How much does it cost to own a house? Inheriting a house that you haven’t lived in may mean you’ll face unknown expenses. What else can you do? 

Q: My widowed sister owns a modest home in DuPage County, Illinois. It’s entirely paid off. Her intent is to leave her house to me–she has no children–when she passes. I’m retired, currently rent an apartment and rely on Social Security benefits and a small pension.

How much does it cost to own a house? I am concerned about what my “costs” would be, if I do receive the house via her will.

Does it make sense for me financially if we co-owned the property? We have discussed this, and she is committed to doing what makes sense for me. Her goal is to ensure that I can actually afford to live in the house, after she’s gone. Your thoughts?

What does it cost to own and maintain a home?

A: Your sister wants to give you a significant gift: A fully-paid for home. All you would have to do is maintain it, pay for the utilities and homeowners insurance, and pay the property taxes. If the home is modest, the taxes are probably modest as well.

Maintaining and repairing a house isn’t cheap

Homes do require repair and maintenance from time to time. You’ll need to think about the following:

  • The garden. Someone will need to manage the garden in all four seasons.
  • Gutters. They’ll need to be cleaned and kept free from debris.
  • Exterior. Shovel snow, watch for ice storm damage, repair issues with the siding, windows or roof.
  • Fix broken items. This includes everything from appliances to bathroom fixtures to changing lightbulbs. 
  • Maintain mechanical and electrical systems. Make sure the heating, ventilation and air conditioning work well all year round.

Ask for the actual cost to maintain the house

Your sister already knows how much all of these items cost because she’s paying those bills. If she’s willing to give you the house, she’s probably willing to discuss how much it will cost to keep the property going. 

Here’s what we’re wondering: Where are you living now? If you’re living with your sister and she is going to leave you the property when she dies, then it shouldn’t be too difficult to have a conversation about costs. Sit down and ask her the following questions:

  • How much are property taxes?
  • How much do you spend on maintaining the house?
  • When did you last replace major mechanical systems or appliances?
  • Do you have an existing home warranty for the property? Have you used it?
  • Who helps with the exterior of the house and the garden?
  • How much is homeowners’ insurance and liability coverage?
  • Are you in a flood zone? Do you have problems with the property flooding?
  • Are there any other ongoing issues with the house?
  • Does the neighborhood have any problems, like radon?

Can you rent the property and stay where you are?

There’s a lot to keep track of with homeownership. It isn’t for everyone.

If you’re happy living elsewhere, and would prefer not to move to your sister’s house, perhaps you could rent it. The house could become an income-producing asset that would help support your retirement. Renting out the property could bring in regular income after she is gone.

Although she wants you to live in the house , it may not make sense for you socially, emotionally or even physically. If it doesn’t, you should have that conversation with her. If you’re anxious about the cost, you won’t enjoy living there, which she should know.

Can you sell the property?

Another idea is to sell the property. If you sell it within a year of receiving it, the proceeds should be tax free. That can also help fund a more comfortable retirement, which is her ultimate goal. You should have a conversation with your sister about selling the property and using the proceeds to pad your retirement savings.

Should you co-own the property now? Probably not.

You asked a question about co-ownership. There’s no reason for you to co-own the property today. As we’ve written many times, it generally makes more sense to inherit real estate rather than have someone gift it to you.

If you are worried about the cost of probate, it might make sense for your sister to set up a trust, and put the title to the property into the name of the trust. She should then name you as the successor beneficiary of the trust. When she dies, the house will pass to you automatically, along with anything else that is titled in the name of the trust, such as checking or savings accounts, or other assets.

Another option is to create a transfer on death (TOD) instrument, which allows your sister to designate you as the beneficiary of the home after her death. You would file this TODi with the Recorder of Deeds office in the county where the property being transferred is located, in this case, DuPage County. This document would also allow you to avoid probate. Currently, 29 states plus the District of Columbia, allow you to create a TOD (or a beneficiary deed).

How will your sister transfer the property to you?

Your sister may have already chosen one of these methods to transfer her house to you after her death, but if she hasn’t, you might want to broach the subject. Talk about her estate plan and ask for the name of her estate attorney, tax preparer or accountant, financial planner and banker, if she has one. Make sure she has named you her power of attorney for healthcare and financial matters, so that you have the right to make decisions for her if, for some reason, she becomes unable.

At the end of the day, it sounds like your sister has invited you to have a conversation about your future after she is gone. We think you should take her up on it, sooner rather than later.

Read More about the Cost of Owning a Home:

Are you ready to buy a home? 

Buying a house

Are you ready to buy a house?

Buying a home in as-is condition

Real Estate and Capital Gains Tax