Have you recently inherited a house? 

Maybe you sense that you’re supposed to be excited about this, but you’re not exactly sure what to do next. Should you sell it? Move in? Rent it out? 

All excellent possibilities. 

Emotions can impact your decision-making process, here. After all, you’ve received a valuable asset in one of the most competitive real estate markets in the country. But you’ve also likely lost someone important, and now you’re navigating a complex legal and financial process during an emotional time.

We can’t tell you what to do. But we can help you understand your options. 

Quick Overview: You can move into the property if it’s in your preferred location and the cost of living in this home is lower than what you’re paying now. You can sell the property, giving you some financial capital that’s liquid. You can rent out the property, establishing long-term wealth, and ensuring short-term rental income.  Always examine the tax and legal implications of each choice.  Talk to experts who can help you understand and navigate the process.

Understand the Legal and Financial Landscape

Once the dust settles and you come to terms with the inheritance of a property, you’ll have to examine the legal and financial implications of this situation before you even consider making any decisions. Take time to understand the legal status of the property and what it means to now own it. 

1. Has the Property Cleared Probate?

Unless the home was held in a living trust or was passed through joint tenancy, it may need to go through probate, which is a court-supervised process for distributing assets. California offers a simplified version for estates valued under a certain threshold, but larger properties may require a full probate process, which can take months or longer. We have talked about the importance of including all properties in estate planning. It has an impact on how quickly and efficiently things move once the estate is settled. 

2. Follow the Title Transfer Process and Get to Know the Property Taxes

Once the legal process is complete, ensure the title is legally transferred to your name. California’s Proposition 19, passed in 2020, changed how inherited properties are taxed. If you don’t plan to live in the home as your primary residence, the property may be reassessed at current market value, which could result in higher annual taxes. This is crucial when evaluating affordability if you’re considering keeping the property. Having a good tax attorney or CPA at your side can help you understand what the tax implications or benefits might be depending on your situation and your plans.

3. Evaluate Outstanding Debts or Liens

Inherited properties don’t always come free and clear. While the best-case scenario is that you inherit a house with the mortgage paid off, that’s not always the case. You may inherit unpaid property taxes, mortgages, or other liens. Clarify the financial obligations attached to the house by reviewing title documents and consulting with a probate or real estate attorney.

Options: Living in the Inherited House

As you get the legal and financial paperwork moving, it’s time to think about what you’ll do in this property. Your first option, of course, is to pack up and move in. This could be especially attractive if you’re not in love with where you currently live. 

Moving into an inherited property may be appealing, especially if it’s in a desirable location or holds sentimental value. Here’s what to consider:

• Emotional Connection. Living in a family home can help preserve memories and a sense of continuity. If you’re nostalgic, this might be a dream come true. 
• No Rent or Mortgage. If the house is paid off, your housing expenses could significantly decrease. Even if the house you inherit isn’t paid off, it’s worth comparing what the costs of that home might be compared to your own. Is there an opportunity to save money by living there?
• Tax Benefits. Under Proposition 19, if you make the home your primary residence within one year of inheritance, you may avoid property tax reassessment and keep the lower tax base.
• Renovation Costs. Older homes may need significant repairs or upgrades to meet your needs. Is this home older? Deteriorating?
• Lifestyle Match. The inherited home may be far from your work, family, or personal network. Moving into it may require a serious upheaval.

Living in the property makes the most sense if you plan to stay in the area long-term, you’re looking for a home and the property suits your needs, and if you can handle ongoing maintenance and expenses.

Options: Selling the Inherited House

There’s also the option of selling the property, especially if you know you don’t want to live in it. Selling is often the most straightforward route, especially if you live out of state, have no interest in managing property, or would prefer liquid capital to a tangible asset.

Some good reasons to sell the inherited property include:

• Immediate Cash. Assuming the market cooperates, and your property is attractive, you can use the funds to pay down debt, invest, or make major life moves.
• Simplicity. You avoid the responsibilities of being a landlord or homeowner.
• Stepped-Up Basis. For tax purposes, the property is valued as of the date of death, minimizing capital gains if you sell quickly.

But, selling could present emotional difficulties, especially if it’s a family home. Letting go can be tough. It’s also important to study the market. You may not get top dollar if the market is slow. There are also selling costs to consider. Agent commissions, repairs, staging, and closing costs can eat into profits.

We think selling is a good option when you know you don’t want to keep or maintain the property and you have financial goals that could be achieved with a lump sum. 

Options: Renting Out the Inherited House

Turning the inherited home into a rental property can create a long-term income stream, which is attractive for both short-term cash flow and ROI over time. This is especially attractive in California, where rental demand is consistently strong and assets are rising in value. Entering the California real estate market can be prohibitive thanks to high prices. When you inherit a home, you’re given a bit of an advantage.

By renting out the home, you’ll have recurring and consistent income. Steady monthly rent can help supplement your income or fund other investments. Real estate in California tends to appreciate over time, building equity while you earn.

Tax deductions are attractive with rental homes as well. Mortgage interest, repairs, property management, and depreciation may be deductible.

Renting out a home is not for everyone. There are landlord responsibilities that come with this option. Managing tenants, responding quickly to repairs, and complying with California’s strict tenant laws can be stressful and time-consuming. You might find yourself getting frustrated with the wear and tear that can occur in a rental property. Also, by renting out the home, you’re not living in it, and that can trigger a reassessment at market value. 

But, you can hire a property management team to take care of the day-to-day leasing, rent collection, and maintenance tasks. If you’re willing to invest in this property that you inherit, you’ll find long-term wealth is easy to build when you rent out a home. 

Taking a Long-Term Perspective

California real estate is a high-value asset, and decisions about what to do with an inherited home should factor in its long-term potential.

• Appreciation Trends

Historically, Northern California property values increase over time, especially in urban and coastal regions. Even during market dips, long-term holding often results in strong equity growth.

• Cash Flow vs. Capital Growth

If the property is in a location with high rental demand, you may generate solid cash flow. But in other areas, capital appreciation may be the bigger opportunity. Your decision should reflect whether you need income now or wealth later.

• Lifestyle and Legacy

For some, the home might be part of a future retirement plan or a property to pass down to their children. For others, it may serve as an investment stepping-stone to a broader real estate portfolio.

Once you’ve considered your options, take these practical steps:

1. Get the Property Professionally Evaluated
2. Assess the Condition of the Home
3. Consult Legal and Financial Experts

A probate attorney, tax advisor, and possibly a financial planner can help you make sound decisions based on your unique situation. Talk to a professional property manager so you know what kind of rents you can expect if you do decide to rent it out. We can help with this, and we can also tell you what you’d have to expect in terms of maintenance, vacancy, and tenant interest.

There’s no one-size-fits-all answer to the question of what to do with an inherited home. It depends on your finances, goals, location, emotional ties, and willingness to manage a property.

In a state like California, your inherited home could be more than a sentimental asset. It could be a powerful tool for securing your financial future. Whatever path you choose, we are here to support you. Contact us at Redwood Residential Property Management.