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Thinking Is It better To Sell Or Rent An Inherited House?

If you inherited a property along with your siblings, it is obvious that you have the choice of either buying the property out of your estate or letting one of the heirs purchase it. If you decide to sell it, the market value at the time of the sale can be divided proportionally amongst the family members. 

It is not easy to determine if it will be profitable to sell the inherited property or to acquire and then rent it out in Canada. In this article, we tell you the major pitfalls so that you can decide whether ‘is it better to sell or rent an inherited house’. At the end of this, you should be in a good place to decide. 

A lot many people prefer income from rent:

At the outset, purchasing property and renting it out may seem like a great idea. People have two good reasons to choose this. One is that the tax liability on the rental income is way lower than on their earned income. The second reason is that it gives them a good source for earning passive income. 

When you earn an income from your job, you pay taxes which are insanely of high amounts and other social security schemes. The best thing about passive income, like rental income, is that it is subjected to a negligible tax amount. 

Here is how you can determine if the property is a good rental opportunity? 

There are two acid tests to determine if the home you inherited will be good real estate investing for you, and if you should go ahead and convert it into a rental property.

–         The 1% rule

This is a simple rule that propagates that the monthly rent of a home should come to at least one percent of the total value of your purchase price of the property. For instance, if the inherited home’s purchase price is $350,000, then the monthly rent derived from it should be a minimum of $3500.

–         The 50% rule

The 50% rule states that the cumulative value of the repairs carried, property taxes, insurance, and management must add up to 50% of the rental income. This percentage is flexible and can heavily depend on the house’s condition and the amount of maintenance it requires. The percentage also depends on the neighborhood. 

If the property you have inherited ticks both the tests, you may want to purchase the home and convert it into a rental property.  

But there is a flip side to purchasing the inherited property and renting it out: 

The risk with tenants: 

Tenants are a wager. A good tenant is a god sent, but a bad tenant can make you hate your property. The best way to filter the bad tenants is to mindfully screen applicants. A good landlord who fixes problems and addresses complaints rarely has a bad tenant. There we said it! 

But tenants can be downright horrific!! For instance, tenants may tear apart property and report landlords for habitability issues. They can even stop paying rent prompting the landlord to start the eviction process. And if all this isn’t enough, they even sabotage the property while leaving. It is sad but true in lots of cases.  

You cannot rent and forget:

No tenant is going to look after a rented abode like his own home. That is precisely why you will realize that the expense on your rental property will far exceed your primary residence. 

Appointing a property manager will do a world of good because if you do not keep a tab on the property, you can expect to have some of the worst, some of the most comprehensive of repairs waiting on your rental property.


Accounting for depreciation to later pay capital gains tax:

Depreciation works best for the landlord because it allows him extra tax deductions. It is not even important for the landlord to have spent that money on the repairs in the first place. 

However, these deductions for such expenses as replacement of the roof or installing new doors and windows need to be spread over the years. This system is called capitalization. In the simplest of terms, repairs can be deducted in the same year, but any improvement must be spread compulsively. 

Inherited a home, but should you sell it?

You may still have your reasons to sell the inherited property like

  • If you already have been a landlord and you do not want to have any more tenant hassles, you can even choose to sell the house. 
  • You find the capital gains exclusion very troublesome, and so you choose to turn it into a vacation home for all the stakeholders collectively. 
  • If you live outside of that area. 
  • You are a family that has inherited a house with too many repairs to be profitable at all
  • There are too many heirs to the inherited property, and they are waiting to have the cash flow as soon as possible
  • Any one of the heirs wants to purchase the property, and the others decide to give him peremptory right. 

Do you co-own an inherited property in Canada? Are you confused about is it better to sell or rent an inherited house? Contact us today. With our rich experience in Canada’s real estate market, we have helped many families make the right decision on their inherited homes. We also buy homes for cash. No lengthy waiting and no processing red-tapism, we promise. Quickly fill-up the form given below or call us directly on the phone numbers here. 

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