2021 Guide to Buying Probate Properties
With real estate being more competitive than ever in the investing realm, people may find themselves taking unique avenues to find their next deal. Looking in the right places can net a fantastic deal on a property that other investors may not know about, and probate properties are a great example! Probate properties, if you find yourself in the right place at the right time, can be a great investment opportunity. That being said, prepare to have your money tied up for a long time in a property that may require major repairs.
So, potentially great deal with potentially great risk — is it worth it? At hardmoneylenders.io, we can’t tell you your own appetite for risk; what we can tell you, however, is everything you need to know about finding and buying probate properties. So, let’s get started!
What is a probate property?
Probate assets are assets left by a deceased person who failed to specify an heir for their property. In the case of a probate home, this would mean the owner of the home passed away and did not specify an heir or next of kin to take over the property. In this case, the property is seized by the state and the closest living relatives are appointed to handle the sale of the property.
Are probate properties good investments?
The answer to this question is relative to your risk tolerance, the research you do, and the condition of the property. Probate properties are often sold by the closest living relatives for much lower than fair market value because they don’t want to deal with the hassle of getting the home in great shape for a sale. Because of this, probate properties can often be picked up on the cheap if you come across someone looking to move on from the property in a hurry!
That being said, probate properties come with some pitfalls and additional risk. For one thing, probate properties can be in poor condition if neglected long enough. It’s more likely than not that a probate property will be in need of some kind of repairs, so be prepared to put in some work once ownership is transferred to you.
Additionally, probate properties come with an impressive set of hoops to jump through. Since the state is involved, be prepared for paperwork and drawn-out wait times. Probate properties can take anywhere from 18-36 months to close on compared to the 60 days it takes to close on a traditional property. If you’re willing to wait out this process, you can secure yourself a potentially great deal on a property! Or, after all that, you may find that the home isn’t as profitable as it once was because of changing market conditions, newfound repair issues, and more — a lot can happen in 1 to 3 years!
Tip: The probate property purchase process can take anywhere from 18 to 36 months to conclude. If you don’t want your money tied up that long, look for investments elsewhere!
How to find probate properties
- Court Records
Probate court records are publicly accessible, meaning you can find records of probate properties with a Google search! Search your county’s court records online with terms like, “probate list in [x] county,” “probate property list [x] county,” and the like. You should be able to find a list of probate properties that are active, and from there you can continue your investigative work! A great online resource to start doing your research can be found here.
Afterwards, you’ll want to contact the closest living relatives that have been assigned the property rights. If they’re friendly and responsive to your Facebook invite, phone call, or however you choose to contact them, that’s the time to strike up a conversation about putting some money in their pocket and ridding them of this probate property hassle!
- Ask Your Realtor
Having a great relationship with a realtor can make a world of difference in your investments. If your realtor knows you’re serious, they may undertake some of the leg work or have a list of probate properties ready to go for you! Realtors have access to the MLS, a system filled with information on all properties in their area. They can search for probate properties and find some deals that may interest you!
Some realtors that deal with multiple investors may have probate lists ready to access for you and other potential investors. It may be best to seek out a realtor that consistently works with probate property buyers, as the entire process is lengthy and complex. Even if you find a new and eager realtor willing to take on your requests, it might be a better idea to find an experienced realtor who has gone through the probate process multiple times. In the end, it’s down to your personal preference and comfort level with uncertainty.
- Research Auctions
Probate properties are often sold at auction, so be sure to check auction listings to see if any great potential deals are available. Many investors shy away from bidding on probate properties because of involvement with the probate court and process, but patience may lead to great returns!
Many experienced investors will be at probate auctions hoping to snap up a deal way under fair market value. By joining a crowd of experienced investors bidding on the same probate property, you’ll need to take a risk, do extensive research to know more about the property than others, or outbid others and pay more than anyone else is willing to with the information available. No matter what, you’ll need to either take a deal that other experienced investors shy away from, or know something that other people in the crowd don’t. Keep this in mind when buying probate properties at auction – what seems like an excellent deal at first might not always be, especially when probate properties tie up your money for years at a time!
How to Buy a Probate Property
Probate properties require a 10% down payment to be purchased. The auction process is much like any other auction; come prepared with a cashier’s check that can be filled for up to 10% of your maximum purchase price. Additionally, no contingencies can be made on your offer; once you purchase your property, you are obligated to pay that 10% down payment whether you follow through with the purchase or not. Before you make an offer, be prepared by doing your homework on the financials of the deal — not every probate property guarantees profits! Use tools such as our Fix and Flip Calculator to get an idea of the financials you’ll have to hit to make the project profitable based on estimates.
Even after you purchase the property at auction, the executor can continue to field offers for 30 to 45 days. If someone comes and makes a higher offer during this point, all buyers with accepted offers will have to meet at court to settle the matter of ownership.
Unfortunately, once you’ve bought the probate property at auction, the process has just begun. The probate process is a long and tedious one filled with bureaucracy, disputes, and court hearings. The entire process to buy a probate property is estimated to be anywhere from 18 to 36 months, so you’d better be sure you’re interested in this property for the long haul!
If your offer is accepted at auction, you’ll need to have it confirmed by a probate judge. This hearing can be scheduled for one to two months out from the date of purchase. During this time, some investors may choose to have the home inspected. While you can’t inspect homes at auction and are obligated to pay the down payment anyhow at this point, it’s a good idea to check if the property has any unsalvageable damage. If it does, it may be wise to cut your losses and lose your 10% down payment instead of trying to save the property. Avoiding the sunk cost fallacy is one of the most difficult, but important, parts of being a savvy investor.
Once the Court Day arrives, all buyers with accepted offers will meet at the court and bid again on the property if necessary. Once a new, finalized price is settled, that person will present the new 10% down payment for whatever the agreed upon purchase price is. Congratulations! You are now the official owner of this probate property.
Finalizing the Sale
The best way to help yourself when finalizing the sale process of your probate property is to find an agent experienced with the process. The probate home buying process is a long and complex one, so it’s important that you find an agent suitable for your needs. At this point, your agent should be able to guide you through the process and help you complete the steps necessary to claim full ownership of your new investment property.
Buying a probate property is a difficult process. Whether it be finding active probate properties, bidding against others at an auction, bidding again against others in probate court, or finalizing the purchase process with an agent, it’s a headache from start to end. The property is not able to be inspected before putting down a 10% down payment, and you cannot back out of the purchase without losing your 10% in the process. You won’t be able to make any contingencies on your offer, either, and it’s a “take it as it is” situation. Worst of all, your money can be tied up for 18 to 36 months while finalizing your purchase — an investor’s worst nightmare!
All that being said, why on earth would someone be interested in a probate property? Well, probate properties are often sold extremely cheap — it’s not unheard of to get a property at only 40% of fair market value at a probate auction. For those with the patience, diligence, and high appetite for risk, probate properties can have a huge potential payoff.
Adam Smith has spent the last 5 years in the Private Money Lending world helping real estate investors secure financing for their non-owner occupied real estate investments. When he’s not thinking about real estate, Adam is an avid Jazz music fan and fisherman.