Inheriting a House in Washington State: What to Do Next?
So you’ve inherited a house from your parents (or another close relative), and now you’re wondering what to do with it. You have some big decisions to make. If you have other siblings or inheritors involved, things can be even more complicated. But with a little forethought and a lot of planning, you can turn your inherited home into a valuable asset.
Sell, Rent or Move In: What to Do with Your Inherited Home?
When you’ve inherited a home from a parent or family member, you basically have three options as to what you can do with it.
- You can move into the house, and possibly live “rent-free” for many years.
- You could rent the home out to someone else, turning it into an income stream.
- You could sell it outright to generate a profit.
There are pros and cons to all three of these options. So let’s take a closer look.
Option 1: Move Into the Inherited Home
Many people who inherit their parents’ home choose to move into the house. There are some obvious advantages to doing this. If your parents owned the home outright, you could completely eliminate your monthly housing expense.
On the other hand, if there is still a mortgage loan attached to the property, someone will have to keep up with the payments or possibly pay off the loan in full. Depending on the type of loan and the lender who is servicing it, the mortgage debt may or may not be assumable by the inheritor. In many cases, there is a “due-on-sale” clause attached to mortgage loans. This means the loan must be paid off when property ownership is transferred to someone else (as is the case when a home is inherited).
So the first and most important step is to determine the equity situation. Is the house completely paid off? Or, were your parents still making loan payments? If the second scenario is true, speak to the lender to find out what options you have.
Option 2: Turn the Inherited Home Into a Rental Property
There is a lot of demand for rental homes in the Seattle and Tacoma areas (where we operate). So turning your inherited home into a rental property is a viable option worth considering. But it brings a lot of other considerations as well.
Before you can rent out a house, you have to make sure it meets all residential building codes for your area. You also have to ensure the property meets all safety standards required in rental scenarios. This includes having all of the necessary fire-safety equipment, proper egress and accessibility, etc.
The obvious advantage of renting out your inherited home is that it can produce an income stream for you. How much income it produces will depend on the local rental market, as well as the size and location of the house itself. Generally speaking, homes closer to the city center can generate higher rents. And a larger home typically brings in more money than a smaller home.
Option 3: Sell the House
This is another option for people who have inherited a home from their parents. But here again, there are pros and cons to consider before moving forward.
The biggest benefit, of course, is that you could generate a significant profit from the sale of an inherited home. This is especially true within the Seattle and Tacoma real estate markets. Home prices across the Seattle metro area have risen steadily over the last couple of years.
According to the economists at Zillow.com home prices in the area rose by 6.3% over the last year or so (as of March 2015), and they could rise by another 5% over the next 12 months. So there is a good chance your inherited home is worth more today than it was just a few years ago.
But there’s another side to this coin as well. If you choose to sell your inherited Seattle or Tacoma home, you need to consider the costs associated with such a sale. In most cases, it is the seller who pays real estate agent commissions. The commission(s) can be paid from the proceeds generated by the sale, but at the end of the day it still comes out of your pocket.
Additionally, you might have to spend some money to prepare the home and to make it more marketable. This is especially true if it’s an older house with outdated fixtures and items in need of repair. Seattle and Tacoma are competitive real estate markets. To sell a home in such a market, you need to show it in its best possible light. In many cases, this involves painting, landscaping, minor repairs, and other upfront costs that will come out of your pocket.
Chances are, the money you earn from the sale of an inherited home will far outweigh the costs needed to market and sell the house. But it’s still something you have to consider before moving forward.
Are There Other Relatives Involved?
When it comes to inheriting a home, the simplest scenario is when there is only one inheritor / heir. But in many cases, there are two or more people sharing the inheritance. Such is the case when siblings inherit a house from their parents.
In such cases, all of the people involved must decide on a course of action together. And this is where things can get complicated. For instance, one sibling might want to sell the home to generate a profit, while another would rather move into the house.
If you have siblings or other heirs who have jointly inherited the home with you, you need to investigate your state’s laws. Every state is different in how this situation is handled. In most states, heirs who jointly inherit a house become “tenants in common.” This means that one sibling can force the sale of the property even if another is opposed to it — though this is a last resort.
The best-case scenario is to come up with a mutually agreeable plan of action for the inherited home. Sit down with your siblings or other heirs and put all of the options on the table. Discuss the pros and cons of each option and come up with a plan that is agreeable to all parties. This is the ideal scenario, even if it takes a bit of “wrangling” to get there.