Inherited many rental properties. would sell or keep?

[retire to nature]

Hi, I have been the member of this site since 2018 because I wanted to retire early.

I am 42 female, divorced no kid but with 2 small dogs.

I was doing ok with my own money to plan to retire about 5 year later. I had 3 rental property and have a full time job. I thought it was too young to retire and afraid to get bored.

Last year, by an accident, my sister passed away. She was a flipper. she helped me to set up my rental properties, and now I am about to have her 8 more rental properties after probate.

now my full time makes gross 60k/y
rental income net 170k/y(mine and hers)
index fund 400k worth
no debt on mine but my sister may have to pay medical bill during probate.

total asset about 2 mil. property assets are 1.6 mil.

Sounds a lot and enough to retire now, but there could be some issue with medical bill on my sis.

I haven't started probate yet. so I am confused if I have to sell all property and retire with freedom.

1. I will quit my full time job and just manage properties(or management company).

2. I sell every things and keep the full time job.

3. I sell every things and quit the full time job (free of stress).

I am an RN with very easy position, so the activity gives preventive measure for dementia. haha. But it is still a full time job so want to have my own free time life too.

but I am afraid to be bored with number 3 option. But I am trying to buy a land and build a house and self sufficiency life.

I am also INTJ so solving problem was fun part. I learned skills from my sister so I was handling okay with rental properties.

Of course it is headache with handling bad tenants.

Also, I have very good tenants too.

so my probate plan was changing to titles onto my name to finish up probate soon because I have to handle 11 houses during probate. Later, when tenants want to move out, I would sell it.

But there is market could be bad later when I want to sell.

I live in Missouri for now. used to live in CA. So I know about market could be in my way.

I am also not sure about tax issue which way would be better. Selling all the property thru probate would save some money? or should sell cheaper to finish up the probate?

I am having too much thoughts disorganized so I am delaying to the end of probate but I really have to make a direction to go.

Please feel free to advise.

Thank you in advance.

 

[SumDay]

Very sorry about your sister. Tough stuff...

If you already are managing your own rentals, you are obviously aware of how financially rewarding (or not) and how challenging it can be to manage the humans that live in them (or not).

Do you like it, I mean really like it? I'm an ISTJ and also inherited property from my father when he passed. I was NOT in any way, shape or form cut out to do it. I've gotten rid of all but two, and am carrying the note for those folks so I don't have any maintenance - I just collect their house payment each month (or not).

Maybe owner finance a couple? If it were me, I'd get rid of every single one of them, but it sounds like you're far more patient and have more tenacity than I.

Who knows what will happen if (when) we have another recession. Real estate could be a great investment at that time (or not).

Again, sorry about your sister.

 

[Scrapr]

Don't take rental advice from me. I was terrible at the rental game.

I "think" you get a step up in basis on the properties. I don't know how the depreciation is handled (recapture). I suspect if the estate (probate) sells the homes that recapture would be in effect. However if the properties transferred after probate the new basis would be set. I also know that the IRS likes to get money. So I don't know how that embeded depreciation is handled

Frankly as a recent widower myself I would let things roll along for a while. I was in no shape to decide to sell our home or not. Sounds like you were close to your sister. Grief changed me. I would take your time on any big decisions.

 

[retire to nature]

Very sorry about your sister. Tough stuff...

If you already are managing your own rentals, you are obviously aware of how financially rewarding (or not) and how challenging it can be to manage the humans that live in them (or not).

Do you like it, I mean really like it? I'm an ISTJ and also inherited property from my father when he passed. I was NOT in any way, shape or form cut out to do it. I've gotten rid of all but two, and am carrying the note for those folks so I don't have any maintenance - I just collect their house payment each month (or not).

Maybe owner finance a couple? If it were me, I'd get rid of every single one of them, but it sounds like you're far more patient and have more tenacity than I.

Who knows what will happen if (when) we have another recession. Real estate could be a great investment at that time (or not).

Again, sorry about your sister.

Thank Sumday for your kindness.

 

[SumDay]

Frankly as a recent widower myself I would let things roll along for a while. I was in no shape to decide to sell our home or not. Sounds like you were close to your sister. Grief changed me. I would take your time on any big decisions.

I forgot to mention this. Don't do anything immediately. Your new normal in 6-12 months will feel very different than you do today. You may have a completely different perspective on things at that time. Good point Scrapr.

 

[retire to nature]

Don't take rental advice from me. I was terrible at the rental game.

I "think" you get a step up in basis on the properties. I don't know how the depreciation is handled (recapture). I suspect if the estate (probate) sells the homes that recapture would be in effect. However if the properties transferred after probate the new basis would be set. I also know that the IRS likes to get money. So I don't know how that embeded depreciation is handled

Frankly as a recent widower myself I would let things roll along for a while. I was in no shape to decide to sell our home or not. Sounds like you were close to your sister. Grief changed me. I would take your time on any big decisions.

My sister passed away in Aug, 2019 and having a trouble to start the probate so still haven't. So like you mentioned I spent some time to roll along, and my thoughts were wishy washy. She wanted to keep these houses and support my parents, so I was thinking not selling first. But my parent have enough money too, so I can sell if I want now.

Frankly, we were not close at all. But I know it was her achievement, so I wanted to keep those houses for her and I feel bad just make to cash, but it is now coming as burden to keep it. That's why I am asking here to make a better decisions.

I have been handling rental properties by my own, so it is okay. I am not good get a service so after researching about management companies I am still hesitate to hire a company to that.

On the other hand, I am maybe asking other people to persuade me to sell everything too.

My problem is just scared of making decision because it came too quicker than planned? and I am not sure if I make all the cash and then what to do with all the cash??

It could be another headache like after my divorce. So i found investment for rental property. if sell everything now back to the start. I know it is different situation with better numbers.

 

[nancyfrank232]

Hi, I have been the member of this site since 2018 because I wanted to retire early.

I am 42 female, divorced no kid but with 2 small dogs.

I was doing ok with my own money to plan to retire about 5 year later. I had 3 rental property and have a full time job. I thought it was too young to retire and afraid to get bored.

Last year, by an accident, my sister passed away. She was a flipper. she helped me to set up my rental properties, and now I am about to have her 8 more rental properties after probate.

now my full time makes gross 60k/y
rental income net 170k/y(mine and hers)
index fund 400k worth
no debt on mine but my sister may have to pay medical bill during probate.

total asset about 2 mil. property assets are 1.6 mil.

Sounds a lot and enough to retire now, but there could be some issue with medical bill on my sis.

I haven't started probate yet. so I am confused if I have to sell all property and retire with freedom.

1. I will quit my full time job and just manage properties(or management company).

2. I sell every things and keep the full time job.

3. I sell every things and quit the full time job (free of stress).

I am an RN with very easy position, so the activity gives preventive measure for dementia. haha. But it is still a full time job so want to have my own free time life too.

but I am afraid to be bored with number 3 option. But I am trying to buy a land and build a house and self sufficiency life.

I am also INTJ so solving problem was fun part. I learned skills from my sister so I was handling okay with rental properties.

Of course it is headache with handling bad tenants.

Also, I have very good tenants too.

so my probate plan was changing to titles onto my name to finish up probate soon because I have to handle 11 houses during probate. Later, when tenants want to move out, I would sell it.

But there is market could be bad later when I want to sell.

I live in Missouri for now. used to live in CA. So I know about market could be in my way.

I am also not sure about tax issue which way would be better. Selling all the property thru probate would save some money? or should sell cheaper to finish up the probate?

I am having too much thoughts disorganized so I am delaying to the end of probate but I really have to make a direction to go.

Please feel free to advise.

Thank you in advance.

Sorry about sis

Rentals with property management won’t take much time to manage. I wouldn’t consider taking care of rentals as something to do as it won’t take that long

Can you work part time? It’s something to do

Or you can just try not working and see how you like it? But you might get bored after a couple years

 

[Brat]

I suggest you find a good local estate lawyer to help you through probate. You need an accountant to sort out her final tax return. Were I you I would find a good local bookkeeper because keeping on top of the financials at the moment may be too much.

You will need to ascertain the market value of each property at the time of her passing as you will need to know the 'stepped up value'.

Were I you I would put in place a plan to sell each property and plan how you will invest it for income and growth. Determine if there are leases that you must honor. Ask the estate lawyer for the names of several local realtors and interview each.

Once a property has sold put that money in an investment account. Given the current market I would invest it slowly.

 

[Sunset]

OP - What your sister said she wanted to do, in no way determines what you should do with the inheritance. After all, if your sister truly wanted to support her parents, she would have made her WILL direct everything to her parents.

It does sound like you need to hire a lawyer (experienced in estates with rental houses) to get the probate part completed.
I do agree with earlier poster, if the houses are transferred to you, it may be tax free (basis on date of death) vs selling by the estate, but the lawyer will be needed due to the question of depreciation.

 

[steelyman]

You say you have some very good tenants. Once you have a solid idea of what you’ll be doing, try to keep them informed as it may affect them too.

 

[catii]

Unless you co-signed for your sister's medical procedures, you shouldn't be liable fo her debts. Check with your lawyer, & don't sign anything!

 

[pb4uski]

Welcome... and I'm sorry for your loss.

The real estate advocates on this forum probably won't like what I'm going to advise, but would sell at least some of them. As it is, 80% of your wealth is in real estate... I presume in residential properties in one geographic area. My worry would be lack of diversification. It would be like having 80% of your wealth tied up in a single stock or a single sector. If that geographic area has economic problems then a lot of your wealth could be under stress or wiped out. It is very hard for individual investors to achieve prudent geographic and property-type diversification.

I have a friend who had a lot of his wealth tied up in a commerical building in Flint, MI and when Flint had it problems a few years ago we was wiped out. Certain areas of the country have had issues with declines in real estate.... Detroit comes to mind and there have been others.

I think you should get a stepped-up basis from the properties that you inherit so if you sell the gain or loss and any related tax implications should be minor.

 

[The Cosmic Avenger]

Unless you co-signed for your sister's medical procedures, you shouldn't be liable fo her debts. Check with your lawyer, & don't sign anything!

Yes, she would not be liable, but the estate would be, so whether she sells the rental properties or not, creditors would be legally entitled to recoup the debts from the proceeds of the estate.

But you're right about the last part!

 

[Luck_Club]

Time to think

Hi, I have been the member of this site since 2018 because I wanted to retire early.

I am 42 female, divorced no kid but with 2 small dogs.

I was doing ok with my own money to plan to retire about 5 year later. I had 3 rental property and have a full time job. I thought it was too young to retire and afraid to get bored.

Last year, by an accident, my sister passed away. She was a flipper. she helped me to set up my rental properties, and now I am about to have her 8 more rental properties after probate.

now my full time makes gross 60k/y
rental income net 170k/y(mine and hers)
index fund 400k worth
no debt on mine but my sister may have to pay medical bill during probate.

total asset about 2 mil. property assets are 1.6 mil.

Sounds a lot and enough to retire now, but there could be some issue with medical bill on my sis.

I haven't started probate yet. so I am confused if I have to sell all property and retire with freedom.

1. I will quit my full time job and just manage properties(or management company).

2. I sell every things and keep the full time job.

3. I sell every things and quit the full time job (free of stress).

I am an RN with very easy position,

but I am afraid to be bored with number 3 option. But I am trying to buy a land and build a house and self sufficiency life.
.

Sorry for your loss. It must be especially difficult losing a sibling.

Tax wise. If you don't have one hire an accountant. I presume your sister had a CPA filing her taxes with that many rentals. Sticking with them will allow continuity and easy understanding of the financial picture and is probably the best way to proceed until the probate is closed.

Being an RN, do you work shift work in a hospital. If so as I understand it, you can usually take more or less shifts depending on your need for money. Being single with two dogs leaves a lot of time to fill not working. Unless you have a social Calendar that is busy then your work calendar, your going to be rumbling around in the house eating bon bons and watching TV all day long.

To keep and manage the rentals vs selling them and putting the money in the market. Tough call. As you are aware the rentals have great investment returns when using leverage. After they are fully paid for and the depreciation is gone, or you cant apply the passive losses against current income, the math changes.

Recently I began to pay off the debt on my rentals. It becomes a delicate balance between holding the rentals and selling to buy a dividend paying stock that is taxed at 15% vs 30%.

For example, I have a rental fully paid for that has rents of $17,400. Taxes are roughly $3600, and insurance is roughly $1100, water is roughly $400. So we'll call it roughly $12,000 after fixed costs. As long as no vacancies or unexpected expenses happen, that represents about a 6% return on the value of the house. When I bought the house I had roughly $400 a month cash flow with passive losses, as the tenants paid off the debt.

 

[Bamaman]

If your sister passed last September, you really need to get moving on settling her estate. Going through probate is essentially where a judge gives you, the executor, authority to sign for the estate in legal matters--including liquidating real estate. Of course the court wants to be assured you've paid all liabilities, especially taxes owed to the city/county/state/feds.

Remember that Federal income taxes on estates are higher than personal income taxes. For this reason alone, get moving on the probate now. I assume the estate has substantial rental income, and it may owe much more income taxes than you as an individual would owe. And there are other issues to address like unpaid social security taxes and other liabilities. You may also owe some penalties for non-payment of liabilities of the estate.

Step #1 is to get appraisals on all the properties so you can set the "basis" for information purposes. Then you'll better know where you should expect to clear if you decided to liquidate some or all of the properties.

Step #2 is to inventory all estate assets, checking/savings accounts and account for the income and expenses since last Fall for the rentals.

That many rental properties is a full time job. Are the properties where you live? Are they in good condition? Are you capable of doing basic maintenance? Are the lessee paying promptly? Do you have any problem lessees? What is the current retail market fo such properties?

Obviously you have many questions to mull over before going to an attorney. Since they charge by the hour, you want to organize and minimize time spent answering questions. And obviously you have some soul searching to do.

And the faster you get moving, the faster you'll get the estate settled. Unfortunately, I see a lot of office work in your near future. As far as continuing your job, RN's have many areas they can work in, and they can get out and come back to work later.

 

[CaliKid]

Technically you can't collect her rents until you go through probate and you certainly don't have standing to evict anybody from her rentals. I would get probate started ASAP!

 

[Joylush]

You have gotten some good advice! At age 52 I retired with 32 rentals. I’ve slowly started selling due to the seller’s market and not wanting to deal with new tenants. So down to 22 now.

I would have advised selling if you have no experience but it sounds like you do.

Make sure you have enough capital on hand to handle unexpected costs (if you decide to keep them). Things like roofs, water heaters, appliances, air conditioning/heating, garage doors, sewer lines, etc....

Reading your thought process I think you are pondering all the right things. But it is like having a job. Just that you are more-so working for yourself. As an RN you have a job which makes you very employable with part time options as well if you decide you want to earn a bit more or stay busier.

What I really liked was how thoughtful you sounded by recognizing your sister’s achievements and considering what she would like. I wish I had a sister like that. I hope to reduce my holdings significantly so my kids don’t have to deal with them. I’m not sure just because it’s my thing that it would be their thing. Taking your time and thinking it through is very wise.

 

[Katiek]

I would get with a good estate lawyer and start the probate process. Then you will get the information your need to make decisions, like what debt is on the properties and what expenses the estate may have.



Then decide what you want to do. Do you like managing your current rentals? Personally, I wouldn't like the responsibility, but other people really enjoy being in real estate. You have some idea what it's like from your current properties, but the workload could change a lot with the new properties.


Personally, I'd keep my full time job until things were sorted out a bit more. You may decide you want to sell some of her properties and keep others. It doesn't have to be all or nothing. Once you have a better idea of the workload and the revenue and what you want to do, you can decide if you want to leave your full time job.


So my suggestion is to get started quickly, but take your time and get all the information before making any final decisions. But decide what is right for you and don't feel obligated to do anything based on what your sister may or may not have wanted. I'm sure she wouldn't want anything to be a burden to you.

 

[retire to nature]

OP - What your sister said she wanted to do, in no way determines what you should do with the inheritance. After all, if your sister truly wanted to support her parents, she would have made her WILL direct everything to her parents.

It does sound like you need to hire a lawyer (experienced in estates with rental houses) to get the probate part completed.
I do agree with earlier poster, if the houses are transferred to you, it may be tax free (basis on date of death) vs selling by the estate, but the lawyer will be needed due to the question of depreciation.

we are originally from South Korea. my sister passed away by an accident, so there was no a will, which makes me more confused. She planned to keep these houses and planned to enjoy life, but I saw her working all the time.

Also, my parent has a rental property in their country, have seen stressful all their life too.

So that's why I am confused.

Now I live in MO, so probate is required to have a lawyer. The fee is set by law. And it has to go to be divided by me and parents. But it is gonna be international way and if it is go to my parent first and later inherited me back, S. Korea government takes a lot of inheritance tax. That's why I am taking all for now.

But it is just hard to find a good lawyer and some of them already didn't seem to be interested because of the number of houses.

 

[retire to nature]

I would get with a good estate lawyer and start the probate process. Then you will get the information your need to make decisions, like what debt is on the properties and what expenses the estate may have.



Then decide what you want to do. Do you like managing your current rentals? Personally, I wouldn't like the responsibility, but other people really enjoy being in real estate. You have some idea what it's like from your current properties, but the workload could change a lot with the new properties.


Personally, I'd keep my full time job until things were sorted out a bit more. You may decide you want to sell some of her properties and keep others. It doesn't have to be all or nothing. Once you have a better idea of the workload and the revenue and what you want to do, you can decide if you want to leave your full time job.


So my suggestion is to get started quickly, but take your time and get all the information before making any final decisions. But decide what is right for you and don't feel obligated to do anything based on what your sister may or may not have wanted. I'm sure she wouldn't want anything to be a burden to you.

Hi Katiek,

thank you for the comment. I guess I was doing good because it is what I have been doing right now. I will keep my full time job until probate is done at least.

Also, yes and no be in real estate business, but I have been handling alright.

I already too all management of her property, tenants are getting know about me and we are getting better relationship.

I am trying to prepare her tax for 2019, then I will get more details about depreciation and other expenses for each property.

Thank you for the advice.

 

[Brat]

we are originally from South Korea. my sister passed away by an accident, so there was no a will, which makes me more confused. She planned to keep these houses and planned to enjoy life, but I saw her working all the time.

Also, my parent has a rental property in their country, have seen stressful all their life too.

So that's why I am confused.

Now I live in MO, so probate is required to have a lawyer. The fee is set by law. And it has to go to be divided by me and parents. But it is gonna be international way and if it is go to my parent first and later inherited me back, S. Korea government takes a lot of inheritance tax. That's why I am taking all for now.

But it is just hard to find a good lawyer and some of them already didn't seem to be interested because of the number of houses.

Consider forming a family (you are a family of one) revocable trust with your parents as residual beneficiaries. You can send your parents $ in a reflection of your sister's intent while avoiding S. Korea inheritance tax.

 

[Starsky]

I'm very sorry for your loss. It sounds like there's a lot for you to deal with. A good attorney will make it much easier for you, and may also be able to help you minimize the medical bill issue.

I, too, inherited some properties from my family that we added to our own three rentals, and we used the extra income to retire immediately. No regrets at all! Transferring the deeds was very easy, once we knew what needed to be done.

Real estate is a nice investment to have thanks to the tax benefits of being a landlord. We use professional management and it is well worth it for us - especially since our properties are on the other side of the continent. It is a completely passive investment.

I especially like Real Estate because it automatically keeps up with inflation, something my IRA doesn't technically account for. The increase in property value usually offsets any extra cash requirements for the year, so our net worth only gets larger. Before you make any decisions to sell, check the ROI on your properties to see what kind of return you would be giving up. Your market sounds excellent - all markets are different. If you can make $170K a year on $1.6M in property, that's an exceptionally nice return (plus potential appreciation in property value). Ours is closer to 4% net.

As an RN, you have a great opportunity to setup a part-time schedule that probably pays quite well. It's a very in-demand skill that could allow you to set your own work schedule and be semi-retired until the day you decide to stop entirely.

Not everything is an urgent decision. Take it slow, you are in total control of your future. Remember to treat yourself with the patience and kindness you deserve right now. It might be a great time to take a week's vacation to take care of yourself and gather your thoughts. Good luck and God Bless!

 

[retire to nature]

OP - What your sister said she wanted to do, in no way determines what you should do with the inheritance. After all, if your sister truly wanted to support her parents, she would have made her WILL direct everything to her parents.

It does sound like you need to hire a lawyer (experienced in estates with rental houses) to get the probate part completed.
I do agree with earlier poster, if the houses are transferred to you, it may be tax free (basis on date of death) vs selling by the estate, but the lawyer will be needed due to the question of depreciation.

Hi Sunset,

Thank you for the advice. I will research about the trust.

My problem is my parent has about 400k cash in the bank + rental property. In my opinion, they better to spend that first and spend money from trust. To me it is hassle to wire money caring fee and currency.

Also, But they are old people, so don't understand how to saving money tax wise. And, I don't like them to be stressful about investment.

They don't get banks take a service fee. So Bankers ask them to open and close stuffs much. So, it is not profitable either to them.

So my advice to my parent is to spend their money first, when it gets short I will pay for their expenses. It will save inheritance tax(could be up to 50% of asset) when they die too.

Am I doing in the right way??

 

[retire to nature]

Remember that Federal income taxes on estates are higher than personal income taxes. For this reason alone, get moving on the probate now. I assume the estate has substantial rental income, and it may owe much more income taxes than you as an individual would owe. And there are other issues to address like unpaid social security taxes and other liabilities. You may also owe some penalties for non-payment of liabilities of the estate.

Hi Bamaman,

Thank you for the comment. I have done a probate for my ex father in law. I did it by myself, so I know some about probate. I guess I am pretty top of things what you advised about management the properties.

However, I didn't get the comment about "some penalties for non-payment of liabilities of the estate"

Can you or anybody explain about that?

Thank you in advance.

 

[ILikeStarTrek]

Like others have said, if you inherit the properties, you will get a stepped-up basis in house value, so if you sell them later you'll only have to pay taxes on any increase in house value between the date you inherited and the date you sell. So there is no reason to delay probate, but go ahead and get through the process, and if you do end up deciding to sell the houses you can do it after probate. Unless you need to sell a house to have enough money to pay the medical bills, you should try to keep all the houses.

Beyond that, much of the answer to your options depends on not just on numbers but on what you *want* to do. You have said, "yes and no be in real estate business, but I have been handling alright." Many people don't like being a landlord, but if you are okay with it then it does come back to the numbers.

If your numbers are accurate, then from a fellow landlord, I must say that your annual return from net rental income is really good - better than mine is! $170k net rental income / $1.6 mil in real estate assets = 10.6% annual cash flow. If your properties also appreciate in value at ~3% (inflation rate), that's a total return of 13-14%. Nice! (The appreciation doesn't help your annual cash flow, but if you sell the properties down the road when you are older, you will eventually get that extra money.)

If you were to sell these properties and invest in the stock market, even with an aggressive asset allocation you would be very unlikely do better than 8-10% average total return. And your usable cash flow annually (aka the suggested safe withdrawal rate) is no more than 4%, or about $64,000 from $1.6 million in assets. That's about as much as your RN salary, but it's nowhere near $170k. So you are doing much better financially with your houses than you would be if you sold them and invested in the stock market. If you decide based on the numbers, you should settle in and keep renting these houses for a long time.

Since you are accustomed to living off $60k salary plus 3 rental houses (which would be about $46k, assuming all the houses have about equal net income), so about $106k total income, and now you will have $170k just from the rental income, you can easily quit your RN job unless you just want to keep working because you are bored. (But if that's the case, I suggest hobbies!) Quitting your day job would also give you more time to manage the rentals. And you should use part of your higher income and invest it in liquid assets (though you are doing great with the rentals, it doesn't hurt to diversify with additional funds), to build even more wealth in general.

I agree with what others have said that you shouldn't be hasty in your decisions. Some have already suggested that if you have the option as an RN to do different shifts, you should try decreasing your hours gradually. Take a few months or even a year and make sure you like the path you are on before you quit the day job completely.