While inheriting a windfall of cash may be top of the list of things we hope to inherit from our loved ones, inheriting real estate is a close second. Real estate is a tangible asset and, at least in a state like Massachusetts, is also a valuable one.
If there’s one downside to inheriting property, it’s that there can be complications. While inheriting a piece of land your family member owned outright will usually cause you little trouble, inheriting something like a condo can be more complicated.
The good news is that inheriting any property is a good thing, you just need to have the right knowledge to ensure you get the most out of your good fortune.
You have a few key things you need to think about when you inherit a condo:
- The tax implications of your inheritance
- Your new financial obligations
- What you want to do with the condo (live in it, rent it out, or sell it)
The first thing to think about is any tax implications. The good news is there’s no inheritance tax in Massachusetts, and the estate tax only applies if the estate is worth more than $1 million.
Capital gains tax will apply to the property, but only when you sell the condo – whether that be now or twenty years in the future. Capital gains tax is calculated based on how much value you have gained in the time you own the property since it only applies to any profit you make above the fair market value you inherited it at.
For example, if you inherited a condo for $375,000 now, and sold it in five years for $425,000, you’d pay capital gains tax on the $50,000 you gained. There may be little (if any) capital gains tax to pay if you sell the property soon after you inherited it.
When you inherit a condo, there are likely to be two main financial concerns you need to consider; an outstanding mortgage and the new fees associated with the condo.
If your loved one was still paying a mortgage, you need to find out if it’s something you can take on in some way (either because it’s an assumable mortgage or because you can get a new mortgage on the property) or something you must settle now. While you are not responsible for the mortgage on a property, it is your responsibility to notify them of the deceased’s passing (if that has not been done already) and settle the debt.
If the mortgage is not paid, the lender can and will foreclose on the property, so it’s important to talk to them to find out what your options are for keeping the property, if that’s your aim.
If you want to sell the property as soon as possible, you still need to liaise with the lender so they understand what your plans are, and you’ll still need to maintain the monthly payment.
Condo Association Fees
There are a lot of benefits to living in a condo, but they do come at a price. Since the condo is in a shared building that requires upkeep, you’ll need to pay the condo’s common charges and maintenance fees. These are usually paid monthly. There is no way to get around paying these fees – you must ensure you cover them as soon as you inherit the property. If you do not keep up with these fees, the condo association can take legal action against you.
Finally, the last thing you need to consider is what you want to do with the property. Make sure you consider your decision from all angles – think about the financial and practical implications of each. Here are your options:
- Keep the home as a vacation home – this can be a good option if you are in the financial position to maintain a second home and love visiting the area.
- Keep the home and move into it as your primary residence – consider commuting times, local amenities, neighbors, COA rules, COA fees, and anything else that may impact whether you enjoy living in the condo or not.
- Rent out the property – renting out a property can be a smart financial decision, but it’s also one that’s often romanticized. Make sure you do your math and find out exactly how profitable it can be for you, whether you plan to rent to a long-term tenant or do short-term rentals. Consider:
- Is there a demand for rental condos in the area?
- How much can you charge?
- Are you prepared to manage the property yourself, or will you need to pay a management property to do it for you?
- Do you have the resources to be able to fix the property in a timely manner if your tenants report a problem?
- Sell the property – If you don’t plan to live in the property yourself, the simplest option is to sell it. While you won’t get recurring income, you also don’t have to deal with the stress of running a business, making repairs, dealing with troublesome tenants, marketing your property, and so on. Selling the property will give you a lump sum of money you can then do with as you please – no strings attached!
Inheriting a property you’d love to live in is always the best-case scenario, but when the home isn’t one you can imagine spending a lot of time in, your best next option is to sell. Since we often inherit condos from elderly relatives that need some serious updating to be an attractive proposition to buyers, getting a home ready for sale can be a daunting task.
Fortunately, you don’t need to be prepared to renovate your inherited condo to sell it. While selling a home in “as-is” condition through a realtor can be a lengthy process, selling to a cash buyer like us is not. All we need is a little information about the condo and then we’ll send you our best cash offer. You’re under no obligation to accept, but if you do, we can close in a matter of weeks, giving you that cash windfall you were hoping for.