Should I keep or sell my dads house from probate with $200k in equity?

Question

My dad passed and I'm the administrator of the estate. It's a nice 4/2.5 about 1,800 sq feet in Las Vegas, NV and looking at comps values around $425-$450,000. The mortgage is currently $1,750/month with a remaining balance of $250,000 so $200,000 in equity. I could sell the house to pay off all of his debts, recover the $40-$42k I have into it, and be done with maybe $20k on top of that for $66k total. Then, come October I'd have saved about $120,000.

Alternatively, I could dump another $46,000-$66,000 into it and have $30k-$40k banked but assume the current mortgage and payment and continue on. I'd live in it a few months until I could get a HELOC of $100-$150k, use that for a down payment on an FHA multifamily to househack, rent out his house, put a down payment on an STR that I really want, finish my commercial pilots license, and hopefully have enough cash reserves to where I don't have to work so much overtime and I can focus on doing fix and flips and using my RE license to help buyers/sellers.

I'm not sure what is the best route to set me up for REI success here; but for sentimental reasons and to give the bird to everyone who said I'd never be able to come up with enough money fast enough for probate I'd like to keep the house. However, every rental calc I plug in shows this property to be a loss monthly of about $100. Honestly, I'd be alright with that but this is a great mortgage and equity so I'm not sure how it doesn't cash flow at all.

House:
https://www.zillow.com/homedetails/7319-Pepperbox-Ave-Las-Ve...

Jason Eyerly · Answer

My license is long expired but I'm in the process of grinding Kaplan videos so I can restart. I've been away for ten years and BP has evolved significantly (and published a lot more) since then!

Jaron Walling · Answer

@Jason Eyerly At first glance I miss read your post which lead me to believe you truly had $200k in equity. You stated you could "sell the house to pay off all his debts". What would you walk away with if you sold it for $425k? The choice sell or buy (basically what's happening here) your dad's property comes down to a couple things.

1. What is your current living situation? Is buying this house cheaper than where you live? If so a cheaper mortgage is a blessing. Getting into nicer sized property in Las Vegas for $66k is probably unheard of assuming a low interest rate. You didn't mention the rate.

2. Stepped up basis. When you inherit property, the cost basis for calculating future capital gains is generally "stepped-up" to the fair market value at the time of the original owner's death. This can significantly reduce capital gains taxes if you decide to sell. This not something to take lightly if you have hundreds of thousands in equity AFTER paying off his debts. It's a generational wealth tool built into our tax code. Take advantage of it if you can. If you're happy with your current living situation you could throw that money into a HYS, low risk, low return account, or even the stock market while you finish the pilots license.

3. You're training to be a pilot. My younger brother is doing the exact same thing. That should be your #1 priority right now. Accruing those flight hours! It's a long grind but commercial pilots make a killer income. That income will fuel your future REI journey. Buying an STR, flipping RE, or doing risky deals should be lower on the priority list.

4. Inheriting a house, holding, and loosing money as rental is a terrible idea. If you live OOS it's even worse.

You're in a great place. I'm sure other investors will chime in. Cheers.

Bruce Woodruff · Answer

If the monthly NET profit is truly -$100 (I would bet that it's actually less than that), then I would sell and move on. UNLESS.....you can see a serious amount of appreciation coming up in the next 5 years or so. Like enough to double the value......?

Jason Eyerly · Answer

Well, the problem is I don't know how to get an accurate estimate. Given that this mortgage is much lower compared to most folks, I can't imagine it'd be at a net loss otherwise there would be no rentals. I could always refinance to get the payment lower. I think the best bet honestly is to takeover the mortgage, stay there for the next few months, and then look at a heloc/cash out refi to get further REI funds out of it. HELOC is ideal because it wont' inflate the mortage payment and make a profitable rental less doable. I'm also curious to see what PriceLabs, not AirDNA say about it as a STR. At least with this approach, I can choose to sell on my own terms. However, if it's a loss of $-100 with CapEx and everything included, that's a small price for me to pay to build equity and keep my dads house. Also, it's Las Vegas. Location, location, location. Appreciation (excluding economic catastrophe) is always there and I don't worry much about losing 100k in equity overnight. Plus, if it's a long term hold c'est la vie.

Stephen DeThample · Answer

Sorry for your loss. It’s a big decision. Since you’re a real estate agent, you know your options. Just make sure to run the numbers and think long term.

Jason Eyerly · Answer

The pilots license is in the works but it's lower priority as I already have a solid career in Healthcare as a flight Paramedic / RN, and in 18 more months, nurse practitioner. I've kept my career options diversified and I'm glad I have because Healthcare burnout is real.

The interest rate is 4.5%. However, it's an ADDITIONAL $60k. I'm already $40k into the estate. I don't want to live in Vegas. I'm in a MTR right now in Wichita for work but plan to go back to South Carolina. I want to find a renter for it, cash out refi/heloc, househack, etc. I will have the house with $200k in equity but that's after I put $100k into paying his debt.

Should I keep or sell my dads house from probate with $200k in equity?

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