. If not, are you prepared to hire a management company to aid you in doing so, and could you afford that expense?
When analyzing whether you can afford any of the above, it is important to understand what the average rental rate of the area is. Once you have conducted a market analysis, cross-reference your carrying costs with the going rental rate. If the reasonable market rent you could derive from the property is insufficient to cover the carrying costs, it may make sense to sell the property. If you are unfamiliar with the rental market and unable to identify current rental rates, you may want to consider reaching out to a seasoned real estate agent to conduct market research.
Owning a rental property may mean steady passive income, however, you must be aware that you are also susceptible to market turns, and other unknown factors that could hinder your ability to collect rent, such as a natural disaster or national pandemic. Additionally, you are also tasked with finding and maintaining tenants, while occasionally having to manage problem tenants that may lead to having to go through eviction proceedings or involve some other legal intervention. Your options remained to either keep the property aware of the risks and work involved or to sell the property so as not to have to worry about taking on the additional work and responsibility.
If you decide to sell, you must still consider the condition of the property and understand the market. This will help you decide whether to make updates to the property to improve its value, or to sell the property as is to avoid taking on the extra work. At the end of the day, you must first analyze your personal situation to determine what you can or cannot afford to do. If you are unsure and need help making a determination, reach out to one of our expert real estate attorneys to assist you.