Inherited a House with no mortgage
Aug 01, 19

What should I do if I inherit a house with no mortgage?

Introduction

Research has indicated that a substantial proportion of adults in America are set to inherit property at some stage in their lives, usually on the death of a family member or relative. It may be the family home in which they grew up, or a different property acquired by parents or grandparents after they left home.

Whatever the circumstances that have led to the bequest, suddenly acquiring property forces the beneficiary to make hard decisions. In fact, acquiring a property which still has a mortgage attached to it helps, in some ways, to narrow down the choices.

If a house is left to you which still has a mortgage, then not only have you acquired as an asset, but also financial obligations which can be potentially onerous. In such circumstances, you will normally be forced to sell the house to pay the mortgage off, unless you are one of those fortunate people with sufficiently deep pockets to fund the existing monthly repayments going forward.

However, if you have inherited a house with no mortgage, then your options are somewhat expanded, and you can choose to:

  • Keep the house;
  • Become a landlord and rent out the property;
  • Do the house up and sell it on the open market;
  • Sell the house quickly to an investment company.

Keep the House

This is the most obvious solution. There is no mortgage to pay, and you have an asset to do with as you please. This may be attractive for some if it was a family home with many warm memories associated with it, or if it is located in a desirable area.

It can also be a desirable choice for those who are renting or have a mortgage on their existing house because they can save on those monthly costs. However, the house that they have inherited may be in a part of the country that they do not know or is inconvenient for their work, friends and other family commitments.

Equally, the property may need renovating before it is suitable for them to move in or may need money spent on it to bring it to the standard that they would like. These factors need to be carefully evaluated.

Become a Landlord and Rent Out the Property

If you want to keep the house, but do not want to actually live in it yourself, then an alternative is to become a landlord and rent the house out. Not only do you have an asset, but that asset is earning you a steady source of income.

Whilst this is potentially an attractive option, it comes with some drawbacks. First, you may have to spend money on the property at the outset to make it fit for tenants. This means expenditure not only on the fixtures and fittings but also potentially installing safety features in the property.

Becoming a landlord has tax and insurance implications and also comes with a fair share of legal obligations to your tenants, which you need to fully understand before you begin. Problem tenants are also an issue that you need to consider.

Do the House Up and Sell on the Open Market

If you do not want to keep the house and are not interested in becoming a landlord, you can sell the house on the open market. This is potentially attractive because any money made on selling the house is pure profit – although, depending on which jurisdiction you are in, capital gains tax may be an issue.

However, there may be costs involved in selling a house that you had not considered. The house may be dilapidated and rundown and need considerable renovation and upkeep before it is ready to be sold. Equally, to get the house sold, you may have to employ the services of a real estate broker who will be entitled to a fat commission when the deal is completed.

And whilst you might not have a mortgage to worry about, prospective buyers might. You might find yourself engaged in protracted negotiations whilst buyers attempt to secure a mortgage.

Sell the house quickly to an investment company

There is a fourth alternative for those who want to sell their house quickly and realize a profit without the associated costs of selling on the open market. And that is to sell the house to an investment company like SoCal Development Group.

By choosing this option you do not have to pay a real estate broker or agency fees – the investor is the buyer, and you are the seller, so there is no middleman involved. And they usually will offer a quick close, so there is no protracted wait whilst buyers are lined-up and they have to negotiate a mortgage.

And there is no need to spend money on costly renovations – they will normally buy a house “as is”, and will even take responsibility for clearing any household junk or unwanted artifacts.

Of course, there is a downside to this in that the price an investment company is likely to offer you for a property will be less than its market value, or what you could hope to achieve through an open sale.

However, before this option is dismissed altogether, you need to take a good look at the potential costs that you might save going this way. To start with there are all the expenses that you might have to spend on renovations and repairs before the house is ready to market. And then there are the commissions and real estate fees that you may have to shell out at the end once a sale is complete.

And then there is the waiting. If your property is in a sought after area and it is in a good state and competitively priced, you might find a buyer quickly. However, if it is in a less desirable part of town, or the economy is going through a slowdown, it might take months, or even years, before you can sell that property.

Better perhaps to realize your return now than wait years for it. After all, a bird in the hand is worth two in the bush!

Conclusion

If you are fortunate to have inherited a house with no mortgage, you have four main choices as to what you can do – live in it, become a landlord and rent it out, sell it on the open market, or sell it quickly to an investment company.

All of these options have their pros and cons, but selling to an investor should certainly be one consideration. It offers immediate returns and the chance to avoid some of the long-term cost implications associated with the other choices.

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