Inheriting Home: Need Advice On Possibly Renting It Out

[Dylan Martin]

Hi,

My brother and I are inheriting my mom's home and we are thinking about renting it out. It is a 3 bedroom, 2 bath, 1296 sqft home and sits on a 6,534 sqft lot. At first, we were going to sell since the property has appreciated around $80k-$100k in the last year or so. However, my brother and I are thinking about hanging onto it, renting it out, and possibly borrowing the equity to get another property in the future. We are both beginners with real estate and have not owned any homes before. 

But there are some issues. The first is that my sister is a partial owner but she has since passed away recently and now her share is going to her daughter. If my brother and I decide to keep the property, we would have to buy her out but we have no idea how it's done. About a year ago the courts appraised the house for about $260k and now we are getting an estimate by a local realtor that it is now worth $333k-$364k.

Would we pay her a 3rd of the initial appraised value or the appreciated value?

The other issue is deciding on whether this is a good rental property in the first place. As I say, the initial plan was to sell it to take it off our hands but to access the capital gains. My brother and I planned to invest in real estate with that money but figured we already have a house and we can save time, money, and hassle trying to get another one. But I am worried it may not be an ideal rental property.

It is located in Medford, Oregon and the population here is roughly 85,500. According to data, since 2010 the population has grown on average 0.88%. Medford is also considered a retirement town and there is not all that much to do here. There isn't much economy. The healthcare system is considered the major industry here. The marijuana industry is also another big one here too. 

My thinking is that once there is a market correction the price of this home would not go up very much over time considering the location. My mom bought this house 10 years ago and the value remained the same at $244k-$260k pretty much. It has only risen with the crazy market we are experiencing. The mortgage is $836/mo and we owe about $122k on it. Taxes are $2400 a year and insurance is like $600 annually. We figure would could rent this place out for $1800-$2000/mo. Some work needs to be done on it and we figure it would take about $20k to get it rent-ready.

We also live out of state so we would be hiring a management company to manage it for us. Still, we think we would cash flow.

I guess my main questions would be, considering all the information would this be a decent rental? Ideally, we would rent this out and eventually sell somewhere down the line 5, 10, 15, 20 years from now. But I think this house would not appreciate much after a market correction.

Any advice or insights is appreciated.

Thanks,

Dylan

[Daniel Root]

Hi Dylan,

Hopefully I can be of some help to you. I  am a landlord in Medford and I can say you should be able to rent it out fairly easily. The valley still hasn't rebuild it's housing market after the fires last year so in Medford it's a even hotter market than most places. This means you can get higher rent and higher sale price but if you are looking at buying other rentals in the valley you would be paying premium. I would be happy to give my layman's opinion on possible rent for the property with some more information like condition, location, and size. I suspect that it would cash flow pretty well just based on the mortgage you stated. 

To answer your question about the appraisal I would consult with a lawyer who practices estate law. 

Please reach out if you have any other questions or followup. I can also give recommendations for contractors for repairs.

This is my first response on this forum so please excuse any poor formatting.

Daniel Root