Things to Consider Before Selling Your Parent’s Home
Once you’ve inherited your parents’ home, the prospect of selling that home can be overwhelming. It’s a whirlwind—mental, physical, and, of course, financial.
While the emotional attachment to your parents’ home can be strong, a recent survey by Charles Schwab found that almost 70% of those who expect to inherit a home from their parents plan to sell it. To most people, sentimentality simply isn’t enough to justify the expense of maintaining an inherited home or taking on the burden of becoming a homeowner. From property insurance to utilities to taxes, the sales economy is winning.
Here’s what to consider when you’re deciding what to do with your parents’ house.
Rising housing costs
As we recently reported , after several years of pandemic-driven price increases, home prices are still rising and the forecast suggests that these higher prices will remain. This appears to be the case, even amid widespread expectations that interest rates are unlikely to fall to their pandemic lows anytime soon.
Rising costs in the marketplace are a major factor for any heir making a decision to sell or not to sell. For example, according to The Wall Street Journal , the higher cost of insuring coastal homes in the Southeast in particular is pushing more heirs in the area to sell.
Inflation
Inflation makes everything harder and more expensive. It’s no surprise that renovating and maintaining old homes has become more expensive than ever. With that in mind, it makes sense for heirs to sell their parents’ home either to pocket cash or to buy new property, which can be cheaper to maintain and insure. On the other hand, if your parents’ house is fully paid and is in a strong rental market, it might make sense to keep it as rents are currently skyrocketing. Online tools like Zillow’s Rent Estimator can help you estimate what you’re likely to get in a given market, although it’s also worth talking to a local real estate professional who can give you the best guidance.
Even if rental income sounds attractive, keep in mind that becoming a landlord comes with a whole new set of financial risks and practical worries . At the very least, getting your home ready for tenants will cost you more than it did a few years ago (thanks inflation!). Speaking of which, if you’re looking to make repairs in this economy, here’s our guide to the most inflation-resistant home improvements .
Tax considerations
If you’re leaning towards selling, time is of the essence: The Wall Street Journal explains that the sooner a house is sold, the better you’ll be in paying taxes. Simply put: the sooner you sell the property, the sooner you can establish a new value base and exclude the property from your taxable estate. In this way, you will minimize any capital gains and limit the resulting tax risks.
bottom line
Unfortunately, the decision to keep or sell the parental home depends not so much on pleasant memories as on the state of the market. With mortgage rates hovering around 7% and the threat of an economic downturn lingering , it might be in your best interest to sell this house right now rather than maintain it.
To learn more, here’s our guide to handling your parents’ belongings after death.