I recently inherited a home in orange county should I buy out my sisters half of it or sell it and split it?

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babymaradona1_IHB

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Hello everyone, I have been reading IHB for quite a few months now and find the information very useful and interesting. I am currently at a fork in the road and have a couple questions any advice or insights would be greatly apreciated.

My parents passed away and left my sister and I their home. Their home is nearby and identical to another home that is currently for sale in Tustin Meadows. The address is 1631 Roanoke Ave, Tustin,

CA 92780. On Redfin I see they listed theirs for $569,750 but it has been on redfin for 123 days so the real value might be lower than 450K I'm not exactly sure at this point. My sister wants to sell the house. Do you think I should buy out my sisters half of the house or do you think it's value will go down a lot further in the next couple of years? (in which case we should probably try to sell it now while there may still be some bubble equity left in it)



Secondly, I rented and saved as much as I could for the past ten years but I am no longer working and close to 60 years old. At this point I have enough savings to buy out my sisters half of the house and still have enough money left over to purchase a second home. So my second question is do you have any advice (or know the best place to get advice) on how to invest your money in the current market conditions? With inflation getting worse I don't want to burn through all my savings, so where should I invest my money (aside from a cd or stocks- since I am not that familiar with stocks) I had previously always thought about investing in some rental properties somewhere and then moving to a country with a much lower cost of living. I have read some posters say that low end real estate in riverside and other areas will not go down much further in price so it may be a good time to buy these. So what do you all think?



Thank you all for this blog and forum.
 
[quote author="babymaradona1" date=1245831855]Hello everyone, I have been reading IHB for quite a few months now and find the information very useful and interesting. I am currently at a fork in the road and have a couple questions any advice or insights would be greatly apreciated.

My parents passed away and left my sister and I their home. Their home is nearby and identical to another home that is currently for sale by an owner in Tustin Meadows. The address is 1631 Roanoke Ave, Tustin,

CA 92780. On Redfin I see they listed theirs for $569,750 but it has been on redfin for 123 days so the real value might be lower than 450K I'm not exactly sure at this point. My sister wants to sell the house. Do you think I should buy out my sisters half of the house or do you think it's value will go down a lot further in the next couple of years? (in which case we should probably try to sell it now while there may still be some bubble equity left in it)



Secondly, I rented and saved as much as I could for the past ten years but I am no longer working and close to 60 years old. If my sister and I sell the home I should have over $600,000 in savings. So my second question is do you have any advice (or know the best place to get advice) on how to invest your money in the current market conditions? With inflation getting worse I don't want to burn through all my savings, so where should I invest my money (aside from a cd or stocks- since I am not that familiar with stocks) I had previously always thought about investing in some rental properties somewhere and then moving to a country with a much lower cost of living. I have read some posters say that low end real estate in riverside and other areas will not go down much further in price so it may be a good time to buy these. Which area if any would be a good place to invest in one or more rental properties. Would it be better to buy 2 or 3 smaller properties and rent them out or buy a single larger SFR and rent that out? I can't see myself getting another job like the one I had before so how should I use my savings to generate income before inflation eats away at it or I go through it on living expenses?



Thank you very much,



Lisa</blockquote>
Is the home debt free? If so, I would seriously consider holding onto the home for rental income. Also, real estate tends to be a great inflation hedge so in times of high inflation home prices should rise as well long with the rent going up. I own 3 rental properties and it can get a little busy when times come up. Also, real estate transaction costs are high so I wouldn't recommend selling the home to buy 2 or 3 smaller properties. If the property has no debt, you would be able to get a small mortgage on it to pay off your sister if she insists on getting her fair share of the home in cash.
 
Thank you for your response, yes my parents had paid off the home already quite a long time ago. Do you guys think I should purchase a second home in California with the rest of my savings as I am planning on moving to a country with a lower cost of living where I will probably just rent a home?
 
[quote author="babymaradona1" date=1245847639]Thank you for your response, yes my parents had paid off the home already quite a long time ago. Do you guys think I should purchase a second home in California with the rest of my savings as <strong>I am planning on moving to a country </strong>with a lower cost of living where I will probably just rent a home?</blockquote>


Huh? You're thinking of buying a 2nd home but plan on moving to another country?

As for investment advise: The "father of 401k" advise to people on the nightly news was "if you're able. Keep working." What the??
 
I figured that since savings accounts aren't earning that much interest these days that it might be a good idea to invest in a couple of rental properties as rents tend to rise with inflation and home values appreciate.

As for living abroad I have no definite plans although I'm sure a lot of people have contemplated retiring some where else for part of the year at some time or other.
 
I watch House Hunters International religiously, and there are alot of places in Mexico, Costa Rica, Nicaragua, and Dominican Republic that are super nice and super cheap. There was some huge master planned community that was profiled in Baja - do not recall the name - and it was super nice. A family with two kids that lived in SC sold their house and moved there. I wouldn't have minded living there.
 
From a financial standpoint, I do not know what you should do, nor do I even have an opinion. It seems like you are in a good position no matter what.

So, if I was in your shoes, I would do whatever makes my sister happy.
 
another thing to consider is whether or not you will want to deal with the rental issues that may arise at your properties. Will you be paying a property management company to maintain the home? Will you be doing maintenance yourself or paying vendors, such as landscapers and carpet cleaners?

Not only could these things alter your financial benefits, but also your peace of mind as you enter retirement. I've never heard of a 401k not paying rent. :-)
 
If your parents bought this house a long time ago, say 1975, they probably bought it for $75,000. Think about prop 13 and the 2% appreciation cap. The government probably values this house at only $200,000, so your annual property tax is only around $2,500 dollars. This is a prime candidate for a cash flow rental because the property tax is so low.



Your rental competition who bought in the present has a property tax at about $7,500.
 
And with the rental income, he could probably live like a king in Mexico. And if there was an emergency, he could always drive up to sort it out.
 
[quote author="zubs" date=1245894999]If your parents bought this house a long time ago, say 1975, they probably bought it for $75,000. Think about prop 13 and the 2% appreciation cap. The government probably values this house at only $200,000, so your annual property tax is only around $2,500 dollars. This is a prime candidate for a cash flow rental because the property tax is so low.



Your rental competition who bought in the present has a property tax at about $7,500.</blockquote>


Be aware, there is a good possibility that half of the property will be reassessed to full market value once you buy out your sister. Do some research and consult with the assessors office if this concerns you.



This happened to my mother and her brother whom inherted their mom's house that was purchased for $15,000 in the 1950's. My uncle bought out my mom and was shocked to learn his property taxes would be $3,000 per year more than orginally thought. As far as I know there is no exclusion for sibling transfers. Maybe there is a way around this. But my mom and uncle unable to find a way to avoid the reassement.

From the

<a href="http://www.oc.ca.gov/assessor/TaxSavePPCinfo.asp">OC Assessor's Office</a>



<em>The parent-child transfers of Proposition 58 include all types of transfers of title from parents to children or from children to parents. Transfers must occur on or after November 6, 1986, the effective date of the Proposition. They may be in the form of a deed (recorded on or after November 6, 1986) or a court order dated on or after that date.





Further, this Proposition includes all types of real property owned by the transferor, including all the value of his/her principal place of residence and on the first one million dollars ($1 million) of the enrolled value of all other types of property. A mother and father can combine their exclusion for a limit of $2 million dollars.





Definitions And Terminology



Children: Children include the following: sons and daughters, sons-in-law and daughters-in-law, stepchildren, and children adopted under 18.





Gift-Purchase: Transfers as a gift or purchase between parents and children are excluded with a completed prop. 58 form.





Principal Residence: Proposition 58 does not require that the parent or child use the transferred property as his or her principal residence. In addition, the $1 million limit does not apply to the transferor's principal residence.





$1 Million Dollar Exclusion: The $1 million exclusion for other property applies for each transferor. Therefore, a mother can transfer $1 million of other property and a father can transfer $1 million of other property for a total combined exclusion of $2 million.





Legal Entities: Generally, transfers directly between legal entities owned by parents and children are not entitled to the benefits of this measure. However, if the entity is solely owned or the owners are the sole beneficial owners of the property, the transfer may be excluded from the reassessment under certain circumstances.





Trusts: A transfer to or from a trust is treated just as a transfer to or from the trustor personally, provided the trust is revocable or the trustor retains the present beneficial use, possession, or enjoyment of the transferred property.





Date of Death of Decedent: The date of any transfer between parents and their children under a will or intestate succession is the date of a decedent's death, provided the decedent died on or after November 6, 1986.





"Third Party" Defined: A third party is any person or entity that is not a transferee or transferor in the transfer between the parents and children.





"Transfer of the Real Property to a "Third Party": For filing proposes, a transfer of the real property to a third party occurs when all the real property received is transferred to someone other than an original transferee or transferor. Therefore, a transfer may qualify for an exclusion when a partial interest in the property received is transferred to a third party prior to an application being filed.



Filing Requirements: Current law requires that the claim be filed within three (3) years after the date of the transfer of real property or prior to the transfer of the real property to a third party, whichever is earlier. However, even if a claim is not made within this filing period, a claim is considered timely if it is filed within anytime prior to or within six (6) months after the mailing date of a Notice of Supplemental Assessment or Notice of Proposed Escape Assessment, whichever is later. For example if a taxpayer received a Notice of Supplemental Assessment for a parent-child transfer dated January 1, 1994, and then received a Notice of Proposed Escape Assessment dated April 1, 1994, the taxpayer would have six (6) months from April 1, 1994 to file a claim with the Assessor.</em>
 
Thank you all, you have made some really good points. To be honest I was surprised that you didn't tell me to try to get it sold now since the general consensus seems to be that the market will decline further.

It seems like most of you think I should try to buy out my sisters half and then keep it as a rental.
 
Talk with a RE tax accountant or RE lawyer. I think there's a special tax freeze for property for the elderly, even when purchasing a more expensive house.
 
[quote author="Mcdonna1980" date=1245907722]Be aware, there is a good possibility that half of the property will be reassessed to full market value once you buy out your sister</blockquote>The entire property may be reassessed to current market value from what I have read
 
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