You Inherited Your Parents’ Home: Now What?
by Suzanne Powell
by Suzanne Powell
The largest wealth transfer in the history of the world is currently in process. It’s estimated that around $68 trillion will switch hands over the next 25 years. Baby Boomers are currently retiring, and many of them will pass of the scene within the next few years. Much of this wealth will be tied up in family homes. This brings up the question of what to do if you inherit your parents’ house.
Some heirs will benefit from moving into their family’s homestead. Many retirees may have no mortgage. Therefore, those who inherit a home will likely have only the property taxes and insurance to pay to stay in the house. This can become an excellent benefit for those who might have a mortgage or a rent payment to make each month. If you own a house and have equity built up, moving into your parents’ house could provide a great opportunity to sell your own home and access the equity. The money you’ll access could allow you to make some improvements to your inheritance and bring it up to a more modern standard. Moving in can make more sense if you don’t have to share the estate with any siblings. If your parents owned a nicer or bigger home than you currently do, moving into your parents’ house could allow you to move up in your standard of living. Additionally, you would not have to deal with real estate agents, increased debt, and contract negotiations.
Rent It Out
Another way to benefit from inheriting your parents’ house can come when you decide to rent it out. Renting out could be a better option than moving in if you have siblings that will inherit a share of the home. If there isn’t an outstanding mortgage, every dollar you bring in over any property taxes, insurance, and repairs, is a dollar of passive income you could use for something else. You could save or invest the rental income. You could also use it to pay for everyday living expenses. If you have siblings, you might have to split up the income, but it’s still passive income rolling in every month.
The third option for dealing with an inherited house is selling it. Once you inherit the house, you’ll want to maintain insurance on the property until you sign over the deed to another party. This will protect the value of the home in case a catastrophic event occurs. You’ll have to agree with any siblings if they also inherited a share of the house. Even if a house has increased in value, you’ll likely inherit the home on a stepped-up basis. This will allow you to avoid having to pay capital gains taxes. If you decide to sell, you might want to make a few updates that could improve the selling price. Shag carpet from the 1970s and floral wallpaper do not tend to sell well in today’s market.
Your parents likely worked hard to provide for you as a child. Over time, one of the assets many Baby Boomers have been able to accumulate is a home. As an heir, you should mourn the loss of your parents, but you should also consider which option works best for you when it comes to dealing with their home.
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