When you inherit a property or real estate, there are many things you need to take into consideration. It isn’t like winning the lottery. It can be a very sensitive time – as well as the stresses and strains you encounter generally; it can also be a burden not a blessing. This is whether you are inheriting a real estate empire or a family home.
At Coastline Equity we work closely with many clients who have been in this situation. And we help them negotiate, as well as walk them through the process, at this often very difficult time. It’s a difficult decision to make just a few weeks or months after losing a loved one. How you will deal with what will happen to a house, which may have been in your family for years. This is often easier if the inherited real estate property doesn’t have a mortgage.
It is always wise, if you have inherited with a sibling, to have a full and frank discussion. For example, if one sibling wants to keep it and the other wants to sell it, you could organize a buyout.
Or you could sell or rent the property together. If the rental market is strong, this could be a great source of income.
However, this can be time consuming, so it is always wise to think about hiring a professional property manager. The fee may cost you upfront, but it will save you time in the long run. As well as aggravation.
What are the critical steps you need to keep in mind when dealing with an inheritance property? And how can you manage it, whether you make the decision to keep it, or sell it? Here is our definitive guide.
Start Early When It Comes To Selling Inherited Real Estate
Of course, no one wants to look like they are being motivated by money when it comes to inherited real estate. However, you do need to move fast to make sure you don’t incur costs. Every day a property is held onto, it is racking up costs. And in some circumstances, an inherited real estate property can be rapidly devalued if not settled fast.
This is a loss in two ways –
*For the individual, in a monetary value.
*On the lifetime of hard work, which has gone into maintaining and building the property value.
Get a Head Start on Your Own Estate Planning
When an event like this happens, it’s perfect time to revisit or get started on your own estate planning. There is never a “perfect moment.” Your experience will enable you to know some of the things you can do to make it easier for your spouse, as well as the next generation when it is their turn.
Have you written a trust or a will? If you haven’t you need to. Emotions are often running high when you inherit a home. Stepping through the front door can evoke a host of memories. Those feelings may affect you and your family as you start making decisions.
Find Out Where You Really Stand With Legality and Finance
If you have any uncertainty when it comes to your property, it can usually make things worse. Your mind can be your own worst enemy, imagining a host of scenarios, which are often incorrect.
If you underestimate the value of your property, you are selling yourself short. And if you overestimate, it can lead to several terrible financial mistakes.
Check out the following as soon as you can –
*Get a valuation.
*Who really has ownership to different pieces of property?
*Get to understand the processes and timelines involved.
Understand The Title and Debts On Your Inherited Real Estate Property
Anyone who is new to real estate ownership and rights can often find them confusing and difficult to understand. Inheriting a piece of property isn’t a straightforward process. Often, it’s a case of multiple owners, as well as multiple mortgages. There can also be other housing associations, and other liens involved. Carrying out a title search is a way to get your head around these issues and avoid potential pitfalls. If you have the information you need to help identify these items, you will be able to get more clarity. It can also help to facilitate a streamlined process.
Understand Taxes On Your Inherited Real Estate Property
If you don’t account for taxes, it can have a detrimental effect on your inherited real estate property. When a property is passed down by succession, there can be tax debts. There may also be other things that need to be settled in the process. On top of this, as the recipient, you can incur taxes as well. The best thing you can do is talk to a tax specialist, who will be able to guide you through this minefield. And they can advise on how to minimize taxes in advance. The last thing you probably want to think about as you grieve the loss of your parents is taxes. But like any financial consideration, taxes must be a part of the conversation.
Where You Stand On Inheritance Tax
Thankfully, the federal government doesn’t tax inheritances. However, a handful of states do so you should check this. An example of this is when you inherit a house, the "purchase price" in the eyes of the IRS, is seen as the market value of the home. This is the purchase price at the time of the owner’s death. So, if your parents bought their house for $100,000 and now it is worth $500,000 if you sell it 3 months later for $510,000, the IRS considers your earnings to be $10,000. However, inheriting a house can come with some tax headaches. For example, a tax on an asset received by an individual taxpayer incurs a federal estate tax. This is sometimes known as the “death tax.” It’s taken out of the total estate of the deceased. If your parents have an estate worth tens of millions, it could be subject to hefty federal estate taxes.
Get An Accurate Property Evaluation
There are some who suggest the market value of a property is what someone is willing to pay. However, this is not good guidance. Online tools are not accurate in giving valuations, so get your valuation done by a professional. Make sure you speak with several local property professionals. You can also talk to a local appraiser. They can give you a more accurate idea of what any real estate might be valued at.
Look At Your Selling Options
There are a few different ways you can sell an inherited property. And while there may be no pressure to sell, there is the possibility you do not get to experience the money, which is in it. One option is to market the property yourself as a “FSBO.” Alternatively, you can try and sell your home quickly to an investor. This is sometimes an option for people who have a portfolio. However, you may want to keep it – in which case you need to seek expert advice in asset management. This is a specialist area – Coastline Equity deals in advising people on their inherited portfolios and how to manage them. Always ask for advice when it comes to your inherited real estate property.
Inheriting a house, while a generous gift from a loved one can be fraught with emotion. The financial decisions that come with inheriting property can be stressful and confusing. Know your options and assess the financial consequences. And seek expert advice so you can navigate the tax and legal requirements.
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