Profits in Probate
Last month, we discussed tax liens and deeds as an overlooked area of real estate investing. Too often, investors are one-dimensional in their approach to real estate investing. Being a one-strategy investor can be successful, but highly successful real estate investors rarely settle on one investment strategy until they have become well versed in multiple strategies. After trying out a few options, investors then settle on the strategy that best fits their strengths and fulfills their personal and financial goals.
This month’s article will focus on probate investing, which, much like tax liens and deeds, is an area that most real estate investors have only cursory knowledge of. This is an unfortunate oversight on their part, as investing in probate properties can be a lucrative method of investing that fits nicely with personal time constraints and financial goals of many new and seasoned real estate investors. It is definitely an area of investing that all real estate students should investigate to see if it is a match for them.
What is Probate? A Simplified Explanation
As with most legal matters, probate is complex and full of details. For our purposes as real estate investors, we only need to understand the big picture and the basics so we know why properties in probate can make attractive investment opportunities.
Probate is simply the legal process of what happens to the estate of a deceased person.
The probate process insures that all of the deceased person’s debts are paid and the remaining assets are distributed according to the deceased person’s wishes. While items such as trusts can be used to insure loved ones inherit assets, they are not always used or available.
The executor is the person charged with overseeing the disbursal of the deceased person’s estate. Executors can face a plethora of situations, some of which can create sound investment opportunities for the investor. A few common examples of such situations include:
• A property that is in need of repair
• A heir that doesn’t want the inherited property but wants cash right away
• A heir that doesn’t wish to invest their time in the liquidation of the estate and is looking to expedite the process
All of these situations can create a motivated-seller situation.
Motivated Sellers—A Key to Successful Real Estate Investing
Many successful real estate investing strategies require finding and negotiating with motivated sellers. As real estate investors, we are naturally looking to make a profit on our investments based on the time and money we invest. We also love win-win situations where we can make profit while helping others fix a problem and move on with their lives.
Finding good investments typically requires finding individuals that are motivated to sell. This motivation can stem from numerous sources, and many times probate properties come with motivated sellers. In fact, the probate market probably has a higher percentage of motivated sellers than any other area of real estate investing. In traditional searches for motivated sellers, you are often dealing with people who live in the home they are trying to sell. This is usually not the case in probate properties.
Whether through the desire for fast cash, not wanting to deal with repairs, not wanting to deal with a second property, or out-of-state heirs, there are multiple reasons for motivation that are not found in traditional homeowners. Whatever the motivating reason in these situations, the end result is that you have an individual(s) who doesn’t want the property. In many of these situations, you will find that they want to move the property as quickly as possible and often, especially in today’s real estate market, are willing to offer large discounts to accomplish that fact.
Where to Find Probate Properties
You likely have a local probate office—all cities (or counties if you live in a smaller town) have a probate office. Probate offices have files on all of the probate houses within its jurisdiction free of charge. There is usually just one probate office in your city and it should be easily located by putting in the key words probate, office, and your city name into any search engine.
You may get lucky, and your city’s probate files may be online to view. If not, a quick trip down should provide you the information that you are looking for, which is real estate in the executor’s estate and the contact information for the executor. From there, you can put your real estate training to work.
Like many niche markets, probating investing is not for everyone. Unlike many niche markets, probate investing can be done by just about anyone. Once you become familiar with case files, understand what you are looking for, and are able to weed out cases that have low probability of success, then the process becomes quite effortless. Over time it can be the easiest way to find motivated sellers.