Renting versus selling an inherited home

This article is part of
Guide to unexpected property ownership

Renting versus selling an inherited home

Many people, if they have spare funds, buy a property with the intention of letting it out in the hope this will provide something of a pension pot in retirement.

But when a client is bequeathed a property following the death of a family member, it can seem like the perfect opportunity to dip a toe into the rental market and earn an additional income to boot.

Then again, selling a property they did not have to buy in the first place and being able to pocket a possibly quite substantial lump sum to do whatever they want with can be extremely tempting.

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Those who inherit a property will have to weigh up the pros and cons of each before deciding whether to rent or sell – it can be a difficult and time-consuming decision to make.

Paresh Raja, chief executive of Market Financial Solutions, notes: “Faced with the prospect of owning a property that they would not choose to live in, Market Financial Solutions’ research found that over half, or 55 per cent, of people due to inherit a property will be looking to sell it as soon as possible so they can re-invest the money in a different asset or property of their choosing. 

“However, nearly a third, 32 per cent, are looking to take advantage of the long-term returns on offer by undertaking some form of refurbishment so that the house is in a better condition to sell or place on the rental market.”

Personal or profit?

Sam Mitchell, chief executive at online estate agents, stresses: “Making a decision whether to rent or sell isn't just about profit margins; it’s also about your own personal circumstances. 

"If you don't live near the inherited property, then you need to think about how you're going to manage the property and whether you want that responsibility.”

He suggests: "From a numbers' perspective, if you've inherited a property that is mortgage free and the local rental values are strong, then you could enjoy a very nice monthly income from the property.

"You may find that to earn a similar income from a pension would require a pension pot running into hundreds of thousands of pounds. If you're already in your 40s or 50s, that may not be achievable in such a short space of time.” 

If it is the rental route that your client wishes to go down, then it may be wise to run through a checklist with them, to make sure they are prepared for the additional responsibilities renting out a house brings with it.

This is especially important if this is the first property they will have rented.

If the client already has a portfolio of rental properties, then they will be familiar with what will be expected of them as a landlord.