Uncover Generational Wealth By Inheriting Real Estate

You’re not the only one feeling like homeownership is getting out of reach. According to the AP News, most Americans feel the exact same way due to rising prices and high mortgage rates. Lucky for you, we’re in the midst of the largest wealth transfer in history. The wealth accumulated by older generations is poised to transfer to you, providing a significant boost to your own wealth journey. After all, that’s the whole goal of building generational wealth, right?

Real estate is a key component of building generational wealth—and it starts from the moment you buy your very first house! Just think, receiving the keys to your starter home is a step towards establishing wealth for your grandkids.

Whether you’re a homeowner or have older relatives who own their homes, these strategies will set you on the right path to building and inheriting generational wealth.

What to do with an inherited house

Real estate is one of the most valuable assets someone can leave behind after passing away. Inheriting a house should be a blessing, not a burden. It’s up to you to decide which one based on how you manage your new home after receiving it.

Here are three things you could do if you just inherited a house:

·       Sell it

·       Live in it

·       Turn it into a business

Each of these is effective for contributing to your wealth-building goals.

Sell it

Selling an inherited home is like getting a huge windfall. That’s a check worth hundreds of thousands of dollars or even $1M+ that’s ready to fall into your hands as soon as you sell the property. This can be an excellent option if you already have a primary residence, need to divide the home value between siblings, or simply want to access liquid cash to invest elsewhere.

Live in it

Inheriting a fully paid house is a jumpstart to homeownership—no down payment necessary! Once the deed transfers to your name, you can pack your belongings and move in rent-free. You’ll only be responsible for the property taxes.

If you are inheriting a house, you could repurpose the funds from your paycheck that would normally go towards a home down payment to use towards other investments or a second property.

Turn it into a business

Real estate is an effective means of generating passive income. Inheriting real estate—especially if it’s in a great location—can be utilized as a long-term rental property or vacation rental with tenants paying you every month.

Is Your House Ready to Pass on to Your Kids?

Don’t leave wealth transfer to your heirs up to chance. There are countless reports of heirs stuck in lengthy court battles trying to claim their stake in their parents’ estate. Planning in advance how your house will be transferred to your heirs will save them a lot of time, stress, and even taxes!

Uncover these strategies to ensure your heirs get the most out of their inheritance.

Avoid or minimize taxes

Did you know that heirs must pay taxes on their inheritance? That’s less money going to your family and more money paid to Uncle Sam. Taxes are due on an inherited house only when it’s sold (if your heirs keep it to live in or start a business, they won’t have to worry about these taxes). This is known as capital gains.  Capital gains taxes must be paid on the house’s appreciation. However, according to current estate laws, inherited houses receive a ‘step up in cost basis.’ Step-up in basis occurs when the home price is reset to its current value when it’s passed on to an heir. For your heirs, it means less taxes compared to if they were simply gifted the house while you’re still living. Consider this example:

Someone bought a house 50 years ago for $100,000 that’s now worth $1 million. In one scenario, they decide to add Person A to Title of the house before they die. In the second scenario, they die, and the house gets inherited by Person B. If both Person A and B decide to sell the house, here’s how these two scenarios impact the wealth of the heirs.

Person A (added to Title before death):

Original purchase price = $100,000

Sell price =$1,000,000

Taxable profit = $900,000

Person B (inherited):

Original purchase price = $100,000

Current home price adjusted for the Step-up basis = $1,000,000

Sell price = $1,000,000

Taxable profit =$0

Paycheck to Wealth suggests to always pass your home down to your kids through inheriting real estate instead of adding the person to Title before death to reduce the amount of taxes owed when it’s sold.

Review plan with heirs

Talking about what happens after you die is a tough conversation for anyone. But it’s one that you must have if you want to establish a legacy of generational wealth in your family. Make a detailed plan about the most effective steps to take with your home and any other real estate holdings. Sit your heirs down and review the plan so they hear it from you directly instead of reinterpreted by an estate lawyer.

Uncover your Generation Wealth-Building Strategy with Real Estate Today

Building generational wealth is one of the biggest reasons why many people focus on acquiring real estate as part of their wealth-building plan. You don’t need an entire real estate empire to grow wealth through real estate. Your primary residence can serve as the foundation for wealth-building for many generations to come.   Using strategies to set up your home transfer to heirs is the best way to keep more of your wealth in the family. And if you’re anticipating inheriting a house, discuss with the homeowner to ensure their home is optimally set up before they pass away.

Did a recent (or upcoming) inheritance impact your wealth? Talk with a financial advisor at Paycheck to Wealth to ensure your inheritance continues to grow for long-lasting generational wealth-building.