Inherited many rental properties. would sell or keep?

[Brat]

Quote:

Originally Posted by retire to nature 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]

Quote:

Originally Posted by 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.

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]

Quote:

Originally Posted by Bamaman 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.

[truenorth418]

If you inherited the equivalent value in cash, would you immediately go out and purchase rental properties?

If not, then what would you do with the money?

Answer these questions and you will know whether to sell or keep your rental property inheritance.

[Bamaman]

Quote:

Originally Posted by retire to nature 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.

What I was meaning is that estates are taxed differently than an individual--higher tax bracket. You would essentially need to have two sets of books for your sister's income--before death and after death. The estate would need to have a second tax ID number established by the IRS for after her death. Income tax returns would need to be done for your sister and a second tax return for the estate. Failure to file taxes might incur stiff penalties by the IRS. And unless you've been paying other estate liabilities like property taxes promptly, penalties may be assessed. And like I said earlier, property appraisals and information on her other assets and liabilities are required.

But the first task would be for you to get an attorney file with the probate court and have the judge establish you as the executor of the estate which authorizes you to pay bills and take care of day to day business. You may have birth certificates, etc. to prove you are related and are her sister.

The lack of a will indeed complicates matters, and probating her business may be time consuming for an attorney. Fortunately, state laws do cover such matters, but unfortunately state courts often want more than their fair share of the estate too.

Good luck on this one. You really need an attorney that you're comfortable with. This could be a complicated matter to get settled.

[Retired Expat]

Rental properties can be sold and reinvested under the IRS 1031 code. If too much of a hassle consider sale and reinvestment in better, newer, more maintenance free or just closer together properties (small apartment house or commercial). Do it after the estate settles and property is in your name.

RE is great but you might want to diversify a bit too....

[ILikeStarTrek]

Quote:

Originally Posted by truenorth418 If you inherited the equivalent value in cash, would you immediately go out and purchase rental properties?

The phrasing of this question is slanted in one direction. To "go out and purchase" rentals implies doing all the effort of researching, buying, rehabbing, and getting tenants for rentals. It's a significant amount of effort, and that effort alone might dissuade someone from buying rentals, especially eight of them back-to-back. In fact, I personally have about this many rentals of my own. I've had them for several years and I'm happy I have them. But if I didn't have my rentals and instead I had the equivalent in cash, at this point in my life I don't think I would want to do all the effort to go out and buy them from scratch. But given that I have them, I don't want to sell them either.

I think a more balanced way of asking what you are trying to ask is, if you were given the choice of having these houses given to you (with the tenants in place, etc) or having the cash given to you, which one would you rather have?

[retire to nature]

Thank you for everybody's replies,

I guess I was doing well on managing the properties. My concern was resolved with learning up the step up basis.

I am planning to keep all those houses and sell it when the tenants want to move out. Or I may be better later to keep going on.

My RN job was no stress but business was a bit stressful. Actually, I had to go to ER couple days ago because I had sister's tenant couldn't pay rent and moved out.

Maybe I am more stressful because I don't have the authority. Possibly, everything is on my name it should be better.

I am really glad and grateful that I know this site and could ask it here.

Thank you very much all of your helps!!