Inheriting a Rental Property in Texas: Keep, Rent, or Sell? Find Out What’s Best!

Inheriting a house is one thing. Inheriting a house that has tenants is quite another.

Jake B. shared what he experienced, "The news hit me like a ton of bricks. My uncle had passed away, leaving me his rental property in San Antonio, Texas. Suddenly, I found myself facing a whirlwind of emotions and decisions. Should I keep this piece of family history? Continue to rent it out for extra income? Or sell it and move on?"

These questions are typical of this situation, both for people in Texas or anywhere. If you're in a similar boat with an inheritance, you're not alone in this emotional and financial rollercoaster.

Inheriting a rental property in the Lone Star State opens up a bit of a can of worms. From navigating Texas inheritance laws to weighing the pros and cons of each option as to what to do with your inherited property, the path forward isn't always clear. Let's dive into the typical factors you'll need to consider to make the best choice for your situation.

Key Takeaways

• Texas inheritance laws impact your options for handling the property
• Property taxes and market conditions could make the decision to sell your inherited house easy
• Renting can provide steady income but comes with landlord responsibilities
• Selling may trigger capital gains taxes if the property has appreciated and has a lot of equity
• Professional appraisals and market analyses help determine property value
• Consider your long-term financial goals when deciding to keep, rent, or sell
• Seek expert advice to navigate the legal and financial aspects of your inheritance

How do you handle inherited rental property?

Where do you even begin when dealing with inheriting a rental property? First, check the property's condition and its value. This helps you see its investment potential. Then, think about the costs like taxes, insurance, and upkeep. Then, consider whether you want to manage the property if you do keep it as a rental.

Rental income plays a big role inn deciding what to do with the property. If the house isn't already rented, look into the local rental market to see how much you could earn. If there are tenants, study the lease to see what obligations you will need to fulfill.

According to Kristi Mergenhagen at RentPrep.com, "As the new owner of an occupied property, you are obligated to honor inherited tenants’ rights and follow the original lease agreement. At the same time, the tenant is also obligated to honor that agreement."

Being a landlord means you will be dealing with tenant issues, maintenance, and legal stuff.

Taxes are important when dealing with inherited property. Talk to a tax advisor to understand how rental income and selling the property might affect your taxes. Think about a 1031 exchange to delay paying capital gains tax if you sell.

• Review property documents (deeds, leases, maintenance records)
• Conduct a property condition assessment
• Understand landlord-tenant laws in your area
• Explore landlord insurance options
• Develop a detailed budget for property ownership

You have three main choices: keep, rent, or sell. Each option has its pros and cons. Keeping the property might keep a family legacy alive. Renting means you get regular income. Selling gives you cash right away. Your choice should match your goals and money situation.

If you find yourself thinking, "I just want to sell my house fast in San Antonio Texas", we will show you how to do that as well. Let's dig in.

Understanding Your Inheritance: Property Laws in Texas

In Texas, inheriting property comes with its own set of rules and challenges. The state has laws for managing heir property and estates. This is true whether you are inheriting and selling your parents' house after they die or whether you are inheriting a rental property with tenants. Let's look at the main points of Texas probate and inheritance laws to make things clearer.

Texas Inheritance Laws and Probate Process

The Texas probate system checks wills and gives out assets after someone dies. It's important to talk with the executor, especially if there are many heirs. An appraisal helps figure out the property's worth. This info helps you decide if you'll keep, sell, or rent it.

Tax Implications of Inheriting Property in Texas

Great news for heirs: Texas doesn't have a state inheritance tax. The federal estate tax only hits very large estates over $13.61 million in 2024. Property taxes depend on the current market value and get checked every year by local appraisal districts.

Be aware that Texas tends to have higher than average property taxes due to its lack of a state income tax.

According to Axios, "Median property taxes in Texas rose 26% between 2019 and 2023, data shows, even as local governments took steps to reduce the impact."

Rights and Responsibilities as an Heir

As an heir, you have choices. You can live there, rent it out for income, or sell it for cash. If you have co-heirs, you all share equally in the property's upkeep, taxes, and insurance. It's important to talk things over and make agreements in writing.

"Seeking professional advice from estate planning attorneys, accountants, and financial advisors is crucial for clarifying ownership-related issues.", says Danny Johnson a real estate investor in San Antonio, TX.

Knowing Texas estate law is crucial for handling your inheritance well. Think about getting help from experts to deal with tricky matters and make smart choices about your inherited property.

Assessing the Inherited Property's Value and Condition

When you inherit a property in Texas, knowing its true worth will help you decide what makes the most finance sense. This helps you decide whether to keep, rent, or sell it. Let's look at the main steps to evaluate your inherited real estate.

Conducting a Professional Property Appraisal

A real estate appraisal is the first step to find out your property's value. Licensed appraisers give the most trustworthy valuations, especially for commercial or income-generating properties. Residential appraisals start at a few hundred dollars and give a fair market value. This ensures all heirs are treated fairly.

Evaluating Necessary Repairs and Renovations

Checking the property's condition is crucial. Home repairs can greatly affect its value and rental income. Make a list of needed renovations and their costs. This shows the investment needed to make the property market-ready.

• Inspect structural elements
• Check electrical and plumbing systems
• Evaluate energy efficiency
• Consider cosmetic upgrades

Analyzing the Local Real Estate Market

Doing a market analysis is important for understanding your property's potential. Look into local property values, rental rates, and demand. This info helps decide the best action for your inherited property. Think about:

• Comparable property sales
• Neighborhood trends
• Future development plans
• Local economic indicators

By using professional appraisals, renovation checks, and market analysis, you'll understand your inherited property's value and potential. This knowledge lets you make smart choices about its future.

Financial Considerations When Inheriting a Rental Property in Texas

Inheriting a rental property in Texas can result in you making money but could also cause you to lose money. That surprises a lot of people. Texas stopped taxing inheritances in 2015, making it easier for heirs. But, estates over $13.61 million in 2024 might still face federal estate taxes.

Property taxes are a big deal. In Texas, these taxes can be high, especially if they were put off for a while. Property tax loans can help if you're having trouble paying these costs.

Rental income might not surpass your expenses with owning the rental property. You will need to pencil to paper to determine the net income.

Rental income can help cover costs, but you need to think about everything else too. Things like insurance, upkeep, and management fees can cut into your profits. It's important to make a detailed budget to see if the property makes sense financially.

• Assess potential rental income
• Calculate property taxes and insurance costs
• Budget for maintenance and repairs
• Consider property management fees

If you decide to sell, you'll have to think about capital gains taxes. Thanks to a stepped-up basis, heirs might pay less tax. If you live in the house, you might get to exclude up to $250,000 or $500,000 if you're married.

Inheriting a house with a mortgage will also add complexity. You can keep the mortgage, refinance, or pay it off. Each choice affects your cash flow and long-term goals differently.

Knowing about these financial parts is key to making smart choices about your Texas rental property. Whether you decide to keep it, rent it out, or sell it, having a solid financial plan will help you make the best choice.

Keeping the Property: Pros and Cons

Deciding to keep an inherited property in Texas is usually a difficult choice. This choice affects your financial future and personal life in big ways. Here are some of the factors at play that you will want to consider.

Emotional Attachment and Family Legacy

Keeping the property helps keep your family's legacy alive. The home may hold dear memories and sentimental value. It connects you to your roots and can be a place for future generations to come together.

Potential for Long-Term Appreciation

Investing in real estate often means your property will grow in value. In places like Houston, TX your inherited property could increase in value with the current trends in real estate pricing. This chance for growth makes keeping the property a smart choice for building wealth over time, depending on where in Texas the property is.

Responsibilities of Property Ownership

Owning a property means you have many duties. You'll deal with regular maintenance, property taxes, and insurance costs. You must budget for these and be ready for unexpected repairs.

• Regular maintenance and repairs
• Property tax payments
• Insurance costs
• Possible renovations

Think about if you can handle these responsibilities. If the property is in good shape and you can manage the costs, keeping it might be a smart move. But if the costs are too much for you, selling or renting might be better.

According to Ben Luxon at Landlord Studio, "The 1% rule states that a rental property's income should be at least 1% of the purchase price. For example, if a rental property is purchased for $200,000, the monthly rental income should be at least $2,000. "

Balance the emotional value of keeping your family's legacy with the financial aspects of owning property. Look at the local real estate market and your finances to decide if keeping your inherited property is right for you.

Renting Out the Inherited Property: A Viable Option?

Inheriting a property in Texas can be exciting. Many heirs, especially in San Antonio, choose to rent it out for extra income. This is a good idea if the property is already paid off.

Rental Income Potential in Texas

The rental market in Texas is strong. Before you start, look into local rental rates and demand to see how much you could earn. A great place to find current rents is to check what is for rent around the property on Zillow. Remember, renting can bring in steady money but also has costs like upkeep, taxes, and insurance.

Landlord Responsibilities and Tenant Laws

Being a landlord means you have new tasks. These include:

• Maintaining the property in habitable condition
• Responding promptly to repair requests
• Complying with Texas tenant laws
• Conducting thorough tenant screening

Learn about local laws to avoid legal problems and keep things smooth with tenants.

Property Management Considerations

If managing a rental feels too much, think about hiring a property management company. They can take care of things like finding tenants and fixing issues. But, this means you'll make less money.

According to Prime Properties, "Property management fees in Texas typically range between 8% and 15% of the monthly rent collected, with most companies charging around 10%."

Think about the good and bad sides. Renting your inherited property can work well if you're ready for the duties and challenges. With good management, it could be a steady source of extra income for a long time.

Selling the Inherited Property: Factors to Consider

Selling an inherited property in Texas can be a smart choice. But, you need to think about several things first. The current real estate market is a big factor. As of May 2024, Texas had 83,513 homes for sale, giving buyers more options. This could affect your property's value and how fast it sells.

When thinking about an estate sale, remember to consider selling costs. Real estate agents usually charge 5% to 6% of the selling price. This might seem steep, but their knowledge can help get a better sale price. For a faster sale, cash buyers are an option, but they usually pay less than market value.

The capital gains tax is also important to think about. It's a good idea to talk to a tax advisor who knows about inherited properties. Holding the property for over a year can lead to better tax rates.

• Assess the property value through a professional appraisal
• Consider listing on MLS or ZeroFeeListed for wider exposure
• Ensure you have a clear title before selling
• Coordinate with other heirs if multiple people inherited the property

A company that pays cash for houses like San Antonio's Danny Buys Houses, can make selling easy and fast. They make cash offers within 24 hours and purchase the property as-is, even with tenants. If you want to sell your inherited property, give Danny Buys Houses a call.

Selling gives you cash right away but can also mean taxes. Think about how it fits with your financial needs and long-term goals before deciding.

Conclusion

Inheriting a rental property in Texas is a chance for smart financial planning and real estate investment. You must think about emotional ties, market trends, and your future goals. The Texas property market could grow, but remember, owning property comes with big responsibilities.

Money matters a lot in this choice. You'll need to think about property taxes, upkeep, and repairs. For example, you can deduct the cost of fixing up your rental property. This can lower your taxable income.

Deciding what to do with the property is tough. You might want to keep it for family reasons, rent it out for income, or sell it for cash. The Texas property market and your own situation should help you decide. Talking to real estate experts and financial advisors can also guide you. They can help you pick the best option for your financial future.