Buy out co inheritors VS sell single family home
Hi all,
Just joined and this is my first post so appreciate any guidance if I didn't do it properly. I'm looking for guidance on whether or not to buy out co inheritors of a single family home vs just selling the property and being done with it. I've never done any form of real estate investing before and think there is a lot of potential in my region but obviously also risk. Here is the relevant info I can think to include but please let me know what else is needed. I didn't know this community existed until recently and the advise I have gotten on other forums seems inherently anti real estate investing and a bit confrontational, honestly. I appreciate any assistance.
Inherited home with two other people, each own 1/3
Appraisal home value: $1.1m
Local real estate: could sell for $1.4-$1.5 today
Family to sell to me for $600,000 ( I know this is a steep discount, it was not my price, this is what they are offering to me as younger family member that whey want to help)
Trying to decide to just sell the home, take the approx $450K (approx amount minus realtor fees) and likely use that money as a combination of long term investment in S&P, kids college funds, home improvements, fun stuff, etc VS buy home from them and use as a rental. In my area this could include yearly rentals vs taking advantage of the summer seasonal rental market.
Would take out a mortgage for the $600K buy out value so as to maximize leverage and not need to use my own funds. Between mortgage principal and interest, property tax, landlord policy would be approx $4800-5000 a month. Rentals in the area for all year rental of $6000 a month with potential for $6500/month. Could also take advantage of the location and use for seasonal rental, which may be more profitable but is more work.
Prior responses have included responses such as "would you buy this home to use a rental if it wasn't part of an inheritance?" the answer then and now is the same: I would not be looking for a rental home, it is just a great opportunity that came up. Many people have also said to just take my portion and invest it, but my calculations show that a $1.4M appreciating asset (of which I would have approx 800K in equity from day 1) is going to greatly outpace a $450K investment in the S&P over a 10-20 year time horizon.
Real estate in this area tends to outpace the national average for appreciation due to its seasonal desirability on Long Island. In a year or so if being a landlord is the worst decision of my life I can sell and come out ahead of my share if we were to sell today.
Please let me know whatever else is needed to make an informed decision and to help me decide as much as possible.
Most Popular Reply
#2 Real Estate Success Stories Contributor
- CPA, CFP®, PFS
- FL
- 3,633
- Votes |
- 5,161
- Posts
#2 Real Estate Success Stories Contributor
- CPA, CFP®, PFS
- FL
Louis, I’d look at this as two separate decisions: Is this a good rental on its own? And is keeping this much equity tied up in one property the best use of your money?
The $600,000 buyout price is attractive, but the monthly spread is tighter than it first appears. At $6,000–$6,500 in rent against roughly $4,800–$5,000 in mortgage, taxes, and insurance, you have about $1,000–$1,700 left before vacancy, repairs, maintenance, capital expenses, management, utilities, and seasonal turnover costs. That doesn’t automatically make it a bad deal, but I’d want to see the true net cash flow before counting on appreciation.
I also wouldn’t compare a $1.4 million property directly with investing your estimated $450,000 share in the S&P 500. By keeping the property, you’re also giving up the cash you could receive today and taking on a $600,000 mortgage. A better comparison would be the projected return on your equity under both options after expenses, taxes, selling costs, and the time involved in managing the rental.
The tax side needs to be mapped out before the family transfer. Your inherited one-third interest generally receives a basis tied to the property’s date-of-death value. The additional interests you purchase may have a different basis, and buying them well below fair market value could make part of the transaction a gift, which may affect both basis and reporting.
Before deciding, I’d confirm the date and purpose of the $1.1 million appraisal, get realistic long-term and seasonal rental projections, price out repairs and reserves, and have a CPA and estate or real estate attorney review the buyout structure. How long ago was the inheritance appraisal completed?
Happy to connect!
- Ashish Acharya
- [email protected]
- 941-914-7779
