The New Math on Inheriting Your Parents’ House

One of the first things many people do when they inherit their parents’ home these days is put up a for-sale sign.

Deciding what to do with a family property is often both an emotional and financial decision, but the rising costs of renovations, property taxes and utilities are making it harder for adult children to hold on to the real estate, financial advisers say. Higher home prices and mortgage rates have often also made it impractical for heirs to buy out their siblings, said Dick Stoner, a Realtor in Rockville, Md.

The high home prices of the past few years have made the decision to sell even more attractive. If inheritors can unload a house in a hot location for a high price, the proceeds from the home’s sale can help secure their finances and fund goals such as retirement, advisers say.

“For inheritors, cash is king,” said Paige Wilbur, Wells Fargo’s head of estate services.

Cash over sentimental value

Leaving a home to children remains a common way to transfer wealth, according to financial advisers and estate planners. There is no recent data that tracks home inheritance nationally.

More than three-quarters of parents plan to leave a home to their children when they die, according to a 2023 Charles Schwab survey of more than 700 American investors between the ages of 27 and 95. Some children may be reluctant to sell for sentimental reasons, but finances and simplicity of unloading a property often win out. Nearly 70% of those who expect to inherit a home from their parents plan to sell it, the survey found.

When Heidi Whaley and her sister, Melissa Mills, inherited their parents’ home, they chose to put it on the market. They recently listed the Charleston home for just below $3.5 million. The sisters, both retired, felt some sadness letting go of the home they grew up in and where their parents hosted many waterfront parties.

“My father wanted to build a house that would be strong, one which would be passed from generation to generation,” said Whaley.

Both sisters are empty-nesters with their own nearby homes, and said they couldn’t justify the expense of maintaining a nearly 4,000-square-foot house for the sake of fond memories.

Rising costs are a bigger part of the calculus these days when heirs decide whether or not to keep an inherited house, real-estate agents say. For instance, the higher cost to insure coastal homes in the Southeast is pushing more heirs in the area to sell, said Ruthie Ravenel, a Realtor in Charleston.

Inflation has also made repairs and upkeep on older properties more expensive, leading some to favour newer properties that may be cheaper to maintain and insure, she said.

I’ll keep the vacation home, though

The declining interest in keeping Mom and Dad’s home is part of a broader generational trend among inheritors, estate planners say.

Some tangible assets aren’t considered as valuable as they were in the past, thanks partly to changing tastes, said Wilbur with Wells Fargo’s estate services.

Renovation is expensive and what one generation sees as on-trend, the other may not. For example, the younger generation of beneficiaries mostly don’t want older traditional furniture. Instead, they prefer the modern, farm-style chic look, said Wilbur.

“While Mom and Dad’s home might be nice, the children may not want to live in it and would consider it too costly to renovate to their style,” she said.

Vacation homes and secondary properties, however, are more likely to be kept by heirs, at least for a few years, especially if it is in an appealing location, financial planners say. If multiple family members are inheriting a vacation house, there needs to be a way to split maintenance costs fairly and create a usage schedule that is to everyone’s liking, said Jeff Fishman, a financial adviser in Los Angeles.

Consider the taxes

Taxes remain a key reason many heirs sell relatively soon, financial advisers say.

Aaron Buchbinder, a real-estate agent in Boca Raton, Fla., is working with three brothers who inherited their grandmother’s condominium this year in Boca Raton and none of them live in Florida. They discussed keeping it and renting it out, but none of them wanted to keep it long term and preferred to sell because of the carrying cost of the homeowners association fees and taxes, said Buchbinder.

Heirs who wish to buy out their other siblings will want to use a reasonable method for valuing the home, said John Voltaggio, a managing director at Morgan Stanley Private Wealth Management. The family may decide to use the value reported on the estate tax return if it is recent, or they may want to obtain a few appraisals and use an average, he said.

The family members inheriting the property will also want to make sure they aren’t getting in over their head financially, with mortgage rates hovering around 7%.

“Many financial decisions today are very rate-dependent, so remove emotions or risk doing something you may later regret,” said Fishman, the financial adviser in Los Angeles.

A home’s cost basis—which is the starting point for measuring a future taxable gain—resets to market value, typically its value at the date of death, said Eric Smith, a spokesman for the Internal Revenue Service.

Any increase in value after death is taxed as long-term capital gains, and those rates are lower than the rates on short-term gain. But if a home is sold quickly, there is likely to be little gain if any and little to no tax, said Smith.

Sydney is well and truly on the world map when it comes to luxury residential property, rivalling—and even beating—the likes of Tokyo and Dubai in terms of price per square metre.

The harbour capital has also proven itself to be a powerhouse for luxury residential rental growth. Knight Frank’s Prime Global Rental Index Q4 2024 showed prime rents across Sydney grew 4.7 per cent over 2024, the fifth-highest growth globally.

This has pushed several of Sydney’s top suburbs over the $2,000 per week median rent mark for a house, with surrounding areas fast approaching the milestone.

We’ve wrapped up the most expensive suburbs to live in across Sydney, with data sourced from property data analytics firm CoreLogic.

1. Vaucluse: Median purchase: $8.69m; Median rent: $2,198

Vaucluse has consistently ranked as Sydney’s most expensive suburb for rental properties over the past few years, even with annual rents contracting by over 14 per cent. What sets it apart is its unique geography—it’s the only suburb in the Eastern Suburbs that stretches from the harbour to the ocean. Homes in Vaucluse top the price charts because most either boast Sydney Harbour views or enjoy uninterrupted outlooks over the Pacific Ocean.

The Neighbourhood

While most Eastern Suburbs have one main beach, Vaucluse is dotted with several secluded spots, such as Parsley Bay, Milk Beach, and the recently reopened Shark Beach, which had been closed for several years due to retaining wall repairs.

2. Dover Heights: Median purchase: $6.38m; Median rent: $2,024

Vaucluse’s immediate southern neighbour, Dover Heights, is the only other suburb in Sydney with a median house rental over $2,000. Dover Heights hugs the cliffs and is well known as one of the most tightly held house markets in the Eastern Suburbs. The homes are perched on the cliffside, and the majority of houses in the area have at least four bedrooms, pushing up prices.

The Neighbourhood

While there are no beaches to speak of, its elevated position provides some of the highest views of Sydney Harbour. It is also home to the Federation Cliff Walk, a five-kilometre clifftop walk with postcard views of the Pacific Ocean from Dover Heights to Watsons Bay.

3. Bronte: Median purchase: $5.64m, Median rent: $1,963

Bronte takes out the title of the most expensive of the ‘typical’ Eastern Suburbs beachside suburbs. Just 30 per cent of homes in Bronte are separate houses, with nearly half being apartments. Houses in the rental pool are typically original homes dating back to the 1960s that have been renovated over the last decade or so.

The Neighbourhood
Bronte has long been a favourite due to its more relaxed beachside lifestyle compared to the busier Bondi, although Bronte is no longer a ‘hidden gem’ anymore. It offers numerous lifestyle perks, from a small high street lined with shops and cafés to several eateries located by the beach, which also features one of the best natural ocean pools in the Eastern Suburbs.

4. North Bondi: Median purchase: $4.81m; Median rent: $1,932

North Bondi has become a hotbed of new homes, with frequent sales of either original houses or older apartment complexes being bought to be demolished and replaced by brand-new contemporary builds. There’s a mix of original cottages and new homes in the rental pool, the latter fetching over $7,000 a week.

The Neighbourhood
North Bondi is situated in a small pocket, just south of Dover Heights and north of Bondi Beach. Starting at the Ben Buckler Peninsula, near where Campbell Parade transitions into Military Road, North Bondi is one of the most secluded areas on the coastline, with Hastings Parade, Brighton Boulevard, and Ramsgate Avenue all offering a southward view over the sand.

5. Balgowlah Heights: Median purchase: $4.13m; Median rent: $1,930

Balgowlah Heights is the most expensive suburb to rent a house in the Northern Beaches. Land sizes tend to be much larger, and you get more for your money in the area compared to the East.

The Neighbourhood
Balgowlah Heights is the harbourside southern neighbour of Balgowlah. The Sydney Harbour National Park occupies half of the leafy suburb, part of the Manly to Spit Bridge Walk, and is home to Tania Park, with a children’s playground and sporting facilities overlooking Manly Cove. Nestled on the northern shores of Sydney Harbour, it offers a serene and leafy environment.

6. Bellevue Hill: Median purchase: $10.63m; Median rent: $1,917

Bellevue Hill stands as one of Sydney’s most prestigious suburbs and has some of the largest houses by median land size.

Given the large gap between median purchase price and median rental price, it is no wonder renters want to live among $10m homes and pay under $2,000 a week, when a $10m purchase means $2m deposit, over $500k in stamp duty, and roughly $12,000 a week in repayments.

Most mansions will never make it to public rental sites and are often snapped up by Hollywood stars, musicians, or even royalty when they visit Australia.

The Neighbourhood
One of the biggest drawcards for those living in Bellevue Hill is the proximity to two of the country’s top schools. While there are no catchment areas for private schools, Cranbrook School and Scots College will always draw affluent families to the suburb. Scots fees start at around $30,000 per annum from Year One and reach nearly $50,000 by Year 12.

Sydney’s Cheapest Suburb: Tregear; Median purchase: $782,000; Median rent: $544

The cheapest suburb to rent in Sydney is Tregear, located on the outskirts of Mt Druitt, approximately 50 km west of the CBD. The median house rental is $544, which is four times cheaper than renting a house in Vaucluse. The median house price in Tregear is $782,000, around 12 times less than Vaucluse.

Sydney’s Best Suburb: Point Piper

If money were no object, it’s hard to look past Sydney’s most affluent suburb as the top pick for the best place to live in the city, in my opinion.

It doesn’t even have an actual median house price, simply because so few properties change hands. Last year, just five houses sold, ranging from $8 million to $51.5 million. Homes on the best streets offer gun-barrel views of the Harbour Bridge and the Opera House, while the cosmopolitan Double Bay next door provides all the lifestyle conveniences.