It sounds wrong, but for many people it’s a fantasy. One day you learn that your distant Aunt Mildred passed away. She remembered your doughy, pinch-able cheeks from the one time she met you, when you were three. So she decided to leave you her house – the one she paid off decades ago.
Sure, if you’re in your 20s, live below your means, and currently rent a home this sounds like a dream scenario. (With all due respect to poor Aunt Mildred. She sounds like a saint.) But if you have a family and a mortgage on your own house, you could end up losing money in the deal.
Sounds crazy, doesn’t it? How does a family lose money on a free house?
We’ve seen this happen so many times. The details change from case-to-case, but the stories follow the same structure. Consider a couple that recently called us. We’ll call them Jerry and Ellen, though those are not their real names.
Jerry and Erin inherit a house from Erin’s mother. They own a home already, so they don’t quite know what to do. They could sell, but it would take considerable work to get the house into saleable shape. Since they’re happy in their current home, moving is not an option.
Instead of making a decision, Jerry and Erin dragged their feet. The house turned into an enormous storage unit. That might seem like a decent deal. Storage units cost more than $100 per month. But when you consider what the house actually cost Jerry and Erin, it’s a deal of the rawest order.
It’s not as though they can just turn off all the utilities. They might not get used much, but shutting them off can cause problems down the road (which will mean an even larger investment when they finally sell). The yard can’t go untended. Then there are matters of tax and insurance.
How much does this “free” house cost Jerry and Erin?
$300/month Utilities (water, gas, & electric)
$250/month Property Taxes
$50/month Yard Service
$100/month Property owner’s Insurance
Instead of paying $120 a month for a self-storage unit, this family is paying $700 for what amounts to the same thing. That’s not even counting the $500 yearly charge for homeowner’s association dues. In total they pay $8,900 per year to maintain a house that they do not live in.
If Jerry and Ellen drag their feet for six years – by no means an outlandish estimate given the cases we’ve worked with – they’ve spent $53,400 on the house.
So much for free.
By the time they called HoustonHouseBuyers.com the house had decayed further, necessitating even more repairs. The yard dried up and the foundation moved. Plumbing under the slab dried and cracked. Small leaks from the roof and HVAC went unnoticed and ruined sheetrock and carpet. Aesthetically, the house was dated. The kitchen and bathrooms both required upgrades, including hardware and appliances.
We performed our normal appraisal and decided that, given the extensive damage and upgrade needs, we could offer $45,000. That doesn’t even cover the expenses they incurred during the six years they held the house without using it.
$45,000 Current market price and HoustonHousebuyers.com’s cash offer
-$53,400 Total cost for holding onto the house
-$8,400 loss when sold
A free house actually cost them $8,400.
The good news is that house owners can learn from this costly mistake. If you inherit a house you have two choices. You can either occupy the house or you can sell it. If the house owners had called HoustonHouseBuyers.com when they inherited the house we could have saved them $53,400 in expenses and put $45,000 into their pockets – perhaps more, if the house were in better relative condition.
If they saved what they spent in expenses for six years and took our offer six years ago, they would have had at least $98,400. What could your family do with $98,400 in cash?