Inheriting a house can be both a blessing and a challenge, especially in a dynamic real estate market like Chicago. As you grapple with the emotional and financial implications of this new responsibility, you might find yourself asking, “What should you do having inherited a house?”
The decision to rent or sell an inherited property involves careful consideration of various factors. As a seasoned investor in Chicago real estate, we’re looking to buy several houses. We’re also here to discuss the key factors to make the best decision when you have inherited a house, balancing emotional and financial aspects to ensure a choice that aligns with your goals and circumstances.
Is It Better To Sell or Rent An Inherited House?
If there is more than one beneficiary, it is often better to sell the property and divide the proceeds to avoid potential conflicts. Additionally, if converting the inherited house into a rental property is not economically beneficial or the location is not desirable for renters, selling is a more advantageous option.
Selling the house can be the wisest course of action if it requires costly repairs or is located out of state. However, if you have a strong emotional connection to the house and the mortgage is paid off, renting it out can be a worthwhile option.
Pros and Cons of Selling vs. Renting an Inherited House
When faced with the decision of what to do with an inherited house in Chicago, beneficiaries often find themselves weighing the benefits of selling versus renting the property. Each option presents distinct advantages and considerations that can significantly impact financial outcomes and personal circumstances. Whether to seek immediate liquidity through a sale or to capitalize on potential rental income involves evaluating factors such as market conditions, financial goals, and personal preferences.
Selling the Inherited House:
| Pros | Cons |
| Immediate liquidity (cash in hand). | Potential for lower total financial return. |
| Avoids ongoing responsibilities of ownership. | Transaction costs (closing costs, realtor fees). |
| Simplifies the estate settlement process. | Market fluctuations can affect sale price. |
| Eliminates property management hassles. | May miss out on potential property value increase. |
| Capital gains tax exemption (up to a certain limit). | Emotional attachment or family sentiment. |
Renting the Inherited House:
| Pros | Cons |
| Potential for ongoing rental income. | Requires ongoing property management. |
| Property value may appreciate over time. | Dealing with tenants (maintenance, vacancies). |
| Opportunity to delay major decisions. | Legal obligations and potential disputes with tenants. |
| Can be a hedge against market downturns. | Possible capital gains tax implications upon sale. |
| Option to sell at a potentially higher price later. | Rental income may not cover all expenses. |
Decision Factors to Consider:
- Market Conditions: Is the market favorable for selling or renting?
- Financial Goals: Do you need immediate cash or prefer long-term income?
- Personal Preferences: Are you prepared for the responsibilities of renting out a property?
- Tax Implications: How will selling or renting affect your tax situation?
The decision to sell or rent an inherited house in Chicago depends on various factors such as financial needs, market conditions, and personal preferences. Both options have their advantages and disadvantages, so it’s crucial to weigh them carefully before making a decision that aligns with your goals and circumstances.
Inherited A House? Here’s What Should You Do Next?
Having inherited a house can be both a blessing and a burden. Here are a few important considerations to help you make the right decision:
1) Ensure the Mortgage is Paid
If the property comes with an outstanding mortgage, it’s crucial to address it promptly. Some banks may allow you to assume the existing loan, while others might require refinancing. If refinancing isn’t an option for you, renting may not be feasible either. It’s essential to understand your financial obligations and explore your options.
2) Evaluate Property Management Needs
Managing a property involves dealing with brokers, maintenance, tenants, and rent collection. If this isn’t the best use of your time, consider hiring a professional property manager or selling the property. Renting out the house can be a good source of income, but be prepared for the responsibilities that come with it.
3) Account for Ownership Costs
Inherited houses often require significant improvements. Hiring a professional property inspector can provide you with a detailed report on necessary repairs and associated costs over the next five years. Being aware of these expenses upfront can help you avoid costly surprises.
4) Selling for Top Dollar Requires Investment
If you prefer not to invest in repairs, updates, and landscaping, consider selling the property as-is. This can save you time and money, and companies like ours buy Chicago houses for cash, regardless of their condition.
5) Assess Market Trends
We can help you analyze the value of your property today versus the long-term benefits of renting. If you can use the equity in your property in another way that outpaces the performance of the real estate market, you should. If you don’t have anything better to do with the money and the neighborhood is rising in value, hang on – real estate can be a great investment if you know how to correctly read the market.
6) Consult Tax and Legal Professionals
Inheritance comes with significant tax implications. Consult with tax and legal professionals to understand property and income tax consequences. This will help you make informed decisions and avoid unexpected costs.
When you inherit a property, the IRS (Internal Revenue Service) determines its fair market value, which impacts future taxes upon its sale. Taxes are typically based on the difference between this value at the time of inheritance and the eventual selling price.
7) Explore All Options
In certain situations, we may be able to help you structure a lease-option agreement that allows you to rent and sell at the same time – capturing the best of both worlds. These kinds of deals can be complicated, but our Chicago investment experience can help you win.
8) Compare Different Scenarios
We’ll help you determine prices for any property near Chicago – if you sold it today without doing any work, the highest price the market will bear, and the projected value of keeping it as a rental (along with the costs).
Ultimately, the decision to sell or rent an inherited house depends on your financial situation, market conditions, property condition, and personal preferences. Carefully weigh the pros and cons to make an informed choice that aligns with your long-term goals.