Selling or renting an inherited house. Which is a better financial decision? (million)

[oneasterisk]

No one said writing off all your expenses to negate your profit. That's just silly. That kind of math wouldn't work in any business.

The tax deduction I was referring to were things like interest payments, taxes etc. Along with deductions for depreciation, you could zero out your "profit" to the tax man, but actually keep the money as your profit.

[mathjak107]

the only real give away is depreciation . everything else boils down to money spent and just taken out of the rent or our savings if the rent does not cover it..

now that we are selling everything and no longer want to own rentals in retirement the recapture is coming back to haunt us. basically it was nice taking it off all those years but not so nice giving it back.

[SunnyTXsmile]

Originally Posted by mathjak107

the only real give away is depreciation . everything else boils down to money spent and just taken out of the rent or our savings if the rent does not cover it..

now that we are selling everything and no longer want to own rentals in retirement the recapture is coming back to haunt us. basically it was nice taking it off all those years but not so nice giving it back.

That sounds like exactly what I was recently reading regarding how, if I rent then decide renting is too challenging and sell, I'd owe taxes on the monthly profits (don't quote me on that, but it's how I understood it).

One great article made a fabulous statement that hit home:
And this is why landlords lord lands. It doesn't require dishonesty, just a healthy tolerance for risk (which we'll talk about next time) and occasional conflict.

If I have little tolerance for financial risk or occasional conflict.

From everything I've read here on C-D and on the web, it sounds like the better financial decision is to invest the money from the sale of an inherited home vs. renting it.

[oneasterisk]

That article points out appreciation, but I would not count on it. It's not a given and as some people found the last couple years, they could be upside down on their investment property. Plus how many months of income loss will you have to put up for you to MAYBE realize an appreciation in price. Instead focus on the rents covering the debt service/taxes/insurance/property management etc. In my case, I'm clearing about 500 a month (6k) annually after all expenses. I'm getting a 12% return, and after the tax deductions it's even higher. The property cash flows so any expenses or repairs are paid from the profits. I don't reach into my personal accounts to keep it going. I'm not relying on appreciation to realize a profit. If the property appreciates that's the bonus. The entire time your tenant is increasing your equity by paying down the mortgage, so when you do sell or 1031 exchange you've got a greater stake in it.

In mathjak107's case, it doesn't sound like it was an investment property, more like a vacation home. He wasn't getting rental income so there was nothing to offset the burdens of owning investment property. Maybe appreciation of property value, but again I would not count on it.

[SunnyTXsmile]

Originally Posted by oneasterisk

That article points out appreciation, but I would not count on it. It's not a given and as some people found the last couple years, they could be upside down on their investment property. Instead focus on the rents covering the debt service/taxes/insurance/property management etc. In my case, I'm clearing about 500 a month (6k) annually after all expenses. I'm getting a 12% return, and after the tax deductions it's even higher. The property cash flows so any expenses or repairs are paid from the profits. I don't reach into my personal accounts to keep it going. I'm not relying on appreciation to realize a profit. If the property appreciates that's the bonus. The entire time your tenant is increasing your equity by paying down the mortgage, so when you do sell or 1031 exchange you've got a greater stake in it.

In mathjak107's case, it doesn't sound like it was an investment property, more like a vacation home. He wasn't getting rental income so there was nothing to offset the burdens of owning investment property. Maybe appreciation of property value, but again I would not count on it.

The house was inherited and was paid off many decades ago, so luckily there's no mortgage on this property, should I rent it. Despite that, I'm still scared to death to rent it, as I fear the expenses and possible drama if I get a bad tenant will outweigh any possible gains.

I also feel like if I sell and invest the money, there'd be a higher rate of return than if I rent it and possibly sell later if renting becomes too challenging, considering all the tax implications I'm still learning about for selling a rental property. There are just so many factors to consider, but since I know more about investing than I do about rental properties (obviously ), selling/investing feels safer to me than renting.

This is such a huge decision because whatever I decide, can't be undone. Once I sell, I can't get the house back. Once I rent and get a possible terrible renter, they could damage the home in a way that once I repair it will never be the same as it once was. This would be so much easier if it were just a house I happened to buy and weren't the most sentimental place for me. This has actually been one of the hardest decisions of my life, even over whether or not to divorce, oddly enough. :\

[MrRational]

Originally Posted by SunnyTXsmile

I also feel like if I sell and invest the money, there'd be a higher rate of return than if...

If you were already in the LL'ing business or had been seriously considering it
when this property came into your control then a whole other set of questions and
comments and suggestions would be coming your way.

But since you aren't a LL... selling is the best/simplest option.
What you do with the money from the sale is a whole other set of discussions to have.
But first you need to have that money.
---

Even if after all the dust settles from this you later decide to try LL'ing...
you'll be advised to do that close to home; not long distance.

[SunnyTXsmile]

Originally Posted by MrRational

If you were already in the LL'ing business or had been seriously considering it
when this property came into your control then a whole other set of questions and
comments and suggestions would be coming your way.

But since you aren't a LL... selling is the best/simplest option.
What you do with the money from the sale is a whole other set of discussions to have.
But first you need to have that money.
---

Even if after all the dust settles from this you later decide to try LL'ing...
you'll be advised to do that close to home; not long distance.

You make good points. I signed the estate documents at the end of June (after the probate was finally wrapping up 1.5 years later), and was told I'll have the deed in about 2-3 weeks once the estate lawyer files a few more documents with the State. He said I needed to decide quickly what I'm doing (since he needs to know how to list me on the papers, as occupant or landlord), and plus the home owner's insurance only allows me so many days for the property to remain vacant so I either need to get a renter in there asap, or list it on the market. I didn't know any of that 1.5 years ago (I learned this a few days ago), so now I'm scrambling to make a decision. Based on what I've learned so far from here and all my reading is that, though I hate to say it, selling is the way to go.

[MrRational]

Originally Posted by SunnyTXsmile

I signed the estate documents at the end of June...
and was told I'll have the deed in about 2-3 weeks once the estate lawyer files a few more documents

Go back to the lawyer to see if the house can REMAIN in the estate until sale.

Whichever costs less -the extra recording and transfer tax costs vs the other issues-
usually make the most sense but if the plan is to sell the property and quick...
see what he says and ask him to roughly describe the cost of the several choices.

[SunnyTXsmile]

Originally Posted by MrRational

Go back to the lawyer to see if the house can REMAIN in the estate until sale.

Whichever costs less -the extra recording and transfer tax costs vs the other issues-
usually make the most sense but if the plan is to sell the property and quick...
see what he says and ask him to roughly describe the cost of the several choices.

Good idea. Thanks!

I did call him yesterday to ask if the estate could acquire the property (a relative had suggested that). The lawyer didn't discuss the ramifications of that, but strongly emphasized that I didn't want to do that. He suggested I see if a relative would want to purchase it, since I really want to keep it in the family because it's been in our family for so long.

I didn't think to ask if the house can remain in the estate until sale. My guess is since he's already begun distributions, he'll say no, but it can't hurt to ask! Thanks for the idea!

[oneasterisk]

Sounds like you've made a decision. Not everyone wants to be a LL and I can't blame them, sometimes it's a PITA - LOL

Good luck!