Over at REIClub.com we have a page dedicated to real estate investing success stories. The other day one of our investors submitted a success story about a wholesale probate real estate deal he successfully closed after couple of months and made a profit of $15,000. Hence, the inspiration behind writing this real estate investing “How To” article on probate investing for some of the new real estate investors out there to glean from.
What is Probate?
Probate is a process that occurs when a person with assets passes away. Simply put, it is a legal process to clear and transfer the deceased person’s assets to the appropriate beneficiary – be it a person, entity, or charity. Each state has its own rule concerning the dollar-amount value at which an estate must go through the process of probate. The set of statues, limitations and laws defining and governing this process vary by state, so be mindful that learning the particulars of specific states’ process is essential to be able to navigate the process successfully if you plan in investing in probate real estate deals.
Depending on the circumstances of a person’s passing, the probate process will either testate or intestate. When a person leaves a will and/or amendments to the will (codicils), the situation is termed “testate”; in the absence of a will, an “intestate” situation has occurred. When a final will and testament has been left, the document will name a person whom the deceased designated to oversee and carry out the terms he or she set forth.
This person is now generally referred to as executor/executrix. Some states also refer to this position as a personal representative. The probate court will work with the executor to clear the deceased’s assets for distribution to any heirs.
How Long Does a Probate Real Estate Deal Take?
Typically a simple probate real estate deal will take approximately six months on the conservative side. I’ve heard of as quick as 28 days to as long as 18 months. If there are multiple properties, several people, or large amounts of money and assets involved, it could take years to sort through everything and wrap up the process.
Creditors must be allowed time to make claims against the estate if the deceased has left behind any outstanding debts. There is a specific time period in which such claims must be filed, and if there is no claim filed with that window of time, creditors may not sue the estate or its beneficiaries.
During Probate, the executor, administrator, or personal representative obtains the death certificate; has appraisals of the properties completed; determines the amounts of any debts, income and property taxes, estate-inheritance tax or a state-tax filed. As well as pays any outstanding debts the deceased left behind.
The probate administrator in your potential real estate investment pays creditors, court fees, and attorneys’ bill and files claims or denies claims just the same. The representative may then sell any assets or properties in order to satisfy these debts – all of this is done before the heir and beneficiaries are considered entitled to and granted anything, and is all accomplished within a set time frame., as there is a deadline by which to complete the necessary forms and claims. Once these steps have been completed the probate executor will petition the court for a hearing to close the probate and will distribute the assets to the heirs and beneficiaries, as well as to the attorney and to him or herself for payment.
If a person passes away intestate, or sometimes testate, someone will be appointed to serve in a similar capacity to that of an executor; this person is referred to as the administrator or personal representative. The courts must follow a set procedure when appointing a personal representative. Each state has its own specific type of will, known as a default will.
When a person passes away without leaving behind a will of their own, the default will goes into effect for the deceases person’s assets, and the court-appointed personal representative looks after the decedent’s assets and investments, protecting them and distributing them according to the state’s default will. Unfortunately, in the absence of a personal will, the person(s) that the court deems to be the heirs are not necessarily the people whom the decent would have wanted to bequeath his or her estate.
How Can We Investors Help Those in This Situation?
Not that you have some understanding of how the process of probate works, you may decide that you will like to learn how to assist families during this “stressful” time. As investors looking for distressed real estate deal or owners, sometimes you can approach a family while the estate has already gone through the probate or even while the probate is still in process. In some situations, the family may not even be aware that the estate must go through probate.
In any situation, real estate investors can assist them and with the services of a qualified attorney, can purchase the property through the use of a contract, even if probate has not been completed. The contract then is processed by the court, and once the court accepts and approves it, the investor may close on the property.
How Might Real Estate Investors Find Probate Investment Deals?
When you decide to work with bereaved families in this way, let the people in your personal real estate investing network help you with referrals or leads for probate deals. There is no substitute for word-of-mouth when it comes to networking or securing new business for your real estate deals.
You many also choose to contact grieving families directly. When you choose to contact someone directly to offer your assistance, you must be sensitive, caring, respectful and above all – tactful. Let them know who you are, what you are offering, and how they may contact you. Keep it short, sweet, simple, and sincere. You do not want to come across as the greedy real estate investors trying to take advantage or cheat them out of their property in their venerable state.
In closing, to find and work with probate real estate deals, I recommend that you begin to make a list of individuals, organizations and others who regularly have involvement with families immediately before or after the passing of a loved one. As you being to interact with those who you have listed, you will think of more categories to include and your list will continue to grow. Typical places that you may find probate investment deals: classifieds, funeral homes, obituaries, attorney offices, court house records, and even sometimes craigslist.
Spend some time thinking of how best to approach each person or organization you have listed and provide them with some information on you and the services you provide as a real estate investor. Explain to them the benefits of working with you and the services your offer to grieving families, such as much-needed income to a family left with towering medical bills and funeral expenses and an inherited property they have no use for.
Don’t let the length of time discourage you in investing in probate deals. It always good to have “deals” in the pipe line and a diverse set of real estate strategies to profit from. One last thing – your local title company may be able to answer any questions you may have and assist you with correct forms you may need to have to complete you real estate investment deal.