Inherited Property Options: Should You Keep, Sell, or Rent It Out?

 


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Introduction: Inheriting a Property




Have you inherited a property? I think now is the time to really talk about that. The last few transactions that I did were for inherited properties some people held onto it for a bit. it's been in the family for a really long time. They kept it and they rented it out. There's a ton of different things to do.


Options for Inherited Properties


Should you sell it right away? Could you move into it? It's always an option, right? 


California Laws and Tax Implications


This is mostly for California because I'm familiar with the California laws and this is not legal or tax advice. These are the questions you should be asking your tax professional and your trust attorney.


When you inherit a property, we're talking about millions of dollars or at least a million dollars, for the most part, right? Some houses are less than a million, but on average in San Jose, the average cost of a house is 2.2 million. So if you inherit a house, what are you going to do with it? proposition, 19 allows you to transfer your tax base after you're 55, but it also has a provision that allows you to move into it and assume that tax basis. Now you have to be one of the Brother or sisters and that brother or sister has to move into that house and they get to enjoy that tax basis So if they bought it back in the 50s for 20, 000 or 50, 000 and now they're still only paying like a year for property tax.


Yes, That's the thing in California because we have something called proposition 13 Which only increases the value of that property by 2 percent every year versus what the market does up and down. Proposition 19 is good. We voted for that a few years back. So it's just something to understand. 


Is that a house that you want to live in? Well, yes. Absolutely. 


Selling vs. Renting: Key Considerations


Well, what happens if all the siblings either moved away or they're in their professional jobs and they have a house, maybe they have a 3500 square foot house and they don't want to move into a 900 square foot house just to save on tax bases.


Maybe renting it out is a good option. Understand  this is a sales thing. It's not property tax, but when you sell your house, and again, this isn't tax advice. 


Tax Basis and Capital Gains


When you sell your house, you get a stepped up tax basis based on when one of the people inside that trust or the title, who owns title to that passes on.


When they pass on, you get a stepped up tax basis, just like in stocks, it's great because. when your parents bought something for 50, 000 back in the 1950s and now it's worth 2 million, you could be facing a huge capital gains tax burden. Again, it's something you have to talk to your tax person about, but when one person passes on, let's say it's your.


dad passed on first and then your mom passed on this January, the tax law provides that you get a step up in tax basis and you get to sell it at a current value without any tax burden. Now if you rent it out and let's say 10 years down the road, it increases another million dollars.


Well, guess what? you're going to have to pay capital gains on that Delta from 2 million to 3 million that's just the way it is, you're gaining income, but if you rent it out, proposition 19 pushes your property tax basis up to current market conditions.


It's like you're assuming title to a brand new house. So it's a lot of stuff to think about, right? if you want to understand, read this article, it's very easy to walk through if you want to sell your property or rent it out. Well, there's also legal considerations, right? we already talked about a lot of different things.

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Again, this is something where. It doesn't just take a real estate agent to help you sell the house. You have to talk to a tax person. a trust attorney and understand all the laws and implications and tax burdens you could be facing for those options. So be sure that you take the time to understand it before you make a decision and call me.


And if you need help finding a renter I'm happy to do that for you as well. 


Preparing the Property for Sale


Now, if you're going to sell it or clear it out, it's going to take some time you might say, Oh, I can clear this house out in two weeks. But Once you start drudging through all the stuff, looking at pictures posters awards trophies and keepsakes it winds up taking two months.


This is part of your healing process and you should absolutely take the time if you're like, everything in this house is junk, I just need to clear it out. We have estate sales people that help walk you through the process.


They'll take what they can and sell it off on auction or consignment the rest they'll clean up and take to the dump or take to Goodwill or whatever favorite donation station you wish us to put it through. So it's stuff that we can do for you, I'm actually selling the one in Hollister as a trust situation as well.


we spent months cleaning that place up and getting things dialed in and putting new plugs and new switches and new, not new floor, but we painted and fixing little things. And then the question is, if you are going to sell it, do you want to sell it as is or do you want to tune it up a little bit, get rid of all the little hankering things and up the value?




I never really say any more to do a brand new kitchen. You don't get the utility. You don't get the enjoyment out of it. And if you're going to spend 75, 000 on a brand new kitchen, you might as well use it, enjoy it, and then turn around and sell it after a couple, three years. we talk through it as we walk through the house, and we discuss different options.


Like if the carpet's really gross and smelly, and just shredded. I say, get rid of it. Sometimes we sell houses just with the carpet torn out and it's just down to bare floor, It's just something that we do for you, So no matter what, just depends on how much.


Equity you want to build out of that and how much you want to get out of it and how much effort you want to put into fixing things up. the next person that comes in is going to put their own flair on it. sometimes they don't want to pay a premium. They're still going to pay a premium because they're in California.


Understand that there's different things that you have to worry about. if you're going to sell that house, download this checklist. It's free. I promise I won't bug you. I'll call you and say, Hey, I'm Beto. If you have any questions, this is my number. Please feel free to call me anytime you want.


And we'll go from there. 


Real Estate Market Insights

Mortgage rates jumped up a tad bit, even more this week. They were an eighth of a point lower last week. And now they're an eighth of a point higher, unfortunately, but don't despair because I think when you're going through the home buying process, you can buy points to it, right?


I'm buying a house in Vegas. I'm talking to my lender. I'm talking to, my sister who's a broker there and we're going back and forth trying to get an understanding of how low it can go I got quoted 7. 625. I can drop that down by paying points or I can just suck it up. Have it for six months, turn it into a HELOC or home equity line credit, and then refinance it, and then use that to pay it down because it's really an investment vehicle for me. 


San Jose Property Overview


San Jose is the number four spot across the entire United States. There's a video I did on it. 

The link is down below. You can jump through it. What'd you get for 2 million in. San Jose, California, or Santa Clara County. It's a five bedroom, two and a half bath, 2200 square foot built in 1966. And this is an Almaden right by Almaden expressway. It's a quick view of the map so you can see where it is let's take a look at this house. It's huge five bedrooms. There's not very many five bedroom houses out there. There's nothing wrong with that. if this thing was completely dialed in, maybe you can sell for 2.2 or 2.5 really depending on what upgrades you put into it.


But there's nothing wrong with selling a house like this. That's in a trust parents pass away and you just move the property, right? It's very okay to do that.

And this is what you get for a million dollars in San Jose, California, Santa Clara County, three bedroom, two bath, whole 960 square feet compared to what was this one? 2200 square feet. Wow. You actually get a little bonus by doubling the money and it was built in 1960 So they did upgrade their kitchen, but They didn't add HVAC. This is a wall heater right here. I don't know if you can see it. That's a wall heater right there, but new kitchen, new flooring, new walls, yeah, this was a flip.


Here's the thing. When you sell your house with air conditioning, it tends to sell for about 200, 000 more. If you have it without air conditioning, plan on selling it for a lot less. It's 7 to 10, maybe 12, 000, depending on the size of the house for air conditioning. And when you go to sell it, people are looking for air conditioning.

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Lately it's been 20, 30 times a year. People want air conditioning. It's like a car. Cars don't come without air conditioning anymore unless you buy it straight from overseas. So, if you're going to sell a house, think about putting air conditioning into it.


Not guaranteeing that you're going to get 200, 000 more for that 15, 000 investment, but there you go. 


Final Thoughts and Advice

  • Inventory And Supply Charts

Okay, Bay Area, 12 Bay Area months of inventory, nothing's changed. I haven't touched this, just looking at it again. Our inventory is so low. Six months is where It becomes a buyer's market and everything is so far below the market right now.


And months of inventory is down to point when this is Santa Clara County, single family houses were less than. 0. 7 months. 0. 9 months. So less than a month and active number of sales are just zero where we have in Santa Clara County, we have close to 600 homes for sale. we just don't have the number of inventory.


The supply for the demand, which is why prices are going to continue to go up unless something happens, right? World war three, massive economic meltdown. Who knows? It doesn't really matter. There you go. That's it for now. Have a great Thursday. I'm Vito with Abitano. Thanks for watching. We'll see you out there.

San Jose is in the No. 4 spot. in the US


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Vito Scarnecchia

Real Estate Broker, Veteran, Dad

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