Receiving a financial windfall like an inheritance can be life-altering. However, for those of us lucky enough to receive an inheritance, there are many financial implications involved.
New York Life reported the so-called “Great Wealth Transfer” is underway. Trillions of dollars in assets are being passed down from older generations to their heirs. It’s reported that approximately 15% of American adults are expecting to receive an inheritance within the next decade.
Sometimes, inheritance might even include a home.
If you suddenly find yourself inheriting a home from a deceased parent, grandparent, or other relative, you’ll have to make the important decision of whether to sell it or rent it out.
Options When It Comes To Inheriting a Home
Here are your options when it comes to inheriting a home, according to GOBankingRates:
- Sell it right away: If you inherit a home, you might be inclined to sell it right away. Suddenly becoming a homeowner by inheriting a property means you’ll have to account for the cost of property taxes, homeowners insurance, and maintenance. If you don’t have the funds to keep up with the costs, you could end up in debt. Selling the home quickly can provide a lump sum of cash which can be used for other financial responsibilities.
- Wait to sell it: If you inherit a home, you might choose to wait before selling it. Some good reasons to wait might be that the real estate market isn’t doing well, holding on to the property longer might mean more profit if you wait to sell, or perhaps you’re unsure you want to let the home go. Maybe it was your childhood or family home and it holds sentimental value. Waiting to decide to sell can give you more time to evaluate the real estate market, your personal finances, and your emotions.
- Rent it out right away: Renting out an inherited home as quickly as possible can provide an additional, mostly passive revenue stream. Rental income will not only minimize the costs associated with homeownership but whatever cash is left after all expenses are satisfied will end up in your wallet.
- Live in the home: Maybe you don’t want to sell or rent out the home. In this case, you can choose to live in it. Your current living situation may be temporary, or you may consider becoming a homeowner in the near future. If the home is liveable, or even if you need to spend money to make some improvements, living in your inherited home could be more financially savvy than buying a home.
Pros and Cons of Selling and Renting
Here are some important pros and cons to consider before making the decision of whether to sell or rent your inherited home, according to GOBankingRates and All County:
Sell It
- Pros
- You’ll make a profit on the sale of the home.
- You can use the profit from the sale of the home to pay off debt, save extra money, or make smart investments.
- You won’t have to worry about the ongoing financial responsibilities of owning a home.
- Cons
- You might have an emotional attachment to the home.
- You might be subject to capital gains tax when you inherit the property, depending on where you live and how much the home is worth.
- You might end up in probate court, where the deceased’s will is validated and their assets are properly distributed. If a home is included as part of their will, you may not be able to sell it until the court proceedings are complete, which can sometimes take a long time.
Rent It
- Pros
- You’ll make a profit on the sale of the home.
- You can use the profit from the sale of the home to pay off debt, save extra money, or make smart investments.
- You won’t have to worry about the ongoing financial responsibilities of owning a home.
- Cons
- You’ll have to assume the responsibility of being a landlord.
- You’ll have to pay ongoing property taxes and homeowners insurance as well as spend money on maintenance when necessary.