Inherited house turning into a money pit

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moongazer
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Inherited house turning into a money pit

Post by moongazer » Fri Jun 22, 2018 8:52 pm

I inherited my parents 49 year old home. I also inherited my fathers IRA’s, but he set them up with his Trust as the beneficiary originally and never changed it, which has caused major tax consequences already when they were liquidated, and now I’m facing even more taxes in January. This has also caused my health insurance to change from very little monthly premium with the tax credit to $900.00 a month with the tax credit taken away since I can’t qualify for that now. This means that I am going to have to pay back the tax credit I received for 4 months next year. My parents failed to maintain the house inside and outside and do what was needed. I just realized that they must have had the mindset that if it isn’t broken don’t fix it and maybe thought that everything would last a lifetime or, we’ll deal with it later and later never came. I am now dealing with this aftermath and have done major repairs/replacement to the cost of almost $46,000.00, and now I’m finding out that the attic where the dryer blows into has got to be cleaned and insulation replaced. No one has been up there for at least 20 years and that is going to cost about $6,000.00. This amount is not included in the first amount I noted. Also I haven’t worked in 2 ½ years due to family issues, I had to quit to take care of parent.

And there is more that needs to be done. All the flooring needs to be replaced in the 3 bedrooms and living room, bathroom flooring changed, the kitchen and dining room floors are very difficult to clean, all the walls need to be painted, drapes replaced or cleaned, the yard all around the house needs a lot of work that I can’t do, should get new toilets (2), just read that the plumbing pipes should be looked at (have no idea what updates on those would cost),. There is a room connected to the house that is outside but it’s enclosed, that sustained water damage years ago and was never attended to and there was a leak for an unknown amount of time and origin in this room that manifested at the back of the chimney which is at the ceiling line that has to be repaired. I have been ripping out 49 year old carpet, yuck, in the living room myself because I can’t afford to hire someone and will put in new inexpensive flooring myself which shouldn’t be too hard. But it seems in order to get the house decent again, all of these things have to be done and how much more will they cost? Will it be another $46,000.00? I don’t have the money.

I don’t know what to do. The realization that I am going to lose a lot of money is causing emotional and mental anguish, I have been very angry lately, along with the fact that it seems that I am going to have to put a huge amount more into it if I want to get it back to a comfortable level. And then how much money am I going to have left. I did invest some of the money, but I can’t touch that for a long time or what’s the point of having it invested. I do have a sentimental attachment to the house, but I am realizing that I might have to sell it. And with my not working that is also a huge concern, being able to get a job with the 2 ½ year gap and I’m also older. Seems like I’m going to have to be on an extremely fixed budget in my last years instead of being able to enjoy some of the money. Any help would be greatly appreciated.

AlwaysWannaLearn
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Re: Inherited house turning into a money pit

Post by AlwaysWannaLearn » Fri Jun 22, 2018 9:38 pm

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Last edited by AlwaysWannaLearn on Wed Jul 18, 2018 11:20 pm, edited 2 times in total.

mouses
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Re: Inherited house turning into a money pit

Post by mouses » Fri Jun 22, 2018 9:57 pm

I am sorry about the loss of your parent and that the house is a money pit.

I also think we need more information about your finances,

Do you intend to live in this house? Does it actually need all this work done at once? At least some of it sounds to me like it could be postponed and done bit by bit if you plan on living in it as opposed to selling it. And if you plan to sell it, consider as is instead of making all those repairs.

I'm an old house enthusiast and I've done my share and seen others make a couple of rooms nice and then slowly work on the other rooms. Structural issues like leaking roofs come first, though.

tim1999
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Re: Inherited house turning into a money pit

Post by tim1999 » Fri Jun 22, 2018 10:14 pm

Unless there is some legitimate reason why you absolutely must live in this house, sell it as-is and move on.

Nate79
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Re: Inherited house turning into a money pit

Post by Nate79 » Fri Jun 22, 2018 11:02 pm

Sell it now and move on. You are wasting your money fixing it to just turn around and sell it later.

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Sandtrap
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Re: Inherited house turning into a money pit

Post by Sandtrap » Fri Jun 22, 2018 11:32 pm

Minimal cosmetic and cleaning improvements. Clean, paint, recarpet, etc, and sell.
Cut costs where you can. Fix it to sell vs fix it to keep. Different things.
Fix only what needs to be fixed. Things that should work. Lights. Outlets. Fans. etc.
New carpet for old.
Clean it perfectly.
Repaint.
Done.
Move on.
j

gd
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Re: Inherited house turning into a money pit

Post by gd » Sat Jun 23, 2018 8:35 am

moongazer wrote:
Fri Jun 22, 2018 8:52 pm
... I do have a sentimental attachment to the house...
I interpret your post as at least partly a stress-relief rant; I've no problem with that, do it myself, it's part of the internet posting game. But note that there are several paragraphs of problems against the house and this single phrase for. Your first task is to understand the value and cost of the "sentimental attachment", both emotional and monetary. It's a house, not a memorial to your parents or your childhood. You've got good memories, don't supplant them with bad. Might be time to let someone else create good memories in it.

BTW, If you get into soliciting comments about house and yard repairs, location and circumstances matter. E.g. advice from SoCal or FL doesn't always work in the far north.

dbr
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Re: Inherited house turning into a money pit

Post by dbr » Sat Jun 23, 2018 9:55 am

Stuck with a house of a disabled family member in a similar situation selling as-is was the best choice. The buyer (a professional contractor) gutted the house completely and did a rehab. Any attempt at maintenance of anything by us would have been money down the drain. You don't even clean the place because anything you would clean is going to be stripped out anyway. It is just a matter of acknowledging the house isn't worth much.

nyclon
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Re: Inherited house turning into a money pit

Post by nyclon » Sat Jun 23, 2018 11:50 am

I've been in a similar situation. These situations seem complex due to emotions and sentimental value.

Take a step back from the emotions, try to look at this situation from a third party perspective if possible.

You may find that selling the house as-is, literally without doing anything more to it, is the right answer. A flipper or other investor will take it - let them make some money and give you time back. You can then use the proceeds to clean up / fund the issues related to the trust.

As for the issues related to the trust, see an estate planning specialist and similarly try to liquate / simplify while managing taxes and fees.

Remove the burdens and simplify is the best advice I can provide. Not only can this be a money pit, but also a time and emotional energy pit.

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TxAg
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Re: Inherited house turning into a money pit

Post by TxAg » Sat Jun 23, 2018 11:57 am

Sell it. Problem solved.

delamer
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Re: Inherited house turning into a money pit

Post by delamer » Sat Jun 23, 2018 12:02 pm

tim1999 wrote:
Fri Jun 22, 2018 10:14 pm
Unless there is some legitimate reason why you absolutely must live in this house, sell it as-is and move on.
Agreed.

It is not clear if this house us where you are currently living, but sell and move on if that is an option.

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celia
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Re: Inherited house turning into a money pit

Post by celia » Sat Jun 23, 2018 2:04 pm

moongazer wrote:
Fri Jun 22, 2018 8:52 pm
I don’t know what to do. The realization that I am going to lose a lot of money is causing emotional and mental anguish, I have been very angry lately,...
I think the first thing you need to do if you are living in the house is get away for a few days to help you focus on the bigger picture. Do you have someone you could go visit? If you are living in the problem house, that makes things worse since you are physically surrounded by it. If you don't live in the house, don't go there for a week.

Then I would invite 3 real estate agents (from different agencies) over, on different days from each other, to help determine the current value of the house and give you a written appraisal. If it truly needs a lot of work, the value may not be what you thought it was. It's current value can't be compared to other nearby houses of the same size that are in decent condition in the same area. Ask each realtor what they suggest is the easiest thing they would do to improve the selling price. But if it costs $x to fix something but that won't increase the selling price by at least $x, it is not financially worth it to fix it. Let the next owner do that. Talking to realtors will also give you a different perspective. They may or may not see it like you do.

While they are there, you can also assess how effective each realtor is and who you would eventually select to help you sell it. Ask each agent how many houses they sold in the last year, how many fixer-uppers they've sold, and what the hardest house to sell was. If they've never sold any fixer-uppers, don't choose them. You also don't necessarily want to select the agent who suggests the highest selling price since they could just be setting up high expectations for you, which could disappoint you later. The house will sell for the same price with any of them (since the pool of buyers who are willing to buy a fixer-upper is limited).

To make your house more appealing to buyers, it is most important that it looks inviting from the street, or they won't even come in. Clear all the weeds that are seen from the street, keep watering the trees so they don't die, and fix the steps or front door, if needed. As the realtors visit, listen to their suggestions and WHY they recommend each thing. They are partly thinking like a potential buyer and a potential seller. Their first impressions of the house will likely be similar to buyers' first impressions.
...along with the fact that it seems that I am going to have to put a huge amount more into it if I want to get it back to a comfortable level. And then how much money am I going to have left.
You will not really be losing any money because the value of the house in its deteriorated condition was never what you thought it was. The current value is what a willing buyer would pay for it today, not what it was when the house had the best selling price. And you are not really losing the $46,000 since, if you saved all the receipts for that work, that will adjust the cost basis on paper when you file your taxes and report the sale. (Take the average of the 3 estimates you are given and subtract $46,000 from it. This is your cost basis. Then after it is sold, subtract this from the selling price along with the commissions and fees and further money you might put into the house.) The gain should be minimal or the agents under-estimated the house value. If there is a loss (which is a long term loss since you inherited the house), that will cancel out an equal amount of long term gain this year or it can be carried forward into future years with $3,000 of the carry-over cancelling out $3,000 of gains each year, until the full loss is matched with gains.
I do have a sentimental attachment to the house, but I am realizing that I might have to sell it.
This is where you should take lots of quality photos of the house and its furnishings now. In the future you can print/enlarge a photo or two and frame it if you are nostalgic. Also save one or two items from the house that brings you good memories, such as a tea cup/saucer pair, a wall hanging, or knick-knack. If you have siblings, also ask what items they would like to keep.
And with my not working that is also a huge concern, being able to get a job with the 2 ½ year gap and I’m also older.
I don't think this is that big of a problem unless you used skills that are now outdated. You have a very good reason for why you weren't working. In fact, many companies are now giving their employees paid leave to help care for a family member. So you are not the only one who has had to take time off. In fact, it is likely to your financial advantage that you took the time off since you or your parents would have had to pay for a caregiver the last few years. That would have brought down their assets or yours significantly.

If your last surviving parent died this year and you had to spend money on some things that could be medically necessary (including paying a caregiver if they couldn't be left alone), when you file taxes for that person, you might be able to use some of the IRA payout (if it was in the same year as the expense was incurred) to offset the cost. You might want a tax preparer to help you figure this out. If there is a Tax-Aide center near you, they can help you prepare the parent's and your tax returns for free during tax season. Save your receipts/cancelled checks for these expenses (as well as for the $46,000 spent on the house) and bring them to the visit with you.
Last edited by celia on Sat Jun 23, 2018 2:13 pm, edited 1 time in total.

mouses
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Re: Inherited house turning into a money pit

Post by mouses » Sat Jun 23, 2018 2:13 pm

I think Celia has really covered everything with good advice.

moongazer
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Re: Inherited house turning into a money pit

Post by moongazer » Sat Jun 23, 2018 6:26 pm

Thank you for the condolensces AlwaysWannaLearn. My dad passed from alzheimers this year. Horrible disease. I am so sorry you lost your mom so young and your dad so young, I believe 37 is young.

I don't want to say what city because my sibling might be reading this and I don't want that person to know what I am going through financially or what I'm doing with the house, yet. Long story. I'm in California and living in the house, I'm 57 years old, I have one sibling. The beneficiaries of the trust were myself and this sibling whose share of the inheritance was not taxed due to the type of investments. The accounts that I received were liquidated by lump sum, As co-trustee of the trust, if I had known that I was going to suffer major tax consequences, I would have done everything possible to change the beneficiary to myself the way it was supposed to be, as I was named the beneficiary of these in the trust, but the accounts were titled differently. No one ever told me this was going to happen. Apparently, IRA's are never supposed to go into a trust.

moongazer
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Re: Inherited house turning into a money pit

Post by moongazer » Sat Jun 23, 2018 8:17 pm

Thank you for your condolensces mouses.

I am currently living in the house. The majority of the work had to be done all at once, the exterior was in horrible condition, paint peeling, dry rot. My father couldn't do the repairs for years due to a lot of reasons. In the spring, I called the insurance to have the insurance put in my name and they had to inspect the property. They decided to cancel the insurance as they thought the house was too risky due to the deterioration and gave me 4 weeks to do everything which was impossible as we were having a lot of rain. That insurance was cancelled but I got another company to write the policy before the cancellation date and the work had to be done to get insured with them (exterior painting/dry rot repair/gutter replacement, tree cutting). The roof had to be replaced due to the unknown origin of the fireplace leak and the repairs on the inside of the house were also critical. I have no idea how long the water was leaking into that area. The water heater and furnace were both 49 years old, the heater had asbestos tape on it. Had to replace the circuit breaker panel as it was an old Federal Pacific which is a fire hazard. All the other things in the house can probably be worked on gradually. But now there is concern with the attic, that is where the dryer blows into and hasn't ever been cleaned. But it's just me doing all the stuff on the inside of the house, I can't afford to hire someone. But the floor in the kitchen is like nothing I've seen before in that, the tiles are very porous and the dirt is extremely difficult to get off, there is a layer of dirt that is caked on. Whatever product my mom used years ago made the floor a lot worse, and I was having to actually scrape each of the tiles with a putty knife to get the layer off. I'm not kidding. it took me weeks to find something that works. I first tried straight ammonia that worked pretty good on the other floor but did nothing for the kitchen tiles. I found a product made by ZEP (Heavy Duty Floor Stripper) that works great, but I can't just glop it on the floor to clean it. I have to use it full strength as diluting it does nothing, and it is very sticky and after 8 minutes it dries to a glue-like consistency. But I can only put a small amount on each of the tiles, let it set, then scrub it off and sometimes it takes more than one application. Very labor intensive. It does work but it's taking a lot of time.

mouses
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Re: Inherited house turning into a money pit

Post by mouses » Sat Jun 23, 2018 8:31 pm

Having read what you wrote just above, I'm with the sell the house people. At least see a couple of real estate agents to get their opinion. What you're describing is a gigantic project for a younger person. As attached as you might be to this house, you need to protect your health from all this stress if you possibly can financially.

Can someone explain to me why it is so bad to have IRAs go to a trust? It probably, I assume, removes the withdrawal over years possibility, but otherwise I am ignorant,

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TxAg
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Re: Inherited house turning into a money pit

Post by TxAg » Sat Jun 23, 2018 8:55 pm

The more I read, the harder I lean towards selling it. Someone will want to flip it and save you the headache.

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celia
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Re: Inherited house turning into a money pit

Post by celia » Sat Jun 23, 2018 8:58 pm

I am amazed at all the work you had done for $46,000, moongazer. Although we can't see the house, I'm sure it looks a lot better already. But since we can't walk through the house with you, the real estate agents will give you a good idea of what you can expect going forward. Don't try to do it yourself, since you've already gone through a lot and things can get complicated, especially with a house that is not in the best condition.

You are putting a lot of time into this effort as co-trustee. I assume the sibling is the other co-trustee. Have the two of you spoke about you taking a trustee's fee for all the time you've spent on this compared to your sibling? Somehow a 50-50 split does not sound fair when it comes to distribution. You lost your job and spent 2+ years uncompensated when your dad was around. Then your IRA payout ended up being taxed. I would be very frustrated with just that if I was in your position.

Hopefully the trust says you share the final assets 50-50 AFTER you are compensated for your time. See an attorney by yourself, if need be, to help make this fair, if that was the original trust intent.
mouses wrote:
Sat Jun 23, 2018 8:31 pm
Can someone explain to me why it is so bad to have IRAs go to a trust? It probably, I assume, removes the withdrawal over years possibility, but otherwise I am ignorant,
RMDs are required on Inherited IRAs, starting in the year after death. They are calculated based on the heir's expected life expectancy. But a trust has no life expectancy since it is not a natural-born person, but a legal entity. The trust may have been able to spread the distributions over 5 years, but that is too late, now.

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