You’ve inherited a house. What good luck! Now you can finally start investing in property without all that pesky capital! Right? Whoa! Not so fast. Just like any investment, never just jump in blind. You need to assess the investment from all angles. As with anything, if the liabilities outweigh the assets, it may not be the windfall that you perceive it to be. Here are some basic factors you should consider.
Is there a mortgage on the property?
If so, will you be able to recoup the payment, property maintenance, taxes, and insurance and still make a profit? Are you planning on turning it into a rental? If so, you will need to refinance in your name, so figure in closing costs as well.
Speaking of maintenance, how much should I allow?
One expert says you should allow 1–2% of the home’s value per year for maintenance. So if the house is worth about $150,000, count on $1500 to $3000 per year or $125-$250 a month on average just for maintenance. You’ll also want to consider hiring a professional property inspector to check out the home’s major systems to identify major repairs that are lurking just around the corner. On the other hand, repairs and maintenance on a rental are tax deductible, so that could be a little perk come tax season.
What kind of insurance will I need?
If you are planning on living in the house, of course you will need a homeowner’s policy, but if you are planning on renting, then you will need landlord insurance. Not only will this cover the building itself, but it will protect you from potential liability and property damage caused by tenants.
What are some other expenses I might be forgetting?
When you inherit a house, it will be necessary to have the property taxes reassessed. Remember, rentals are not subject to Louisiana’s Homestead Exemption, so they will be higher than what you may be paying for the home you are living in. Another hidden expense can be homeowner’s fees if the property in question is a member of a homeowner’s association. Especially for condos, these can be surprisingly expensive.
Is there an easier way to do this?
Absolutely! We here at Martin Presence are your one stop experts on all things real estate. We offer free real estate investment coaching and planning. We will help you assess your property and help you make realistic and obtainable investment goals. If you decide that turning your inherited property into cash is the way to go, we can help you do that, too. Call us today!