Have you recently inherited a home? This can be an excellent opportunity to earn some income now and to establish some wealth for the future.
Plenty of options exist for you and your new property. You can move into the home. You can sell it. Or you can rent it out.
Most investors have to save for a down payment and take out a big loan in order to invest in California real estate. You’re a step or two ahead of that when you inherit property.
But renting it out isn’t as easy as finding a tenant and collecting rent. Here’s what you want to do before you turn an inherited property into a rental.
Our Overview:
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Settle Legal and Financial Matters First
The first priority is making sure the home’s ownership and financial details are in order. Work with an estate attorney or probate professional to ensure the title is properly transferred to your name. If there is still a mortgage on the property, find out whether it can be assumed or refinanced. You’ll also want to check on property taxes, HOA dues (if applicable), and insurance policies. Without this groundwork, you risk running into complications when trying to lease the home.
Some of the things that California requires when a property is inherited are:
- Probate or Trust Administration
If the deceased owner left a living trust, the property may pass directly to beneficiaries without probate. But, if there’s only a will (or no will), the property may need to go through probate court, unless it qualifies for a simplified transfer (for example, if the estate value is under certain limits).
- Title Transfer
You’ll need to legally transfer title into your name before you can sell or rent the home. This usually involves filing documents with the county recorder’s office. The process may include recording an Affidavit of Death and submitting probate or trust distribution documents.
- Property Taxes (Prop 19 Rules)
California has unique property tax rules under Proposition 19 (effective Feb 2021). When inheriting property, children may lose the old property tax basis unless they move into the home as their primary residence. If you keep the property as a rental or vacation home, the tax basis typically resets to current market value, which can mean much higher property taxes.
- Mortgage Considerations
Federal law allows heirs to assume the existing mortgage in many cases (thanks to the Garn-St. Germain Act). However, if payments are behind, you’ll need to work with the lender quickly to avoid foreclosure.
Get the legal logistics out of the way before you begin the process of renting out the home. And remember this: you’ll also need to comply with some of the nation’s most tenant-protective landlord laws.
Assess the Property’s Condition
Even if the home is in good shape, it may not yet be move-in ready. Different standards are required for the rental market. Habitability laws will need to be followed. And you’ll want to be sure you’re able to attract a tenant quickly and ask for the highest possible rent. To do that, you need to provide a rental home that’s not only well-maintained, but modern and updated.
Schedule a full inspection to identify necessary repairs and updates. Pay special attention to safety features such as working smoke detectors, carbon monoxide alarms, secure locks, and proper lighting.
Tenants expect clean, functional, and safe living spaces, and investing in maintenance now can prevent costly emergencies later.
Some of the updates you might want to consider in order to be competitive in the market include:
- Modernize the Kitchen and Bathrooms
These are the rooms renters pay the most attention to, and outdated fixtures or finishes can make the whole home feel dated. Even if you don’t want to do a full remodel, simple updates like new cabinet hardware, updated lighting, fresh paint, modern faucets, and energy-efficient appliances go a long way.
If the budget allows, adding quartz or granite countertops and new vanities in bathrooms can position the property above competing rentals.
- Upgrade Flooring for Durability and Style
Inherited homes often come with older carpet, linoleum, or worn-down wood floors. Replacing floors is one of the fastest ways to refresh the look and feel of the entire property. This upgrade will also raise your property’s rental value. Luxury vinyl plank (LVP) is a popular choice because it’s affordable, stylish, durable, and easy to clean, making it ideal for rental properties. Pet-friendly and low-maintenance flooring appeals to a wider tenant pool while reducing your long-term upkeep costs.
- Boost Curb Appeal
First impressions matter, and many tenants make their decision within minutes of seeing the property. A tidy yard, fresh exterior paint or trim touch-ups, and modern lighting can instantly boost curb appeal.
- Energy Efficiency
Consider upgrades that also save tenants money, such as energy-efficient windows, smart thermostats, or LED lighting. Renters increasingly look for homes that help lower utility bills and reduce environmental impact.
Some inherited homes need cosmetic upgrades or even major renovations to really compete in the rental market. Simple improvements like fresh paint, new flooring, or updated fixtures can boost rental value significantly. If the home has outdated systems, such as old plumbing or inefficient HVAC, upgrading them may attract higher-quality tenants and save you money long term.
Balance the cost of improvements with the potential rental income increase to decide what’s worth doing.
Determine the Right Rental Value
Pricing is one of the most important decisions you’ll make as a landlord. This is often a delicate balance between remaining competitive and profitable. You might have an idea of what your property would be worth to a renter, but the market is going to drive what you’re able to charge.
If you price your property too high, there’s a risk that the property will remain vacant for longer than you’d like. But if you price the property too low, not only do you leave money on the table, but you might also struggle to keep up with market rental values. It will be more difficult to raise the rent enough during renewal cycles.
Research comparable rentals in the neighborhood to get a sense of market rates. Consider factors like square footage, amenities, school districts, and neighborhood demand. Professional property managers can provide rental analyses that take the guesswork out of pricing. We know what your home will likely rent for, how long it will take to find a qualified tenant, and what kind of market will attract and identify good residents.
Update Insurance Coverage
A standard homeowner’s insurance policy ends when the owner dies. The estate or new owner must update coverage to avoid gaps. And it’s not a homeowner’s insurance plan you want, anyway. When you’re turning the home into a rental, you’ll need landlord insurance, not regular homeowner’s coverage.
Homeowners’ insurance is not the same as landlord insurance. You’ll need a policy that covers tenant-related risks, liability protection, and potential loss of rental income. This is an essential safeguard against financial losses if accidents or disputes arise.
A standard landlord coverage may not come with everything you need, and in that case you’ll want to add additional coverage. Make sure you have loss of rent insurance, for example, so you’re not left in a financial crisis if you need to move the tenants out to make a major repair. Consider earthquake and flood insurance.
Learn the Local Landlord-Tenant Laws
California’s laws and rules governing rental housing are strict. It’s not enough to have a cursory understanding of fair housing laws and habitability standards. You need to know about security deposit limits and notice requirements and eviction procedures. Compliance is non-negotiable, and California is serious about enforcement. Violating these laws, even unknowingly, can lead to lawsuits or fines. Before turning the property into a rental, educate yourself or consult with a professional who understands your local market. This is one of the best reasons to work with a professional property manager who understands how to protect you from liability and risk.
Partner with a Property Manager
Since we’re on the topic of management, let’s talk about whether or not you’re ready to be a landlord. This can be a hands-on job, and it requires a lot of knowledge that you might not have. You’ll need to handle:
- Tenant screening
- Marketing
- Creating a lease agreement
- Rent collection
- Lease enforcement
- Maintenance
- Tenant relationships
- Accounting and financial reporting
If you don’t have the time or expertise, hiring a property management company may be the best option. We can help maximize returns, minimize vacancies, and keep you in compliance with local laws.
Finally, think about how this inherited home fits into your overall financial goals. Do you want to keep it long-term as a wealth-building rental property? Or do you see it as a short-term investment before selling? Having a clear strategy will help you make smarter decisions about upgrades, management, and rental terms.
We’d love to partner with you to make sure you’re successful. Please contact us at Key Realty Center.
Broker-Owner Rod Luman has three decades of experience in the real estate industry. A lot has changed over the past three decades, but nothing has changed property management as much as computer technology. Today Key Realty Center uses cutting-edge tools to research market conditions and set rental prices, to thoroughly screen tenants, schedule and track maintenance, and provide extensive reporting for owners and tenants.