Newbie With Inherited Property

Member since 2020 · 14 posts · 19 votes

I just inherited a house paid off worth 400k. How can I leverage that to make money and start an investment portfolio? It also seems like people put property in LLC's. I'm in California

Also recommended courses plz

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Travis TimmonsPro Member

Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes

11mo

If you inherited the property, I'd suggest selling it (with step up basis) pretty much tax free, toss it into an index fund, and forget it is there. The dirty secret that most people here don't want to say out loud here is that index fund investing returns the same or better than most real estate without any of the hassle.

Here's a fun stat - a 9% annual return, which is reasonable if you re-invest dividends, gets 8x your initial investment in 24 years. I don't know how old you are, how bad you need income, or any other factors, but you need to fight the feeling that you "need to do something with this money." Real estate is far more active and gives a greater sense of accomplishment, but the market is ugly right now. Unless you want to take on heavy rehabs or house hack, I just don't think that it is worth it. Even short term rentals don't actually cash flow in most markets...you can make it look good on paper, but end of year actual numbers do not cash flow until probably year 3. And even then, it's pretty meager. Take the tax free cash, let compound interest do its thing, and forget that it is there.

And don't pay for a course.

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Niko Rossley
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Member since 2020 · 14 posts · 19 votes
11mo
@Nicola Mislinski

Maybe I should take the 400k and put it on a 600k house. I'll only need to finance 200k. That's low.

Don't have a job but I do have savings and I can rent out a room until I get another job. I heard there's some loans with no job. Will I be able to-do this?

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Travis TimmonsPro Member
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
11mo
@Niko Rossley there are loans that will underwrite based on potential rents of the property, but you cannot live there. There are also requirements for cash reserves, credit score, and lenders usually like to see experience as a landlord.
The other thought that I would have regarding keeping this property as a rental is the exercise that I have always gone through when moving and deciding to keep my (former) primary residence as a rental or to sell it. If you did not own this property, would you buy it as a rental at its current market value? If the answer is no, then sell it.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
11mo
@Niko Rossley
You’ve inherited an excellent opportunity to build wealth tax-efficiently. With the stepped-up basis you can sell it now with little or no capital gains tax and reinvest in rentals, real estate funds, or syndications.

If you want to keep it, keeping it as a rental creates depreciation deductions to lower taxes. A HELOC or cash-out refinance can give you tax-free funds for new investments, with possible interest deductions if used for business.

This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.
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Fulton Abraham Sanchez
CPA| New Clients Welcome| 50 States · Member since 2016 · 435 posts · 93 votes
11mo
@Niko Rossley, hi. Congrats, that’s a powerful starting point. A few clear paths (CA-specific notes):

Rent it (LTR/ADU/Co-living): Convert to rental, take step-up basis depreciation, and consider adding an ADU to boost cash flow.

Leverage it: Use a HELOC or cash-out refi to fund your first duplex/4-plex while keeping the house.

Sell & redeploy: With a stepped-up basis, capital gain may be minimal if sold soon.

LLC? In CA, an LLC adds liability protection but brings annual tax and can trigger property-tax reassessment on transfer. Many start with good insurance/umbrella and add an LLC when scaling. Hope this helps!
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Kate Nixon Taylor
Lender · Cary, NC · Member since 2021 · 122 posts · 29 votes
11mo
Hi Niko,
You can definitely do a Heloc on the house to cash out some equity with minimal costs and use that cash to finance another property. I would be happy to help!
Lets connect!
Cheers, Kate
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Charles ClarkBusiness Member
Real Estate Broker · Milwaukee, WI · Member since 2020 · 306 posts · 209 votes
11mo
@Niko Rossley

Congrats on the inheritance — that’s a great starting point!You could rent it out, pull equity with a HELOC or cash-out refinance to fund more investments, or even sell and use a 1031 exchange to scale tax-deferred. As for LLCs, most investors hold rental properties (not personal homes) in LLCs for liability protection just keep in mind California's $800 annual LLC fee.

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Ken M.
Investor · Get yourself trained before doing something inadvisable. · Member since 2024 · 3k+ posts · 1k+ votes
11mo
Quote from @Niko Rossley:

I just inherited a house paid off worth 400k. How can I leverage that to make money and start an investment portfolio? It also seems like people put property in LLC's. I'm in California
Also recommended courses plz
Frankly, I would leverage it and buy outside of California, next door like Nevada or Arizona. Kind of like this

Are you new? Buying an "Off Market" property with "Subject To" and "Wraps" & Selling "Lease / Option"
When buying a property to cash flow, you need to know what your expenses are. The following is one I actually purchased in Phoenix that was a pre-foreclosure. The seller and I negotiated the terms. I did not offer a number to him, he told me what he needed. This first portion is the end result. The following portions are how we got there. Click on images to enlarge.
The house was not suitable for the MLS. The seller had waited too long to fix the problem and just wanted out. He said he needed $10,000 so he could move back to his home state. So, this is how we put the deal together.
First, you determine ARV (After Repair Value) so you can see if this one is actually worth buying. In this case it’s worth $245,00 fixed up.,(ARV).
You enter the Blue Numbers only, the rest are calculated. Enter the ARV (it's MLS value after it's all fixed up) on line 23, you get that number from looking at "comps". On line 24 you enter the payoff amount. We’ll take care of the arrears in a minute.
We always go through Escrow and Record, so we need to account for those costs. We Record because it’s the right thing to do and we want to know about any actions that come up against the property. Some people say don’t Record because of the Due On Sale clause, or to use a Land Trust to defeat the DOS which is bad information. If a lender wants to enforce a Due On Sale, a Land Trust violates the DOS anyway so it is ineffective in stopping the Due On Sale call.
Line 35 is always negotiable, but the seller needs enough to rent an apartment and move their belongs or they will become squatters which causes serious problems. There will be closing costs.
And of course, since this is a pre-foreclosure, the arrears have to be brought current.
Sometimes, a property will have a second loan or lien. Usually those can stay in place, but sometimes you have to pay those to buy the property. You can get the payoff amount from the lender. There is a specific process for doing that properly. If you are new, I would have someone help you with the process.

So, on this property, I paid line 37 $13,628 (which included $10,000 to the seller & closing costs $3,628), brought the loan current $10,597 line 48, took over the 2nd loan of $11,592 and took over the main mortgage of $118,145. I paid $153,862 and got a $245,000 property. But, I didn't need all $153,862, I only needed $24,225 to do so.
When you are new, looking for lenders & considering Fix & Flip, BRRRR, or rental, as a buyer, learn to ask the owner/seller to be one of your private lenders with creative financing. This works in Southern California (CA), AZ, WA, and GA & TX. Slight variations work elsewhere.

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Basit SiddiqiBusiness Member
Accountant · New York, NY · Member since 2015 · 8k+ posts · 3k+ votes
11mo
Do you like where the property is located? Would you invest in that area?
If not, I would sell the property and invest in an area where you want to invest in.

If you want to keep the property, look to do a cash-out refinance.
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Becca F.
Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes
11mo
I'm sorry about the loss of your family member. I agree with the points made by Travis Timmons, Dan H. and Allan C.
You don't mention your age or the location of the property. I'm going to guess that since it's worth $400k, it's not in the San Francisco Bay Area and another part of California. What's the condition of the home? Does it need repairs, a new roof, HVAC etc?
Since the house is in a senior living community, would you be able to move into it (if you're 55 or older), and house hack it (rent out the rooms)? What restrictions does this community have with renting it out or having roommates if you lived there (would the roommates all need to be age 55 and older)?
Levering this house to try to get $4000 in rental income will be really tough. Taking the step up basis and selling it to get the proceeds is a good idea.
My own thoughts about buying in the current market - I'm adding value to my Bay Area rental and investing in index funds. I don't plan to buy anymore more properties - I've poured enough money into out of state properties (bought in 2023), not worth the stress.
And don't pay for any courses or any real estate coaches/gurus programs.
I would take a lot of time to evaluate the suggestions given here and don't rush into a decision.
Feel free to DM me if you have more questions.
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