Success stories

Inherited Property Dilemma

The Challenge

Jane inherited a condo in Los Altos when her mother passed away. Jane’s brother John, who lives in London, was also a beneficiary. Jane was inclined to sell the condo, but John thought keeping it as a rental property might be a better option. Jane was unsure of how to determine the best solution. Whether to sell or rent a property can be a difficult conversation for a realtor to have with a client because it’s hard for the realtor to appear purely objective. A colleague in the Los Altos office of Intero asked us to meet with Jane to see if we could help.

The Goal

The team at Summitry was able to objectively evaluate the property as a real estate investment and to develop a holistic balance sheet. We created a cap rate analysis and assessed the true cost of ownership making considerations for concentration positions and other assets. We also considered this decision in the context of Jane’s overall balance sheet, specifically considering asset concentrations, (she already owned significant Bay Area real estate), and tax implications of various potential decisions.  Keeping in mind that under Proposition 19, which went into effect in California on December 16,2020, if a child inherits a home from their parent(s) and does not use it as their primary residence within one year, the property tax base will be reassessed to the current market value.

The Solution

Ultimately, when we ran the numbers it was clear that, from an objective investment perspective, the property did not work as a rental. With this, we were able to pose other questions:
Are there emotional ties to the condo? Is this condo something that you would want to move into at some point?
The answer to both of these questions was “no”. Our final question was whether if handed 1.6 million dollars, would this be a condo Jane would buy as a rental property. The answer to this was also “no”. Jane was now prepared to have a conversation with her brother, in which they decided to sell the property. Jane discovered during our financial planning conversations that she and her husband had yet to fully plan for their future. Jane is now a Summitry client and so is her brother.

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Tax Benefits for the Charitably Inclined

*Actual client situation with the names changed for privacy. Please see disclaimer below.

This case study contains an actual client situation with the names changed in which Summitry has provided financial planning advice. There is no guarantee that similar results will be achieved for other financial planning clients. It is unknown if the clients on which this case study is based approved or disapproved of Summitry's services. Summitry's advice is based each client's specific situation and contains multiple factors. Summitry may make recommendations to one client that may differ from the advice given to another client. Summitry may suggest strategies that require legal services to implement, but Summitry does not provide legal advice.

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Alex Katz

Chief Growth Officer