Inheriting a Property: Rent or Sell?

2 Replies

I'm just starting this path towards real estate investing and already I'm faced with a huge decision to make: do I rent out the family home that I'm inheriting from my grandfather (after I buy out his two kids) or do I just sell it, give them their shares, and pocket the rest?

For some background information, I was originally intending on living here forever in Southern California. Like I said it's my family home and I grew up in it. I thought it was perfect, but my wife and I have made the difficult decision to pack up and move out of state in a year or so. I'm co-trustee on the house (1959 ranch style, 2265sqft, 4bed/2.5bath, large pool) with my grandfather and when he passes I'm also the executor so it's my responsibility to ensure that his two kids get $100k each. The house is roughly estimated to be valued between $600k-650k. Rents in the area can reach upwards of $2850/mo according to comps I asked a local property management company to collect for me. Obviously it might be less than that, but let's say it's on the low end at $2500/mo. After running everything through the BP calculator the numbers just don't look that promising. I guess I wasn't expecting it to hit the income so significantly. Can you take out a loan against a house that's paid off for another 30 years? If so, then the cash flow is only $198/mo. Sure it's being paid off by someone else, but for 30 years? 

Which is the better path to creating positive cash flow and financial decision: to buy out the two kids after selling and use the proceeds to purchase more rental units, or hold onto it and rent it out regardless of how little cash flow it's making at first?

Maybe I'm missing something that would make this a great deal, but from where I'm standing it seems like the decision to sell has already been made up for me. Help!

You may be better off selling and using the profits of the inherited property to purchase a couple properties where you plan to move. If you try to rent your grandfather's old property, there is a likelihood your choice-making will be clouded by emotion: the property has been in the family. Emotion is a great help, but being constantly pestered by it definitely harms.

Also, spreading the risk across a couple properties should provide a touch more security. Imagine if the inherited property were used as a rental and it sat vacant for a few months. That would be a major burden. Now imagine buying two $150k rentals in a lower-priced market. One sits vacant for a few months but the other has a tenant.

Sounds to me like your reasoning is on the right track. Best of luck!