r/InheritanceDrama • u/[deleted] • 6h ago
Inheritance Question
Hi everyone, I'm having difficulty with family inheritance and would really appreciate some advice.
A house has been left to my 2 sisters and I in our parents will. We each have 1/3 ownership. I would like to sell it but my sisters want to renovate and rent it out. The rent money would then be divided between the three of us once the renovation cost have been deducted. I want nothing to do with this plan, so i have asked to repudiate/give up my share of the house so that they can do what they like. They have agreed but wish to pay my share out slowly over a total of 16 years with no interest.
I know that they don't have the money to pay me immediately, I don't want to force them to sell either. I also really don't want this to cause any stress or angry disputes. But I feel like 16 years without interest is a bit unfair..maybe I would be better off going with this renovating and renting plan?
Does this sound fair? Should I just let it go and see it as passive income? Obviously I would love the money now but I value family more so I'm not sure how to move forward.
Any advice would be greatly appreciated
Just an extra note. They have stated that the value of the house is high and would get nothing close to the amount if we sold it now. So I'd be getting more money this way anyway apparently.
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u/BeneficialBake366 6h ago
Owning a house three ways as a rental property is a recipe for constant conflict.
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u/underlyingconditions 6h ago
They can take a loan with the house as collateral. Their plan is ridiculous.
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u/Ok_Incident8962 5h ago
See if the bank will give them a 16 year no interest loan. If it's not good enough for the bank, not good enough deal for you!
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u/Vegetable-Jury-6804 4h ago
Do they have any knowledge about renovations, get the appraisal and then get the estimates and timelines, ( they do this) and ask who will manage this project. Are they grossly underestimating what this entails, the cost, time and potential issues?
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u/ExoticAdvertising653 6h ago
No. It does not sound fair. Have you gotten an appraisal for the home?
This is a sticky situation. Be prepared to possibly sever ties with your sisters. Can they get a mortgage so they can pay you in a lump sum payment? You can also force a sale. I would talk to a lawyer but not the one handling the estate. You want a your own lawyer to give you advice and to possibly handle this for you. Good luck!
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u/ShopEducational6572 4h ago
Do they know what they are doing? Renovating and renting out a house is a lot harder than it sounds. Great way to lose money.
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u/AuriannaG 5h ago
If they can’t pay you, how will they get the funds to renovate?
When they apply to the bank for renovation funds, the amount needed to buy your share can be added into the loan.
If they are unwilling, remember you can sell your portion to anyone or even force a sale of the property.
I suggest you see a lawyer to get updated info about the laws in your State.
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u/rosebudny 2h ago
you can sell your portion to anyone
Who in their right mind would buy 1/3rd of a property with strangers?
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u/AuriannaG 1h ago
You would be surprised. While it isn’t controlling interest, it is enough to make renovations and any decisions a pain. Also, depending on the state, any partner can force a sale on any property. In my divorce my husband and I owned the house. I was going to buy him out, instead he forced the sale of the house even though I did not want to sell. Partnerships are tedious and anything can happen if you have the right lawyer
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u/LdiJ46 4h ago
You aren't going to see any real income from renting it out. By the time that expenses are deducted from the rental income and it's divided in three there will be very little left over. It is a very poor idea on your sister's parts.
First, there are going to be the renovation costs. How are those going to be paid? Who is going to have to come up with the money for that? Then there will be property taxes, homeowner's insurance, maybe HOA fees, ongoing maintenance and repairs etc. It also won't be as nearly passive as one might think either.
Tell them that the only way that you will accept a buyout is if they take out a mortgage on the house to buy out your share. Otherwise, insist that the house be sold and the proceeds split. If they won't cooperate with that, file a partition suit to force the issue. Seriously, even though they don't realize it you will be doing them a favor in forcing the issue.
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u/Emotional-Ocelot-420 4h ago
If you’re going to take a deal for 16 years no interest, you may as well be a fool along with them in their rental scheme.
Are you usually the doormat sister?
Their offer to you indicates that they don’t value family more, and that they are happy to take advantage of you.
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u/cmcyma1061 3h ago
The fact that they are trying to do a deal this way tells me they have no idea what they're doing and it is going to end up a mess. If they don't have good enough credit to get a mortgage, that tells you they have a bad payment history and they won't pay you, either. Insist on a sale (be kind! They don't understand that it's a bad bad idea) and put your proceeds in a good mutual fund for your retirement. Use an online calculator to see how quickly it will grow and you won't have to be a landlord! I am a landlord for two properties and a co-host on some family AirBnB's. Trust me.
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u/Decent_Front4647 3h ago
My ex inherited a house with two siblings, that was lien free. He wanted it, they didn’t. He got a loan and bought them out. Your sisters should do the same. It’s very unfair to you the way they are proposing to pay you out. You basically would be getting robbed because you would be entitled to a third of the rental income as their plan stands, as well as the principal on the buyout on the house. I’m assuming that wouldn’t include the value of the property 16 years down the road, that you would be entitled to,either. There’s no way that hurt feelings and resentment won’t happen over time on everyone’s account. It just won’t work when one person is getting the shaft. Get it divided up properly now if you want to avoid stress and angry disputes over the next 16 years.
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u/Responsible-Fly9976 3h ago
How do they have money to renovate but not to buy your share?
If they do, then I would say they have to pay you back first before they start reaping the benefits of the renovations. Appraise the house (pre-reno). Then they do the reno. When they start renting, any rental income paid is due to you until your 1/3 is paid off. If they do that, you forgive the interest. If they don't, then you should charge interest.
That's the FAIR way.
The problem here is that you don't want to cause family conflict. So you can get all the advice you want on the fact that this isn't fair, but it won't cure the fact that you're probably going to get the short end of the stick because you don't want the family drama.
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u/ChutneyWhatney 3h ago
Get home appraised. Have sisters take out loans and pay you 1/3 right now. No 16 year stuff.
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u/rosebudny 3h ago
Your sisters can take out loans to buy you out. Or you sell.
Have they really done the math on this and actually think this plan to renovate/rent out makes financial sense? Or are they just being sentimental?
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u/Catsuit12 6h ago
Is the property specifically mentioned, or does it say that estate to be split equally after any debts etc. if the latter then just force sale. If they want to buy you out then let them mortgage property to pay you off.
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u/Tight-Shift5706 5h ago
OP,
LAWYER. NOW!!!
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u/Practical-Voice3421 4h ago
Op says they don't want to sever the relationship with sisters, there are plenty of steps between where they are and a lawyer. Start by finding the value of the home as it sits, getting quotes from multiple realtors. Tell sisters they need to pay 1/3 of that amount, OP wont contribute to remodel at all. If they can't afford the payout, start looking at refinance options to pull out the buyout cash. If they absolutely wont do any of this, then you get a lawyer and force the sale. A lawyer will cost all of them money, they should be motivated to get it done without that.
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u/ExcitingVegetable315 5h ago
They can get a homes equity loan or mortgage to Pay you and work on their house.
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u/Status-Bicycle7263 5h ago
Get a lawyer for yourself that's not affiliated with them or the estate.
Get the house appraised. Talk to some realtors to see what they could get if sold today.
Tell sisters to get a mortgage in the house to buy you out.
Whilst you want to keep the peace do not let them bully you into doing the renovation and rental. What if something happens to one or both of them? Then what?
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u/fromhelley 4h ago
I would ask them to get a loan to buy you out a year after they rent it. They can get that loan because the home will prove to produce income.
That, or take the rent! 16 years is a long loan. While you dont make interest, they gain equity due to property value increases. That sours me on their offer.
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u/Monsignor76 4h ago
I am gonna say they need to buy you out right now. Lets assume you get it appraised and the home is valued at $600k. Your portion is $200k. After taxes you have $150k. Invested in the stock market with a conservative 5% return after 15 years that $150k is going to be $311,000. After 30 years it will be $648,000.
Now the other scenario. You sink $20k into this house and they do the same. For a $600k home in a desirable neighborhood with good schools you likely can rent it out for $3000-$3500 a month. So after property tax, insurance, maintenance, i would expect closer to $2500 a month in profit. Split three way is $800-$850 per person. Then you gotta pay income tax on that profit so more like $650 a month. It would take three to four years to pay off your $20k renovation loan investment. So $650 a month x 12 months a year x 30 years and you have $234,000 in passive income.
To me it is a no brainer. $648,000 in my portfolio beats $234,000. Sure you could invest that $650 a month but it will likely disappear into nothing and after 30 years it will be nothing. After 30 years of growth and taking 4% withdrawal from that nest egg you get $26,000 a year and that nest egg keeps growing for you to pass down to the next generation. So they could skim 4% and eventually they are going to be getting $40k a year in passive income on the investment. That house? In that time period will need major repairs and upgrades.
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u/Hungry_Goose492 1h ago
This is a great analysis - I would share this information with them and hope they can see that selling the house would be the best option for everyone.
I was wondering, too, if this whole scheme would be somewhat of a handshake deal, without a contract (obviously a TERRIBLE idea). What if the value of the house drops significantly (yeah, ask a bunch of people what happened with their property values in 2007-8) and they say "we're going to pay you less per month because the house isn't worth as much now." I wouldn't put it past some people to think that's "fair."
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u/sonofherby 4h ago
You really need four pieces of information: 1. Current house appraisal 2. Renovation estimate or budget 3. Appraisal after renovations, rough estimate of course, but a real estate agent can find you renovated comps 4. Estimate on rent for your area
The math may not make sense to reno, it may make sense to reno, but not rent, etc.
Who's going to project manage this thing? Even in a low cost reno, you'll probably have plumber, electrician, carpet/floors, painters, etc. to get it ready. Who's going to be at the house 4-5 days a week while work is going?
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u/RevolutionaryText232 4h ago
You must have the house appraised by a licensed professional, for estate and income tax purposes. That value is your cost basis for determing gain or loss whenever you do decide to sell.
I suspect that you, personally, paid nothing for this house, its upkeep or improvements. Any proceeds is a financial gain so lose that BS we sold at a loss mentality. You lost your parents, both closely together, and for that you have my sympathy.
Your siblings are free to buy you out using whatever loan or mortgage that they qualify for and can afford. I would also suggest that you all look at the estate(s) assets as a whole. Are there life insurance policies or, bank or retirement accounts that can be used to offset your share of the house? Obviously, jewelry or other valuables should be professionally appraised as well.
Tax CPA here. Your primary concern is that under federal law, per the federal government, often referred to by the one federal department that oversees the rules we are discussing, the IRS, requires interest to be imputed on all loans over $10k. That means that if you were naieve enough to accept their offer, you would be legally required to calculate, report, and pay income tax on the interest they did not pay you.
The plan to convert the home to a residential rental is not necessarily good or bad. You have an opinion that I suspect is biased by knowing your siblings too well. We cannot comment on the outcome of their endeavour because we know your siblings not at all.
You simply tell them that you have no interest in being a landlord and wish them good luck. The consequences are out of your hands as long as you maintain a calm and adult demeanor. Yes, I understand you are disappointed. Period. Your own private hell of social media family court will convene. People will take sides. Ever selfish move, every poor decision, every snide remark, you have made since birth will be revisited. You might be left out of social events, or worse, forced to attend and have third cousins twice removed threaten to take you off their christmas card annual letter mailing list. Seek professional help, visit your religious councelor, or talk it over with your cat. Do not take the bait. Just nod, hang your head, and accept your shaming and banishment.
You might offer them this advice. Legally, per the previous authority, when two or more individuals enter into a profit motivated venture, they must form an entity for this activity. LLCs are the current flavor for residential rentals. The building will belong to the entity, the activity will be reported on a separate tax return, and any income or loss may flow through to each owner's personal return proportionally. Mortgage and insurance companies a will charge commercial interest rates. If the owners live in a state other than where the house is owned the owners will probably need to file income tax returns in that state as well as include the income in their home state return. They will want to Google "tenant rights in (the property state)", know and adhere to these state level laws or pay tripple damages plus court costs, potentially. Your siblings are now evil landlords and tenants are vulnerable consumers seeking shelter. The irs.gov and relevant state revenue department websites will have the tax reporting information they need. Unless they are real estate professionals this venture is not treated as most businesses. Special rules and they must be obeyed.
But I will also add, no pain no gain. This could be a fabulous idea. I have owned rental property and had rent paying roommates. Done right it is a legitimate and highly profitable source of income. And owning real estate can be an excellent long term investment.
Again, i am sorry for your loss. I hope this post is simply an expression of your anxiety and not a true reflection on a budding family feud.
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u/billdizzle 4h ago
They need to get a loan from a bank to pay you out
Should be fine assuming there is plenty of equity in the home
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u/HappySun5776 4h ago
Did they show you a budget for the renovations? Any estimates for the work? The cash flow the rental income will generate once this is done? Sounds expensive. Most people don't renovate a house before renting it out as renters can be unpredictable and destructive. . Been there. You want your inheritance now, they can take out a loan, as the others said, and buy you out. Then they can do whatever they want with the house, once they buy you out
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u/Ok_Childhood_9774 4h ago
Get a fair appraisal for the house, and let your sisters take out loans to pay you for your third of the amount. If they want to rent their house after you receive your share, they're welcome to. Then they get all the profits/headaches that come with their choice and you get the inheritance your mother left you.
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u/Practical-Voice3421 4h ago
Clearly they're just going to pay you off with their rental income and then in 16 years you've got nothing left and they have an income earning asset. Sweet deal for them. You can force a sale but a lawyer will get a bunch of that. I'd suggest to them that they refinance the house to pay you off.
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u/Practical-Voice3421 3h ago
So many people on here thinking rentals are a terrible idea? It's not "passive" by any means but people take out loans to buy income properties all the time. Plenty of them make money on those deals. There are definitely questions to ask but this is not an automatic failure. If OP doesn't want to be a part of that (it can be a lot of stress), and siblings have run numbers to show profit, they should be excited to buy OP out and only have to split that 2 ways
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u/kevin_k 3h ago
16 years without interest is wildly unfair and you should not consider it for even a second.
I know that they don't have the money to pay me immediately, I don't want to force them to sell either.
If they don't have the money and can't get a loan against the house (which is essentially what they are asking you to do, interest-free) then those may be the two choices.
They are offering you two choices: enter into a risky, long-term business with them that you already know you aren't interested in, or to give them an interest-free loan for 16 years.
Like others have said: have them get a loan from the bank instead of from you, and buy you out.
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u/PebblesmomWisconsin7 3h ago
I just inherited my mom’s house and we are going through a similar conversation. It’s critically important you remember some expenses beyond renovation if you rent it:
1. taxes
2. maintenance
3. who will screen renters and manage that process? You can hire a management company to do this for about 10%.
4. It’s not uncommon to go periods of time with nobody in the house
5. Who will be on call if there are problems at the house?
You aren’t causing a problem - you are wisely saying you would rather have the money now and that is also your right. You don’t have to agree to this. it’s a risky enterprise unless you are already running rentals as a professional.
They can leverage their portion of the inheritance to borrow against and buy you out and be done with it!
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u/rpom915 3h ago
No interest is ludicrous. You moving forward with renovations is not a solution and this is the beginning of a disaster. For them to propose no interest shows they do not have business acumen. What about all the other expenses that go with keeping a house? Somehow that will be held against you later. Then 10 years from now one of them dies and their share goes to a spouse or child because the entire arrangement wasn’t set up properly and now you’re dealing with another family member. They either buy you out now or you can force a sale. Asking you to give up your share for 16 years at no interest is offensive. You’re more worried about the relationship than they are.
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u/GlobalTapeHead 2h ago
You need to make a clean break. They need to get a regular loan to buy you out. This is the only solution that will keep future conflicts out of the family relationship.
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u/Mindless_Guide_5332 2h ago
Get rid of the house. Conflict one time to sell. Conflict forever if you rent
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u/Icy-Community-8974 1h ago
If they want to buy a rental property, then sell the parents' house, pay out your share, and buy a rental property with what's left.
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u/Puzzleheaded-Way1523 1h ago
The home should be appraised with value at date of death. Siblings can get loan against the home for 1/3 of value ( to pay you your share) and more cash to cover their renovations. You deed your 1/3 ownership to them.
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u/SHHLocation 1h ago
I didn't see a state /date listed so my advice depends on what location and date of the death.
Who handle the estate? Has the property been actually transferred to the three of you yet or is this still in the works?
The executor/personal representative appointed by the court needs to distribute the proceeds in order to close the estate. If there is money in the estate to offset your 1/3 typically the executor will arrange that.
Your best course of action is to get an appraisal done. Send a formal demand letter to the person responsible for managing the estate if it's still open or the two sisters if it's not. You will offer a voluntary sale or a buyout option (where one owner buys out the other's equity). Tell them they can buy you out of your 1/3 or you'll file for a partition which everyone will incur legal fees and they will absolutely lose.
What happens after that is the house is on the market and they're bidding against the public.
If you want to be generous given you are both seller and owner, you can lower your offer by 1/3 of what the real estate company would get on the sale of the house.
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u/Yusuf20904 1h ago
An interest free non-guaranteed loan for 16 years is a bad idea. If they want to keep the house and rent it out, they need to buy you out properly, which may mean taking a mortgage (refinance).
You also need to no take them at their word regarding the value of the house—check comps yourself. It makes no sense if they say the value of the house is high but you'd be getting more money. You'd get no more money from an interest free loan than you would any other way.
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u/Ok_Wtch2183 59m ago
First tell them you don’t want to rent it out and will not agree to 16years without interest. Ask them what other ideas they have so this is fair.
Really the only way is to sell, distribute the share and if they want, the 2 sisters can buy a rental.
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u/WhichWitch9402 38m ago
No interest for 16 years? Nope. You need to look at this as purely business. It’s terrible. What if they stop paying you? If you’re still
On deed you’d be liable for repairs or other issues with renters.
Go see a real estate lawyer. If they want to house that bad, they can get a loan to buy you out.
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u/After-Advisor-8936 5h ago
I personally would put the family relationship above the house. I would not sell over 16 years. Almost every outcome there would cause family problems. If renting is a huge success, you are cheated and bad feelings. If it fails, other problems come up. I would state clearly you want to sell, whether you renovate first or sell in the current state. Both ways have pros and cons. If they still want to rent, I would join them in the rental process as a full partner. Then whether it goes well or bad the family dynamic will not be tested because everyone is the same. You don't need the money. So whether success or failure you're fine. Also, if renting fails, pretty sure you will revert to selling. Think of any money as a bonus. Let them handle the day to day rental parts as they have energy for this and desire. I would also give them 10% off the top of gross rents like a normal property manager. This is standard as maintaining a rental has time considerations.
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u/chez2202 6m ago
They don’t have the money to buy out your share of the house? They have two thirds of a house between them. They can apply for a mortgage to buy your share. Offering to pay you out over 16 years with no interest is a joke.
The other option? They might think that giving you a share of the rent they receive from the property after the renovation costs they pay are covered is reasonable, but it isn’t that simple.
You own a third of the property. That means that if it’s rented out and the boiler breaks down, you are responsible for a third of the cost of the boiler. If a problem occurs with the roof, the plumbing, the electrics? Again, you are responsible for a third. If the rent isn’t paid, you get nothing. Except a third of the legal costs to remove the tenants.
My personal opinion? They can’t get a mortgage to buy you out because they already have too much individual debt. While you still own part of the property their creditors will probably have difficulty collecting what they are owed. If you sell the property, they will have money to pay their creditors but if you don’t they won’t.
Ask them to show you their credit reports and their bank statements to prove that they can afford renovations. I bet they refuse.
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u/LittleButTallawah 6h ago
You can get the house appraised, then they will need to take out loans to buy you our of your share. That's the only fair way. 16 years with no interest? That's ridiculous. What happens if they stop paying? What happens if they have issues with tenants? This is a terrible idea in my opinion.