Profile picture for JLDh2o

Should you sell a house that you inherit in these troubled times?

Along with my brother and sister, we just inherited our mother's house.  At first we all
agreed to continue to rent it out.  Now they think they want to sell and get the money
out of it.  My argument is that they will get roughly 3% annually on their portion of the house and we can always sell at some point in the future.  What is the right course of action?
  • November 16 2011 - Mountain View
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Answers (23)

Profile picture for wetdawgs
I'm so sorry for your loss.

The right answer depends on the three of you and the individuals' need for money vs desire for an investment strategy.    No one can tell you what is "right".   House prices traditionally have kept pace (more or less) with inflation with exception of bubble times in the last decade.   I suspect the "keeping pace with inflation" will be more the rule rather than bouncing back to bubble prices.

  • November 16 2011
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Profile picture for JLDh2o
Thanks, she lived a long full life in good health so this was only natural.
My argument is once you sell the house you no longer have any claim
to more money.  If you continue to rent and sell at some point in the future
you can only make more money.  Believe me, there are no solid investments out there now that can provide a steady, consistent 3% yield.
If anyone of us 3 need the money, it is me, because I have been out of
work for a while.
  • November 16 2011
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Profile picture for wetdawgs
I hear your points, but it is your siblings you need to convince and not me.  

  • November 16 2011
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Profile picture for shasta_steve
If it were me I would just sell it.   It would be OK if you and your siblings all wanted the same thing but I just think it will cause too many problems for your family in the future if you decide to keep it. 

Having a rental can be a real pain in the behind.  You have to decide who will take the lead in controling the rental.  Even if you decide to hire someone you still have to set aside a certain amount of money for unexpected expenses.  You are going to have times when you won't have a tenant.  Rarely do all parties agree with what should be done and it is very likely to cause problems in the future. 

Also as pointed out earlier I don't believe that prices now are super low.  I think it has much more to do with the fact that during the bubble prices were supported by nothing and were way too high.  I would guess the Mountian View area is doing better than many areas of the State. 
  • November 16 2011
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I agree with Steve for all of the same reasons that he stated. My husband, who managed rental properties for several years used to tell his clients to take a good look at the house you are renting because it will not look like that after the renters leave. If you do decide to rent, ask for a substantial deposit, and be sure to run crredit checks and get personal references.

Also, in our experience, a good financial person can get more than 3% even in today's investments.
  • November 16 2011
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Profile picture for JLDh2o
To all who have replied, I have personally managed the property for the
past 6 years while working a full-time job.  I know all the pitfalls, problems
and issues.  I am looking for a good reason to sell.  Not convince my siblings of anything.  This is like a stock with dividends.  You can always
get out of it but once it is gone, it is gone.   No more claims.

Why not pick up a few years of rental checks and then decide to do whatever with it.  Is there something I am missing here?
  • November 16 2011
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Profile picture for wetdawgs
The only thing you are missing is the ability to convince your siblings.  
  • November 16 2011
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In general, keeping a house as part of your "portfolio" of investments is a good thing: one part as stocks and bonds, one part as real estate, and one part as cash/liquidity.  It also depends on the location, and the condition of the house.  Part of the hassle to rent out a property is the upkeep, which can be 1/time-consuming, and 2/expensive.  If you do not have this problem, then keeping the house is a good option.  But unless you are close to the Palo Alto area, it does not seem that values will go up a lot in the near future.  So it comes down to what would you do with the money if you sold the property.  Sometimes, the money is needed for personal reasons, and that would definitely trigger the need to sell.
Otherwise, it is not a bad time to sell.  There is demand in the Valley.

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  • November 17 2011
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The only people that have the answer to your question are you and your siblings.

The "bottom line" isn't necessarily the only factor upon which to base the decision, so discuss it and no doubt, you will all come up with a solution.  The solution may not be what everyone wants, but we don't always get what we want.
  • November 17 2011
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Dear  JLDh2o,
Since you have been able to lease the property without much difficulty, I see no reason not to continue to do so. The income from the rental should be shared between all the siblings.
What I have seen with such situations is that the family cannot agree on what to do with the property and make the decision to cash out on it rather then have that asset unsettled.
It's a decision only you and your family can make.

  • November 17 2011
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In a situation like this, I would think majority would rule regardless of what the best investment advice would be.  If some are in need of money, they may be willing to forfeit any potential profit in the future in order to get money now.  Also, renting it is a great idea, but if you get the wrong renter in there, it could be a disaster.  Also, who would be responsible for all the processing and maintenance while it was being rented (collecting and depositing checks, splitting up the rent to all parties, repairs when needed, etc).  If you are the one that "talks them into renting" and it turns out badly, you may end up wishing you would have sold quickly.  However, if it turns out great, you will be the hero!
  • November 18 2011
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Profile picture for Sharon Lewis
So sorry to hear you are dealing with the loss of your Mom.

You're in Mountain View and it looks like you are in one of the stronger markets. I think that you are outvoted by your siblings and if they want to sell you all should consider waiting for the spring market to put the home up for sale. In the meantime, do your homework and see what your competition is, what homes around you are for sale, what upgrades they have inside and do the upgrades, paint the home, clean up the landscaping and get it ready for the market.
 Or possibly buy your siblings out.
Again, sorry for your loss.
  • November 18 2011
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Profile picture for JLDh2o
Again, I appreciate everyone's comments.  I particularly like Francis Rollard's because his comments embody most the answers I was looking for.  I think I might have a solution to taking care of my siblings and somehow keeping the house.  The main reasons are no trouble renting now or in the future, aflluent area that will continue to appreciate, rental income is always good and keeps your investment portfolio more balanced and most importantly, LOCATION, LOCATION, LOCATION.  I now realize I can't help it if both of my siblings are clueless.

Also, I just saw this full page notice in today's SF Chron.  Go to the website RemortgageAmerica.com.  I am a lifelong finance guy with a degree in Accounting and Finance and this makes perfect sense to me.

Thanks again to everyone.

Respectfully,
Joe
  • November 18 2011
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Thanks for the tip on the article.  I will check it out today.
  • November 18 2011
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Profile picture for Dan Liese
Selling a home you inherited has some fundamental items to be answered.
If more than one person is involved in the sale as executor or executrix of the estate then all parties need to agree on course of action.
If there is a difference of opinion then one party could buy the other one out based of a mutually agreed to price. Or all parties could agree to rent house out until market returns to better conditions for sellers (we really don't know when that will be). Or you sell now and take the money and reinvest in real estate or put it in your pillow or invest in stocks, bonds whatever you feel is your best option. Good luck with whatever you decide.
Dan
  • November 19 2011
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Profile picture for Sharon Lewis
Such a tough choice. I see you updated your posting with you have been out of work for a while. If that is the case, give yourself some breathing space, sell the home, take the money.
Such a tough time for you.....really sorry you are going through this all.
  • November 21 2011
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Profile picture for SoCal Engr
Quick question...

There are many pluses to holding RE, but what are your siblings finances and financial plans/goals look like? Not that they owe it to you, but what is the possibility that "cash now" is more beneficial to them than a rental income?

What is the condition of the house, and how much equity is on the table? Is it possible that one major repair could take a big bite of of the equity (especially as it needs to be split 3 ways)? Why did your siblings change their minds about renting it out? Lot's of variables left in this equation.
  • November 21 2011
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Profile picture for Frieda Triebel
It is not a simple question to answer.  First, check with your accountants on the tax obligations in the event that you do sell the house.  Secondly, you all have to agree to be landlords; someone needs to manage the property, etc.  I assume you already have an appraisal.  When you have all the facts available about net operating income, tax liabilities, and tax depreciation benefits, if may be easier to come to an agreement  on a decision. Also, consider the possibility of buying out the interest of one or both siblings in order to keep the property available as an investment.
  • November 22 2011
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Sorry if I'm being redundant with any of the responses above.

You mentioned 3% appreciation. While appreciation is important in Real Estate, it's only 1 factor. Since I didn't hear any mention of a mortage payment, I assume the home is free and clear? If so, the only expenses are the maintenance, taxes, and insurance + property management fees (if any)? At what point would the cash flow be negative?

One of the biggest advantages of Real Estate over many other assets is the ability to LEVERAGE. So, if your cash flow is sacrificed a bit to a point where it's still positive, have you considered a 3rd option of taking some cash out? It might be a win-win for all parties.

This option will require some substantial knowledge of RE investing, so if you're unaware of the risks and the correct way to analyze your options, I'd pass.
 
Just some food for thought.
  • December 05 2011
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To all that have suggested to sell and not deal with the hassles of a rental, I agree that in some cases, tenants can create heartache and pain by trashing the home, and not paying rent. That is a scenario that rarely happens if the tenants are properly screened. I agree that renting a home has some level of risk. I have been a landlord for 12 years, and have seen my share of bad tenants, no matter how you screen them.

But, with a small amount of risk, comes reward.
If you rent the home out, then you can all share in the benefit of being able to write off the depreciation as an investment property while it goes up in value over the next several years.
You can all add it to your portfolio as an asset, and each share in the monthly income, regardless how small.
And later, years down the road, the home will definately be worth MORE than it is now.

Selling may be the easiest thing to do in the here and now, but I am sure you would all regret it later when you look back at it.

Good luck.

  • December 05 2011
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Profile picture for Caveat Emptor
ah the REA turned tax attourney and CFA advising writing off depreciation on an asset that was inherited based on stated value at the time of inheritance, ignoring opportunity cost and minimizing risk to push a client into real estate because he is the expert. my day is complete.
  • December 06 2011
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Profile picture for SoCal Engr
All of the "Option A", "Option B", "investment yada yada", "income stream yada yada" is moot.

The real core issue is one of family dynamics. When people and relationships get involved, all logic can be thrown out the window.

It would be interesting to know if the OP was ever able to get his/her relations to see their point of view - or if this issue is blowing up their relationship.

Sometimes, you do what's right for the family - not what's logical.
  • December 06 2011
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Profile picture for grlgrn
I have to jump in here. I inherited a home recently from my mom. Almost 100 years old when she passed away. I have my own home in the Burbank, CA. area and her home is 10 minutes away in another city of Los Angeles. I do NOT know what to do. I am emotionally attached to my moms house being that I grew up there since I was 4 years old. On the other hand, there is a few repairs that must be done before I rented it out. Her windows are all sticking since they are the steel encasement types and some rooms need painting and things like that. She basically kept the house up. I will be the sole owner and could get close to 1.4 million dollars. Do I RENT it out for $ 3500.00 a month or sell and invest the money??? There is no mortgage. Please someone help me figure this out.
  • July 11
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