Inherited rental properties - Where do I start?

Question

First timer here. My dad passed away recently and left 3 properties to my siblings and I in a trust. 2 of the properties are multi-family rental units. All units are rented and are cashflowing. The third property is a vacant single family home (60s era) that my dad and I planned on gutting and turning into a 2 unit rental but thats another topic. Properties are all paid off. He was old school, very organized, maintained all of the properties on his own and did all of his "books" on paper in ledger notebooks.

I am sole trustee and will continue to manage and maintain the properties on my own for the foreseeable future. Big shoes to fill but I am looking to find an efficient way to track the income/expenses and other financials. I think quickbooks might be too powerful of a program. Any suggestions for analyzing the financials for the current 7 units? apps? spreadsheet templates?

Brian Kantor · Answer

Hi, @Dan Creed. So sorry for your loss.

I think to start, you should ask yourself (and your siblings) if you're ready (and want) to manage properties. It can be more work than you might think. Is that something that you [all] are ready for. I see it as you having a few options:

1) You manage yourself. This can be a lot of work. Maybe a little less so if your dad really did keep great books and has a team in place to handle handyman calls and lease renewals. The handyman/contractor contacts are key. If you have those at the ready, you may want to try it out for a bit to see if you like it. I do not self-manage my long-term rentals (just my STR), but there are a ton of software options out there to help self manage. I know some people on here like RentRedi, but I have never used it and there are plenty of other options. I use Stessa for my accounting and have been quite pleased with it. Whoever amongst your siblings is the lead in management, even if that means "managing the managers", that person should be compensated somewhere in the 10% to 20% range depending on how active that person needs to be. Consider divvying up responsibilities to whoever has the skills to do so and splitting up that 10% to 20% accordingly.

2) Hire a Property Manager. You can find one on here. Interview a few and find one that you all like. Maybe find 2 or 3 and allocate them to different properties for Year 1 and then pick the best and move the rest to them in Year 2. This person/company will take 10% or so, but it could be worth it. They do 90% of the work for you and can make this whole thing more passive.

3) Sell. If your dad did keep great books and the properties are truly stable, there is no shame in selling, taking the profits and investing however you see fit. No fuss, no muss.

All three are solid options. There is no wrong answer. Good luck!

Dan Creed · Answer

Thanks for the reply @Brian Kantor. I've always been involved in the rentals from a young age helping my dad. We did all of the maintenance/landscaping/repair work together. I think for the short term I will self manage. I live only a couple miles away and have a very flexible schedule with my job. I am handling the landscaping and snow removal for now but will have to find reliable contractors to handle all other repairs. Just not enough time to do it on my own. My sisters live in 2 of the rentals and are on board with not selling for the time being.

I will check out rentredi and stessa. Maybe down the road once my own family grows I will have to hire a property manager.

Eliott Elias · Answer

Keep a checking account per property and be able to track everything that comes in and out.

Tarren Shaw · Answer

Hello Dan,

I was in your situation a few years back. My sister and I inherited 8 properties from our dad. I found an accountant who was knowledgable with real estate to handle the taxes, and I set up quick books to deal with tracking expenses and income. The accountant helped me set it up and walked me through the basic steps to get me started so that every year I can send him the QB file and its filled out in such a way to make it easy to do my taxes correctly. Well worth it in my opinion. I use the most basic version of QB, which is probably what you'll want too. More expensive versions have features for tracking payroll taxes and employee information which is not what I need for my small operation.

Something else you may want to think/talk about with your siblings is identifying and agreeing on the goals for the trust. If you're not all on the same page it can really mess up the relationship. I realized that my sister had no desire to use the existing properties to acquire more. She merely wanted her share of the monthly income from the properties. I split up the properties in the trust so that I could do my thing (buy more rentals) and she could do hers.

Dan Creed · Answer

Yes Chris all properties are in an irrevocable trust. All legal work was done by an attorney. Estate tax was paid and got the step up in basis. Looking for recommendations on apps/software/spreadsheet templates that are appropriate for 5-10 rental units.

Chris Picciurro · Answer

First of all, I am sorry for your loss. You mentioned "trustee" so are the properties in a now irrevocable trust? I ask because I want you to make sure you step up the cost basis to fair market value so that the beneficiaries reduce tax. I would consider starting immediately on a spreadsheet for the bookkeeping and keeping each property on a separate column or sheet. I would also find a reasonable software that allows for the trust bank activity to feed directly into the software.

Inherited rental properties - Where do I start?

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