A home is not like any other gift. You can’t just return it if it’s not within your preference. Neither can you just leave it out cold if you don’t want to use it. When a home is transferred under your name, it also vests upon you a responsibility.
The process doesn’t stop at the will reading. By inheriting a home, you are also becoming liable for its maintenance and care. It involves legalities, with which you must keep yourself updated. Of course, in itself, real estate is a valuable asset to inherit. But to reap its benefits, you have to do the work.
Lay Out the Legalities
Some have considered an unexpected real estate inheritance as both a blessing and a curse due to the legalities involved. But it doesn’t have to be such a chore.
Start with baby steps. First, it’s important to determine the type of ownership given to you. Sole ownership is easy-peasy. You get to have your way with every decision. But shared ownership can pose a few difficulties.
Upon the decedent’s wishes, a property may be inherited by more than one person. This is common among siblings, who can all be named as the co-inheritors of their childhood home. As each sibling has created their own families and lives, their interests may not be the same anymore.
Unless there has been clear disputes along the way, parents assume their children will remain in sync. But this is not always the case. And even if the siblings do get along as adults, a shared non-financial generating asset can still create some conflict.
Eliminate Conflict With a Formal Agreement
If you inherit a property equally with another person, every decision has to be in agreement. To make things easier, construct a partnership agreement to establish guidelines, from the gains to the liabilities.
Alterations to the house are always valuable for all parties, but co-inheritors may not always agree on an architectural style or design modification. A deck replacement may be a simple alteration, but it’s open to a wide range of customization. If you’re planning on selling or renting the house, it’s important to come to an agreement as to how it would look, as this is a major factor in property value.
More importantly, a formal agreement settles each party’s legal responsibilities. An inherited property may have outstanding liabilities, such as mortgage, a secured loan, and similar kinds of debt obligations.
After taking care of debts, tax responsibilities remain. Inheritors must always pay their federal estate taxes and property taxes to avoid penalties. In case of finding a buyer, you may also have to take care of the house’s capital gains tax.
If one sibling wants to sell the house, but the other wants to sell it, they can always opt for a buyout. In finance, this refers to an investment transaction where a party acquires control of a company by purchasing the others’ shares. In real estate, the buyout process is similar. It generally has two steps:
- Appraisal. Each co-owner may choose to hire their own appraisers, whose appraisal values can then be averaged. The important thing is that an appraiser is hired to get both a professional and third-party opinion.
- Determining the Equity of Each Party. Subtract the mortgage and other debts of the house. The remaining balance should be divided according to the number of co-inheritors. The number you’re left with is each inheritor’s share of the house’s value.
One sibling can then “buy out” the other’s ownership by paying him his share. All that’s left to do is to sign deeds and other documents to officially designate one sole owner.
Can Your Siblings Force You to Sell a Property?
Yes. In case of disagreement, a sibling can go to the court with a Petition to Partition, also known as a “forced sale” motion. The sale can be through public auction or private real estate listing.
To Renovate or Not to Renovate, That Is the Question
Decide what you ultimately want to do with the house. You have three options: Sell it, rent it, or move into it. This determines what kind of renovation and cleanup has to be done, if any.
- Selling a House. Selling real estate will be a waste if you don’t get the best appraisal possible. Making it presentable is the best way to do this.2. Renting it Out. Rent is a quick way to earn passive income while retaining ownership of the home. Aside from the occasional repairs and taxes, you can also leave most of the maintenance to the tenants. But first, you must get the attention of responsible tenants. To do so, you must project the same image of responsibility, by presenting a well-tended home.
- Moving into a Home. This is the easiest option, as you can make alterations little by little. The only thing you’ll have to worry about for now is the process of moving. The rest, from renovation to cleaning, can easily be taken care of much later.
Assessing the Pros and Cons
With all the options available, it’s best to assess everything first to arrive at an informed decision. Before you make a move, set your priorities straight, whether it’s generating income or having a valuable asset you can call your own. Finally, you must align them with your current financial capabilities.