Sometimes the best decision isn’t to sell. But keeping an inherited home isn’t always the right answer, either.
When someone inherits a home, one of the first questions is often, “What should we do with it?” Should you sell it and divide the proceeds, keep it as a rental for ongoing income, or perhaps move into it yourself? There’s no single right answer, and a decision that makes perfect sense for one family might create financial or practical difficulties for another.
Over the years, I’ve helped families throughout the San Fernando Valley, Conejo Valley, Simi Valley, and surrounding Southern California communities navigate decisions involving inherited homes. One experience in particular illustrates why it’s worth considering the options before making a commitment.
Two Brothers Who Couldn’t Quite Let Go of Their Childhood Home
Several years ago, I worked with two brothers who had inherited the Santa Monica house where they grew up. Both had always imagined that someday they might move back, but life had taken them in other directions. They had established their own homes and neighborhoods, and after decades of living elsewhere, neither was particularly interested in uprooting his life.
Still, they weren’t ready to sell the family home, so they decided to rent it out.
The brothers had some advantages as rental property owners. They lived locally, were handy with repairs and maintenance, and owned a house in a desirable neighborhood with convenient access to employment centers. For them, keeping the home offered the possibility of ongoing rental income while preserving a property with tremendous sentimental value.
But would the same decision make sense for every family? Not necessarily.
Option 1: Keep the Home and Live in It
For some heirs, moving into the family home is an appealing choice. Perhaps it’s larger than their current home, located in a neighborhood they love, or offers an opportunity to become homeowners without purchasing another property.
But there are important questions to consider. Does the house actually fit your lifestyle? Is it located near your work, family, and activities? What repairs or improvements will it need? And if there are other beneficiaries, how will their interests be addressed?
Sometimes people feel a strong emotional connection to a childhood home, but that doesn’t necessarily mean moving back is the best practical decision. There may also be significant property tax considerations, particularly under California’s Proposition 19.
What If One Sibling Wants to Keep the House?
When several siblings inherit a home together, they don’t necessarily have to sell it to someone outside the family. Sometimes one sibling wants to keep the property and can arrange to buy out the others. In other situations, two or more siblings may consider purchasing the remaining shares together.
My own family considered something similar when we were deciding what to do with Nana’s house, our longtime family home. A couple of the brothers talked about pooling their resources to buy out the other family members, allowing the house to remain in the family.
Ultimately, they realized that the property needed substantial work, and they lived some distance away. As much as they loved the idea of keeping Nana’s house as a home base, it simply wasn’t practical for them. But I think considering that possibility was an important part of the process. They had explored their options before the family ultimately decided to sell.
I’ve shared more about our family’s experience in Selling Nana’s House: What I Learned About Selling an Inherited Family Home.
If your family is considering a buyout, it’s important to establish a fair property value, determine how the purchase will be financed, and understand any tax consequences. The estate or trust’s terms, outstanding debts, and the interests of all beneficiaries also need to be considered.
And if several family members plan to own the property together, I strongly recommend discussing how future expenses, maintenance, decisions, and a possible sale will be handled. A qualified estate attorney can help structure the arrangement and address the legal considerations.
Sometimes keeping a home in the family is possible. Other times, simply exploring the option helps everyone feel more confident about the decision they ultimately make.
Option 2: Keep the Home as a Rental
Renting an inherited property can be an attractive alternative to selling. Rather than receiving a lump sum from a sale, the owners may receive monthly rental income while retaining ownership of the property. Depending on the home’s value, rental demand, expenses, and financing, that income could provide a useful supplement to retirement or other household income.
The property may also appreciate over time, although future appreciation is never guaranteed. But here’s something I always encourage families to consider: A home that makes a good rental property isn’t necessarily a good investment for every owner.
Does the Location Support Rental Demand?
A home near employment centers, schools, transportation, and desirable amenities may attract a broad range of prospective tenants. The Santa Monica house I mentioned earlier benefited from its location, as well as a practical layout and a spacious backyard.
It wasn’t a newly remodeled showplace. It was a comfortable, traditional home that people liked, and that’s worth remembering. A house doesn’t necessarily need a completely new kitchen, expensive flooring, or major renovations to be desirable as a rental. Its condition, functionality, location, and rental price may matter much more.
Do You Really Want to Be a Landlord?
This is where the decision becomes more personal. Owning a rental means dealing with maintenance, repairs, vacancies, insurance, tenant concerns, and sometimes unexpected expenses. The two brothers were comfortable handling many of those responsibilities themselves, but I’ve also encountered families whose circumstances were quite different.
In one situation, a mother moved into a senior living community while her adult children, who lived out of state, considered renting her former home. They wanted to hire a property manager but were having difficulty finding someone interested in managing just one single-family home. Some of the companies they contacted preferred working with HOAs or larger properties.
Professional property management can make owning a rental from a distance much more practical, but finding the right company isn’t always easy. Even when you do, management fees and maintenance expenses need to be factored into the financial picture. Before deciding to keep a home as a rental, it’s worth understanding who will actually take care of the property and what that will cost.
Look at Net Income, Not Just Monthly Rent
Suppose a home could rent for $4,000 a month. That sounds like $48,000 a year in income, but that’s before accounting for property taxes, insurance, maintenance, vacancy periods, possible management fees, and any mortgage payments. A major repair, such as replacing a roof or HVAC system, can also affect the financial picture considerably.
The important question isn’t simply how much rent the property could generate. It’s how much income the owners can reasonably expect to keep after expenses—and whether that return makes sense compared with the property’s value.
How Proposition 19 Changed the Decision
For California families, property taxes can be one of the biggest factors in deciding whether to keep an inherited home. Before Proposition 19, qualifying transfers between parents and children could sometimes preserve the parent’s existing property tax assessment even if the children didn’t move into the home. For qualifying transfers occurring on or after February 16, 2021, the rules changed significantly.
Generally, to qualify for the parent-child reassessment exclusion, the property must have been the parent’s principal residence, and at least one eligible child must make it their own principal residence within the required timeframe. Filing requirements and limits on the amount of value excluded also apply. Inheriting a parent’s home and keeping it solely as a rental generally will not qualify for that exclusion.
This can make an enormous financial difference when a property has been in the family for decades. A house purchased many years ago might have a relatively low assessed value, while its current market value could be many times higher. If the property is reassessed, the increase in annual property taxes could substantially reduce the income available from renting it.
For more information about the requirements and exclusions, visit the California State Board of Equalization’s Proposition 19 resource page. It’s important to investigate the likely property tax consequences before deciding to keep the home.
Don’t Assume the Tax Situation Will Work Itself Out
I’ve personally seen how complicated things can become when inherited-property paperwork isn’t addressed promptly.
In one situation, family members inherited a parcel of vacant land with no utilities and very little practical value. They continued paying the existing property tax bills, but the ownership change wasn’t reported for years. When the transfer was eventually reported, the county issued multiple years of additional tax bills based on its own valuation of the land.
The family then had to obtain a formal appraisal to challenge that valuation. It was time-consuming, stressful, and an unwelcome surprise. The circumstances were different from a parent-child transfer of a residence under Proposition 19, but the lesson is important: continuing to pay the existing property tax bill doesn’t necessarily mean all the ownership-transfer requirements have been satisfied.
Before making a decision, consult the county assessor and appropriate tax or estate-planning professionals to understand the property’s particular circumstances.
Option 3: Sell the Inherited Home
Sometimes selling is the most practical choice. Perhaps several beneficiaries need to divide the inheritance, the property requires expensive repairs, or no one wants the responsibilities of maintaining a rental. For families living out of state, selling can also eliminate the complications of overseeing a property from hundreds or thousands of miles away.
A sale may provide funds that can be used to pay estate expenses, support retirement, purchase another home, or invest elsewhere. And while families sometimes worry that selling means letting go of their memories, those memories aren’t dependent on continuing to own the house.
When Will the Family Receive the Sale Proceeds?
One thing that sometimes surprises families is that selling an inherited home doesn’t necessarily mean the beneficiaries receive their share of the proceeds as soon as escrow closes. If the property is held in an estate or trust, the sale proceeds generally go into the appropriate estate or trust account first.
Before the money can be distributed, the executor or successor trustee may need to pay outstanding expenses, address any debts, file required tax returns, and make sure sufficient funds are available for remaining obligations. Depending on the circumstances, partial distributions may be possible before everything is finalized, but the timing varies.
This can be especially important when one family member needs the money sooner than the others. Understanding the process and discussing the expected timeline early can help avoid misunderstandings and unnecessary family tension.
Closing escrow and distributing the inheritance are often two separate steps.
You May Not Need to Make Extensive Repairs
One concern I frequently hear is whether a family must fix up an inherited property before selling. The answer depends on the home’s condition, the likely buyers, the local market, and the expected return on any improvements.
Sometimes relatively inexpensive changes—cleaning, removing excess belongings, improving lighting, or making minor repairs—can help tremendously. Other times, selling the home in its existing condition is the better financial decision.
I’ve helped families evaluate both approaches. The goal isn’t to spend money simply to make a house look newer. It’s to determine which improvements, if any, are likely to make financial sense.
If you’re weighing those choices, I’ve covered them in more detail in my article, Should You Fix Up an Inherited Home Before Selling?
What If the Family Isn’t Ready to Decide?
That’s understandable, too. Inherited homes often come with decades of memories, belongings, and family traditions. One beneficiary may want to sell immediately, while another wants to keep the house indefinitely. Sometimes everyone agrees emotionally but has different financial needs.
When a home has little or no mortgage and relatively low property taxes, there’s sometimes no immediate financial pressure to make a decision. Families may simply put it off while they sort through belongings, consider their options, or wait until everyone is ready. In our own family, it took about a year and three months before we put Nana’s house on the market.
But even when the carrying costs are manageable, a vacant house still needs regular attention. Someone should check on the property consistently to look for water leaks, maintenance problems, signs of unauthorized entry, or other issues that might go unnoticed. I also recommend considering reasonably priced security cameras, both inside and outside a vacant home, as an additional way to monitor the property. Cameras are helpful, but they don’t replace having someone physically check on the house.
Make Sure the Vacant Home Is Properly Insured
Another important consideration is insurance. A standard homeowners policy may have restrictions or exclusions when a property has been vacant for an extended period. Insurance specifically designed for vacant homes may cost more, but it’s important to make sure the property has appropriate coverage.
I know of one family who was apparently advised by their insurance agent to insure an empty inherited home as a rental property, even though no one was living there. When a major water leak occurred, the insurance company disputed coverage. What the family thought was a simple insurance arrangement turned into a much bigger problem.
Before leaving an inherited home vacant, talk with your insurance company, explain exactly how the property is being used, and get confirmation in writing that the coverage is appropriate.
There may be no perfect solution that satisfies everyone. In some situations, renting the property temporarily may provide time to consider longer-term plans, but that decision should account for tenant rights, lease obligations, carrying costs, and the possibility that selling later may be more complicated.
It’s also important to understand who has the legal authority to make decisions for the property, particularly when an estate or trust is involved.
Three Questions Worth Asking Before You Decide
When families are weighing their options, I think it helps to consider three things.
1. Does keeping the property make financial sense?
Compare the likely net rental income with the property’s value, expenses, tax implications, and potential sale proceeds.
2. Does keeping the property make practical sense?
Consider who will handle repairs, tenants, vacancies, insurance, and other responsibilities. Being a landlord can be manageable, but it isn’t entirely passive.
3. Does keeping the property make sense for the family?
Think about the beneficiaries’ needs, long-term plans, emotional attachments, and whether everyone involved understands and agrees with the proposed arrangement.
The Right Decision Is the One That Works for Your Family
I’ve seen situations where keeping an inherited home as a rental made excellent sense, and others where selling was clearly the more practical choice. The brothers who kept their childhood home had circumstances that worked in their favor. They were local, capable of maintaining the property, and comfortable retaining it as a long-term investment.
Another family might look at the very same house and reasonably reach a different conclusion. And that’s okay.
A Final Thought
The right decision isn’t necessarily the one that produces the highest sale price or the most rental income. It’s the one that makes sense for your family’s finances, responsibilities, and peace of mind.
Not sure where to begin? Read: START HERE: I Inherited a House. What Should I Do First?
— Janey Bishop
Independent Real Estate Broker
DRE #01838769
This article provides general real estate information, not legal or tax advice. Property tax exclusions, ownership requirements, landlord obligations, and estate circumstances vary. Consult qualified professionals about your particular situation.
