Inheriting a home can be an emotional experience. Usually, that inheritance comes when a family member or close friend dies, and the property is bequeathed to you.
What will you do with that home?
Maybe you want to live in the home yourself. If so, your decision is easy.
But, if you have your own home or you’re not sure what to do with the property that you’ve recently inherited, you’ll want to talk with a local real estate agent and property manager. The best options are to either sell the property or hold onto it and rent it out.
There is no single best decision. It will depend on your own financial situation and the financial goals you have in the immediate and distant future. If you’ve ever considered investing in real estate, this is an ideal opportunity to get started without needing a lot of capital up front.
The Oakland real estate market is an expensive market to enter. Inheriting a home here gives you an asset that’s worth a lot of money and likely to grow more valuable.
As you make your decision about whether to sell it or rent it out, consider what it would mean for you financially and personally to sell the property and be done with it versus holding it while rent is collected every month.
This is a hot real estate market now, and selling is going to make you some money. If that’s what you need more than anything, the decision might be easy for you. Demand is high and inventory is low. It won’t take you long to sell.
But, if you see the potential that this property can have for the future, the better decision may be to keep it and rent it out to good tenants.
An important question to ask is this: does the property you’ve inherited mean anything to you? If you’re emotionally connected to the home, your decision may be different than if it’s simply a property that you never spent much time in.
As Oakland property managers and real estate experts, we’re always advising people who aren’t sure whether they should sell an inherited home or rent it out.
Here are some of the things we would ask you to think about while making the best decision for you and your inherited property
Why Should You Sell?
Selling might be your immediate inclination. The market is working in your favor, and when you sell the property, you get to walk away from it and all the responsibilities that come with owning a rental home. If these points sound attractive to you, selling might be best.
Immediate Income from the Sale
Do you need money? If so, it’s a good idea to liquidate the asset you’ve inherited. The sale of this home might allow you to buy another. It could pay for a child’s college tuition or contribute to your own retirement.
You have a property that you don’t necessarily need, so selling makes sense when you need some cash and you want to move on. If there is enough equity in the home you have inherited and you know the sales market will deliver the price you want, selling is an easy way to move on.
Sell When Landlord Life is Not for You
Are you not excited about being a landlord?
Renting out an Oakland property is good for a lot of reasons, but if you can’t stand the idea of tenants living in the home you’ve inherited…you should probably sell it.
When you have a solid leasing process in place, your tenants will be heavily screened and well-qualified. But, even good tenants will have needs. You’ll need to respond to their repair requests, even if those repairs seem minor and unnecessary. You’ll need to collect rent and enforce the lease. If you’re not sure you can handle a tenant relationship, you are likely not in a good position to become a landlord.
There’s no need to worry too much. Tenants can easily be managed when you work with an Oakland property management company. It’s usually the best option for landlords who don’t have the experience or resources to provide expert leasing and management. But, even with a great property manager, some owners just don’t like the idea of someone else in their property.
If you don’t think you can detach emotionally from the home, it’s better to sell it. Renting might cause stress and drama that you don’t need. To rent out a property effectively, you need to treat it like a business. You need to detach from it and stop thinking about it as a piece of personal property. If you can’t do that, we recommend selling the home you’ve inherited.
Paying for Maintenance, Turnovers, and Upgrades
Rental homes must meet the demands of the Oakland rental market and the tenants who are ultimately your customers. If the home you’ve inherited is older or in need of a lot of renovations and upgrades just to make it rentable, you may want to sell the property. You also won’t earn a lot of money on your rental if you’re spending thousands of dollars every year in maintenance and repairs.
If you’ve inherited a home that’s newer or it’s been well-maintained and recently updated, you are in a good position to rent or sell the home. But, if the home you’re now in possession of still has its original roof, furnace, water heater, and appliances, you’ll likely have to replace those items while you’re renting it out. There may be a lot of cosmetic work that needs to go into making the home attractive to tenants as well.
When the necessary investments to keep your property habitable and appealing just aren’t worth it to you, selling it is better.
Why Should You Keep Your Oakland Property and Rent it Out?
Selling can help you earn some money now and step away from the responsibilities that come with renting out a home.
But, what if you can make great money in both the short and long term by holding onto the home?
Renting out a property doesn’t have to be difficult. If you’ve wanted to invest in real estate and you haven’t had the money that’s necessary to get started, you’re in a very strong position now. Here are some good reasons to hold onto the asset and rent it out to tenants.
Consistent and Recurring Monthly Rent
Earning monthly rent is a huge benefit to renting out the property, especially if your inherited property comes with a lot of equity already built into the asset. Your home value increases while your tenants contribute to paying down the mortgage and covering other expenses like taxes and insurance.
Like the sales market, the Oakland rental market is strong now, too. Rents are high and so is demand. If you have a desirable home that good tenants will find attractive, you’ll have no trouble keeping it occupied.
You Can Instantly Become an Investor
Investing in real estate is something a lot of people want to do, but it takes capital to get started. Maybe you don’t have funds of your own to buy an investment property and rent it out. The home you’ve inherited will get you started.
If you’ve considered real estate as a way to increase the power of your entire investment portfolio, this is a great way to leverage what you already own. When you own a piece of property already, it’s an easy way in. Keeping your property as a rental will allow you to stay present in a growing real estate market. You’ll have a valuable asset that’s appreciating over time while your tenants pay down your rent and contribute to expenses like property taxes and insurance.
Tax Benefits for Oakland Rental Property Owners
Selling the home you’ve inherited will affect your taxes. Renting out a property can be beneficial from a tax standpoint. You can deduct for any expenses associated with the property, including:
- Maintenance costs
- Mortgage interest
- Professional services like accounting, legal fees, and property management.
Tax benefits vary. The deductions you can make on an inherited home may differ from those you’d take on a home you bought. Talk to your CPA or your tax accountant for the specifics that pertain to your situation, but remember that rental properties are excellent for tax purposes. After you’ve had this home on the rental market for a period of time, you can even sell it in a 1031 exchange to buy a different investment property with the sale proceeds
Oakland Property Management Can Help
Oakland property managers can help you effectively lease, manage, and maintain your rental property.
If you hesitate to rent out the property because you don’t want to take on the work, it’s important for you to understand that you don’t have to do too much. A good property manager partner can take the day-to-day rental responsibilities off your plate. The company you hire will manage the marketing of the property, the screening of tenants, the lease, and everything that happens during the tenancy. They’ll keep you as involved as you want to be, without needing you to manage tenant relationships or track rental income.
A lot of laws pertain to rental property in California. Your property manager will keep you compliant with fair housing, eviction, security deposit, and other regulations.
Would you like to talk about whether it’s in your best interests to sell the property you’ve inherited or rent it out? We’d love to discuss this further with you. Contact our team at California Pacific Realty.