Maybe you were part of a loved one’s estate planning and you knew that you’d be inheriting a home once they passed on. But, for most people, it comes as a surprise when they learn that they now own a home that was once owned by someone close to them.
Inheriting a home can be both an unexpected joy and an overwhelming responsibility. Suddenly, you find yourself in a position where you need to make crucial decisions: do you sell the house, move in, or convert it into an income-generating property?
There are pros and cons to each option, and the right move for you will depend on your current financial situation, your plans for the future, and your interest in being a real estate investor or a landlord. If you opt for holding onto the home and renting it out, you become what’s called an accidental landlord, and you may find yourself thrust into the world of San Diego property management.
That’s not necessarily a bad thing, especially if you have a professional property management working with you on achieving the best possible outcomes for your newly inherited property.
We work with a lot of accidental landlords, and we also work with estate planners who need some direction and advice on what to do with an asset such as a piece of property during end-of-life decisions. We’ve developed a few tips and strategies to navigate the new reality of owning a home that you did not buy, but instead inherited. Here are the ins and outs of navigating this new responsibility. We always recommend that you consult immediately with a San Diego property manager.
Options When You Inherit a Home – To Sell or To Rent
When you inherit a home, you might be relieved that you’ll now have an appealing place to live. If you’re looking for a new home, and the one you’ve inherited meets your needs, then there’s not much of a decision to make. Start packing, and move in.
However, many people who inherit property are not in a position to move into the home that they now own. If that sounds like you, you’ll essentially have two main options: sell the property or rent it out. While selling the property might seem like a quick and easy way to convert it into cash, renting it out can provide long-term financial benefits.
Here’s a brief look at the pros and the cons, although you’ll need to take a more nuanced approach as you make your own decision:
- Selling the Inherited Property
If you’re not interested in becoming a landlord, selling a property is a viable option. When the market is strong, you are in an especially strong position and will likely make some money on the sale. You’ll need to evaluate how much is still owed on the home, if there’s a mortgage. You’ll also want to make sure it’s fit for the market; will you invest in some renovations if the property isn’t in a condition that will bring in your asking price? Or, will you sell it “as-is?” You’ll have to take some additional steps when you decide to sell, including:
- Obtaining a property appraisal
- Paying off any mortgage or liens on the property
- Handling required repairs and improvements
- Paying the necessary taxes
- Listing and marketing the home
- Finding a suitable buyer
Selling may have its advantages, but it also involves a lot of time and effort. You will also lose the chance to benefit from possible future appreciation of the property’s value. Talk to a good real estate agent who can give you a sense of the market and how much you can expect to earn off the sale. Talk to a financial adviser or a CPA as well so you understand the costs that will be associated with a sale, and how to manage them.
- Renting Out the Inherited Property
Renting out the property can provide you with a steady passive income and potential tax benefits. Additionally, property values often rise over time, which may lead to increased rental revenue. You won’t necessarily earn a lot of money right now, in the short term, but you will have some recurring and consistent rental income every month. And, if there’s a mortgage on the property still, the tenants you place will slowly pay that loan off over time while your equity grows. This is a great way into a real estate investing career if it’s something you’ve been thinking about. However, being a landlord comes with its own set of duties and responsibilities, such as:
- Preparing the home for the rental market
- Finding and screening tenants
- Collecting rent
- Keeping up with maintenance and repairs
- Adhering to local laws and regulations
If you choose to rent the property, you’ll need to learn the ropes of property management. Luckily, property managers can help you make this transition smooth and successful. Don’t rent out a home without professional help. California’s laws are pretty strict when it comes to rental homes. You don’t want to walk into legal trouble.
Decided to Hold the Property and Rent It? Great. Prepare the Home for the Rental Market
Many accidental landlords decide to rent out the home they’ve inherited because the long term financial benefits seriously outweigh any of the hassles or risks. Before you list your property for rent, you need to ensure it’s safe, livable, and appealing to potential tenants. You cannot list the home until you take care of these details:
- Cleaning and decluttering the home. Remove all personal property.
- Addressing any necessary repairs and improvements. Even minor repairs are necessary.
- Checking that all appliances are functioning properly and efficiently.
- Ensuring the house meets local and federal safety standards, such as installing smoke and carbon monoxide detectors.
- Determining a fair market rent, which will require market research and reliable data.
- Drafting a lease agreement that abides by local rental laws.
A property manager can help you navigate the complexities of becoming a landlord. We can offer valuable guidance and support, shouldering the majority of the responsibility while ensuring the success of your rental property. Property managers typically handle tasks like:
- Advertising the property and attracting potential tenants
- Screening tenants (background checks, employment verification, etc.)
- Preparing and signing lease agreements
- Collecting rent and handling late payments
- Coordinating maintenance and repair work
- Ensuring compliance with local laws and regulations
In short, a property manager can save you time, reduce stress, and maximize the potential return on your rental property without allowing much of the risk and liability that comes with renting out a property.
Benefits of Hiring a Property Manager
You can probably rent out the home on your own. But, should you? Not if you’ve never done it before. Here are some of the quick benefits of professional property management in San Diego:
- Expertise in the Local Market: A property manager possesses in-depth knowledge about the local rental market, which can help set a rent price that both attracts tenants and maximizes your income.
- Tenant Relations: Property managers handle all interaction with tenants, from addressing complaints and emergencies to conducting routine inspections, providing you with peace of mind.
- Legal Knowledge: We are well-versed with local, state, and federal laws regarding rental properties, helping you avoid legal issues.
- Less Vacancy: A property manager’s marketing skills and network can help minimize vacancy periods, ensuring that the property continually generates income.
- Maintenance and Repairs: Property managers coordinate all maintenance and repair work, ensuring that the property stays in good condition. Plus, our established relationships with contractors and tradespeople can result in savings.
- Rent Collection: We handle rent collection and late payments, ensuring consistent cash flow and dealing with any difficulties that might arise.
By hiring a property manager, you essentially invest in a professional service that can boost the profitability of your rental property while alleviating the everyday stresses that come with being a landlord.
Protecting the Value and Condition of the Property with Good Maintenance
Good maintenance is the cornerstone of preserving the value and condition of your rental property.
Regular upkeep not only enhances your property’s appeal but also prevents minor issues from escalating into costly repairs.
- Regular Inspections: Conduct routine inspections to identify any maintenance or repair needs. This helps in early detection of problems like leaks, mold, or pest infestations which, if left unattended, can cause severe damage.
- Seasonal Maintenance: Each season brings its own set of maintenance tasks. Be prepared with preventative service checks.
- Responsive Repairs: Attend to repair requests promptly. Swift response not only fosters good tenant relationships, but also mitigates further damage.
- Preventive Maintenance: Preventive measures, such as regular cleaning of HVAC systems, can prolong the life of these systems and increase their efficiency.
- Upkeep of Outdoor Spaces: Regular landscaping and upkeep of outdoor areas enhance the property’s curb appeal and maintain its value.
- Safety Measures: Regular checks and updates of safety devices, like smoke detectors and security systems, protect both your tenants and your property.
Investing in good maintenance can help you protect your property’s value, keep your tenants happy, and maximize your rental income. A property manager can handle these tasks effectively, ensuring that your property stays in top condition.
Let’s talk about what to do with your inherited San Diego home. Contact us at Chase Pacific Property Management and Real Estate Services.