Sunday, April 27, 2014

Inherited a House? Part Deux

If you inherit a house, should you keep it or sell it?   Figure out the carrying costs, first, before you make a decision.

In my posting "Inherited a House?" I went through a number of scenarios where one or more siblings inherits a house from their parents.  As I pointed out in that posting, the legal niceties involved in transferring ownership are trivial, compared to the emotional issues that often arise among family members when Mom and Dad die, and leave the house to the kids.

In most cases, it is probably best to sell the house and take the money and move on - even if you are the sole heir and the house is unencumbered by a mortgage.   Why is this?   Well, as I noted before, you would not think of buying a house in the same manner - being offered one house to look at, take-it-or-leave-it, and then deciding to buy it.   Why keep a house inherited in the same way?  It is not a house of your choosing, but one thrust upon you.

Plus, moving into your parent's old house really smacks of a lack of imagination.   You are not living your own life, with your own ideas and goals, but merely mimicking those of your parents.   And if you never left your home town after you turned 18, well, shame on you.  Move on with life - and move out.

Living in your parent's house is just, well, creepy.   Maybe if you have an English manor house that has "been in the family" since 1670, keeping it makes sense.   But for most of us, our "family homes" are houses built on spec, and are nearly identical or indeed identical, to a house across the street or down the block.   If you find sentiment in an assembly-line built home, you are a fool, plain and simple.

Sentiment is a fine thing and all, but when it comes to half-million dollar investments, sentiment has no place.

But taking all of that aside, consider the cost of ownership of the home - the complete costs - before you decide to keep the house.

For example, we recently inherited a share of a house in Florida.  Sounds like a sweet deal, right?  A vacation home in Florida!  Whoo-whee!   But as I noted in an earlier post - based on bitter experience - owning a vacation home is anything but cheap, and also a major labor hassle, as twice a year you have to put a home in mothballs and take another one out.   It is all the "joys" of home ownership (e.g., the pain) times two.

Well, maybe it could be a retirement home in sunny, tax-free Florida, right?   Well, think again, as Florida is anything but tax-free.   You see, the taxes on a home like this, while at a modest $2500 a year (due to an insane Florida tax policy known as "homesteading") will immediately jump to $10,000 a year or more, once the new owners take over.  Throw in $2500 a year for insurance, another $2500 for hurricane insurance, and another $2000 for flood insurance (slated to quadruple in a few years!) and you are looking at close to $2000 a month, just to own the place - even if it was unencumbered with a mortgage.   Add in the utilities, the lawn guy, the pool guy, and you are well over $2500 a month, just to live there.   Is this affordable in retirement?   For most middle-class people, No.

While I could "swing" such an overhead, I choose not to, as I'd rather have money in the bank and a monkey off my back.   I'd rather not have to scrape together $30,000 a year just to put a roof over my head, when I can do that for $12,000 a year or less, as I do right now.

Then there are the repairs.

Old people, when they "stay in their homes" when they die, tend to patch and fix their houses, rather than properly repair them.   So a home like this needs a new kitchen, baths (original to 1960!) and a hot water heater, a new HVAC system, pool pump, pool cage, and general updating.   Granted, it doesn't need it all at once, and you can squander about $10,000 a year "dressing the pig" and keeping the place patched together.   But the end result is not really a very nice place to live, but rather an older home with layers of repairs.

Like most houses of this vintage, the land is worth more than the house, and the lot is what makes the property valuable.   Most buyers will gut and re-build the place, or even tear it down and start over.  I lived through this once - spending tons of money over the years, "fixing up" a 60-year-old home, only to see the new owner drive a bulldozer through it.   My neighbor, who spent nothing fixing her house, had the same bulldozer drive through hers.  She pocketed the cash.  I ended up with far less.  All that money I spent at Lowe's and Home Depot was just wasted.

So, the place is a tear-down.   And most of the homes in the neighborhood have already been torn down and re-done, in the modern, ostentatious way, by people who have far more money (or think they have far more money) than you and I.   The neighborhood has gone upscale, and priced it out of our market - or at least priced it further than we'd like to pay.

And then there is another thing.  We don't want to live there.   It is on a crowded Florida barrier island, with "Spring Break Dudes" cruising up and down the main drag, drinking until they puke, and hanging out at all the bars and such.   The traffic and congestion is a nightmare, and thanks to Florida corruption, developers keep packing more and more million dollar homes and 20-story condos right into the same space.  The traffic will just get worse and worse, over time.   And as retirees, we don't want to live in a "Spring Break" destination.

It is, as they say, a fun place to visit, but you wouldn't want to live there.   Better off to rent there, if you want to go.

Fortunately, the siblings are of the same mind.   They have their own plans and desires, and living in their parent's house isn't one of them.   Moreover, their spouses have other plans and desires as well.   If living in your parent's old house is creepy and weird, think about how creepy and weird it is to live in your in-laws former home.   It is creepy and weird to the Nth power.

So the house goes on the market for a quick sale.   And not surprisingly, at the funeral, we are approached by a buyer who wants to "make a deal" before others get their offers in.   Like a widower fighting off widows (bearing casseroles) at his wife's funeral, we find ourselves suddenly very popular.

Make it go away, put the money in the bank and move on with life.  Use that money to live our own lives, rather than spending our own money trying to relive our parent's lives.

A house is just a thing - an object, a structure.   While it is OK to be sentimental up to a point, never let sentiment guide you in making such a huge financial decision - one that can bankrupt you or leave you "house poor" for the rest of your life.

Like anything else, "Do the Math" on the transaction, and then ask yourself, "Do I really want to do this?  Or am I doing this out of some misplaced sense of obligation or sentimentality?"   When you get out a calculator, many things become clear.  And using Logic, rather than Emotion, is always the best choice, when dealing with money.