Estate Inheritance w/ 2 Homes

[Brendan M Hornung]

Hello BP,

Someone I know recently inherited two homes through an estate inheritance. One property is rented with a tenant in place, and the home in Riverside, CA is the home of the person who passed. This post is regarding the Riverside, CA home. It is a 3/2, roughly 1750 sq ft, and on a small lot so there is no chance to build an ADU. The current mortgage is $1,000 per month at 3.8%. Rent is estimated at $3,000 per month and the home is roughly valued at $625,000. It was built in the late 1920s but in relatively good condition. Could use some cosmetic updates throughout and the rehab estimate would be about $40,000. Comps run about $650,000 - $675,000.

My questions to you: What is the best exit strategy? Would it be worth it to rehab if we sell it or rent it?

Option 1: Keep the home and rent it and cash flow about $2,000 per month while it appreciates.

Option 2: Sell the home and cash out.

Option 3: 1031 exchange the home into 4-6 units in Knoxville which would be about the same value.

More info: Riverside as you all know is a great appreciating market but not landlord-friendly being in CA. Knoxville is in the top 10% of appreciating markets with an average appreciation of about 9% per year. I also have heard that if you sell a home that is inherited through an estate you are not taxed. Is this true?

Thanks, BP fam!