Inheriting an apartment building is different from a single-family home. Apartment buildings are investment property requiring management and maintenance. We asked Matt Halper and Michael D’Agostino what you should do if you inherit a multifamily asset.
Before you decide to keep or sell the property, find out how much it’s worth.
“An appraisal was conducted as part of the valuation of the estate. The appraisal and a broker’s opinion of value are not necessarily going to be the same number. This information can help the beneficiaries determine if they want to hold the property or sell it. The BOV would provide a more realistic value of the property if you were to sell it, giving the beneficiaries information they need to decide on the path forward. A commercial real estate broker to value the building.” – Matt Halper
“Getting a full official appraisal is helpful but comes with out of pocket costs. Another way to get the property value is to research who the investment sale brokers are in the neighborhood. These brokers will be most familiar with the nuances of selling a building in the area. Therefore, they would know more about a realistic selling price. The right brokers should give a “Broker Opinion of Value” or a “Sale Analysis” free of charge in hopes of getting the listing if you decide to sell.” – Michael D’Agostino
What experts should you consult with to help you make the decision to sell?
“An estate planner or accountant, an investment sales/commercial real estate broker, and an attorney.” – Michael D’Agostino
Who do you speak with about the tax implications of selling the apartment or continuing to rent it out?
“It would be best to first talk to an estate planner to understand how the asset has a step up in basis after the descendant deceased. It’s also important to learn if there will be any estate taxes and how much the property taxes will be moving forward.” – Michael D’Agostino
Is selling an apartment different than selling a home?
“Yes, an apartment building is a financial investment. Houses are obviously financial investments for most people as well. Still, there is an emotional component to the purchase and sale of a home where you raise (or raised) your family that does not exist with the purchase and sale of a multifamily building. The broker you select will market the property on your behalf, present offers, and bring it to a close. It is real estate sales, so there are similarities, i.e. marketing, showings, offers, escrow, and finally closing. The difference is in the product type, so you need a professional who has experience in selling homes or apartment buildings, which are essentially private businesses.” – Matt Halper
How much information do you have to share with the current residents if you are planning on selling?
“Typically, it’s not necessary to inform tenants the building is up for sale. The best investment sale brokers can market the property as widely as possible and keep the current tenants happy and not make them aware of any potential sale.” – Michael D’Agostino
How do you find out if the property is undercharging on rent?
“Regardless or not if you want to sell or keep the property, understanding what the market rent for your property is the number one priority. A broker will know whether you are getting the proper rents they know what the buildings in their neighborhood are also renting for. A major question to ask is, what should the unit get “as is” and what could one rent the unit for if upgrades were made.” – Michael D’Agostino
What experts should you consult with about keeping the property and managing it?
“Managing a property can be a bit tricky, and the best owners manage the property themselves and are at their buildings constantly. Being present certainly helps with minor fixes that inevitably arise, and the owner can fix it cheaper than hiring a new contractor for every maintenance issue. Managing a property on your own comes with a whole new set of responsibilities. I’m not saying one shouldn’t use professional property managers. It really depends on the amount of involvement you want to have with the day-to-day of the property. Many property managers are best recommended by word of mouth. It’s important to note that many professional property managers historically receive only negative reviews online by tenants, but you don’t hear of the good work they do behind the scenes for their property owners.” – Michael D’Agostino