After inheriting your parents’ home, the prospect of selling that house can seem overwhelming. It’s a whirlwind—mentally, physically, and of course, financially.
Although emotional attachments to your parents’ home may run strong, a recent Charles Schwab survey found nearly 70% of those who expect to inherit a home from their parents plan to sell it. It seems for most people, sentimentality is simply not reason enough to justify the expense of maintaining an inherited home or take on the burden of becoming a landlord. From property insurance, to utilities, to taxes—the economics of selling win out.
Here’s what to consider when you’re figuring out to do with your parents’ home.
Rising home costs
As we recently covered, after years of pandemic-fueled price growth, home prices are still on the rise—and the forecast suggests these higher prices are here to stay. This seems to be the case, even amid widespread expectations that interest rates aren’t likely to drop back to their pandemic lows any time soon
Rising costs across the market are a major factor for any inheritor deciding to sell or not sell. For instance, the higher cost to insure coastal homes in the Southeast in particular is pushing more heirs in the area to sell, according to The Wall Street Journal.
Inflation
Inflation makes everything more difficult, and more expensive. It’s no surprise that repairs and upkeep on older properties are pricier than ever. With this in mind, it makes sense for inheritors to sell their parents’ place, either to pocket the cash or to purchase newer properties that may be cheaper to maintain and insure.
On the other hand, if you parents’ home is fully paid for and located in a strong rental market, it may make sense to hold onto it, as rents are currently soaring. Online tools, such as Zillow’s rent estimator, can help you gauge what you’re likely to get in a given market—though it’s also worth talking to a local real estate professional who can give you better guidance.
Even if the rental income sounds attractive, be aware that becoming a landlord involves a whole new set or financial risks and practical worries. If nothing else, getting the home ready for tenants is going to cost you more than it would’ve a few years ago (thanks inflation!). Speaking of, if you are looking to renovate in this economy, here’s our guide to the home improvements most resistant to inflation.
Tax considerations
If you are leaning toward selling, time is of the essence: The Wall Street Journal explains how the quicker a home is sold, the better off you’ll be tax-wise. Simply put: The faster you sell a property, the sooner you can establish a new cost basis and remove the property from your taxable estate. This way you’ll minimize any capital gains and and limit the ensuing tax exposure.
The bottom line
Unfortunately, the decision to keep or sell your parents’ home depends less on fond memories and more on the state of the market. With mortgage rates hovering around 7% and the continuing specter of economic weakness, it may be in your best interest to sell that home right now rather than maintain it.
For more, here’s our guide to dealing with your parents’ things after death.
