It is the nature of things in a home-owning society that many people inherit property from parents or family members, or are charged with a home when an elderly person goes into care or supported accommodation.
With a large portion of our clients having inherited some, or all of their properties, we’ve found that their needs are often different to clients who made a deliberate decision to purchase the property as an investment.
How inheriting property is different
Extra care is required
When you inherit a property, you’re not only inheriting a house, but also its memories. It is therefore integral to take extra care when managing the property. Specifically, when choosing tenants, you need individuals that will be respectful of your family’s old home. Also, when planning renovations or changes that might be best for financial return, the history of the home needs to be considered.
Family decision making can complicate things
When a single property is inherited, it is often shared by multiple family members who then share the responsibility of managing the property. Those family members will need to agree upon the future of the property’s management – rent, renovations, helping one family member buy out others, making a collective decision to sell. All of these decisions require a strong shared fact base. Other families may need assistance to helping design a family decision-making process, so that difficult and often conflicted decisions, can be made in a way that is financially well-informed, but also sensitive to the emotions and connections involved.
Your relationship with debt is different
Most properties are inherited debt-free. While this makes the property very low risk to hold and is a potential source of passive income, it may also create the opportunity to add some debt to the property. This may be done to partly cash out value or to buy another property to get access to capital gains across a larger property portfolio.
You need to consider whether this is the right investment property for you
While family and emotional connections may mean you wish to hold onto this specific property, there may come a time when it’s appropriate to ask “if we were to have an investment property/ies – would this be the one we would choose ?” Does it have the right mix of capital gain potential versus income for our family’s needs now and into the future. What would an alternative property investment of similar value look like? What are the costs of making a change and is it worth it? For example, family homes which have strong land content and good long-term capital growth, but have limited rental income potential. Depending on your cash needs now, that may or may not be what best meets your family’s needs.
So if you want to review how you think about your inherited property, or you are managing a property for family members going into care and want advice about all your options, call Antony: 0419 381 905, Cath: 0411 101 999 or Evan: 0438 899 301 and we will organise a time to meet and discuss with you and other family members as required. We will provide facts and options, but with no pressure to take any particular decision.