There are a lot of different routes you can take when scouting potential properties to add to your real estate portfolio, but there’s one under-utilized route that can be a major moneymaker for your investment business — and that’s probate properties.
The term 'probate real estate' refers to properties that are owned by a deceased person. When someone dies, one of two things happens to a property. Either a) the property is passed on to whomever the original owner specified in the will, or b) if the owner didn’t specify whom the property should be passed on to, the property is passed on to probate court to be sold, officially making it a probate property.
Buying a house in probate is one of the most uniquely profitable ways to invest in real estate. Let’s take a look at the probate house sales process — and explore why adding probate homes to your portfolio is one of the best investments you can make in your real estate business:
Buying Probate Properties: Why They’re Great Deals for Real Estate Investors
As mentioned, probate deals are a slam dunk for investors. There’s typically little competition for probate properties, and the sellers want to get the properties off their hands quickly — which is a huge bonus for you. Also, because many of the owners of probate properties were older when they died, the properties are often completely paid off, which makes it a better investment on your part. And, icing on the — with a lot of probate sales, you don’t need to invest your own capital to get started.
There’s typically little competition for probate properties, and the sellers want to get the properties off their hands quickly — which is a huge bonus for you.
Seriously, there are great deals to be had.
There are two types of probate sales. When a property is passed to probate court, it’s assigned an administrator to manage the sale. In certain cases, the administrator is granted the authority to process a probate sale with no court confirmation, which means the sale would proceed just like any other non-probate sale. You make an offer, the administrator accepts, and the deal is closed.
In the second type of probate sales, the court needs to confirm the sale before it’s finalized, which means that once you make an offer, the house is only yours after the confirmation.
One of the differences between probate sales and regular sales is related to disclosure. In a probate sale, the estate is not required to disclose any information about the property (in a non-probate sale, owners must disclose all information about the property to potential buyers). All probate properties come “as is”, so it’s extremely important that you fully inspect the property before making an offer.
Now, the reason probate sales are such good deals is that the prices on probate homes are usually significantly below market. The court wants to sell the homes quickly, so you can get a great deal on an investment property that might otherwise have been out of your price range.
That Sounds Great… But Where Can I Find Probate Properties?
You’re probably thinking, “Getting a great deal on an investment property sounds amazing… But where, exactly, do I find these probate properties?”
Finding probate properties isn’t as simple as taking a quick peek at your local real estate listings. While probate properties might be mixed in with other real estate in your area, they won’t necessarily be advertised as such.
So if you want to find probate properties, you’ll need to do a little digging.
A good place to start is at the courthouse. Make a visit to the probate division of your local court (if your court doesn’t have a dedicated division for probate cases, just ask for the right person to speak with). There, you can request a list of open probate cases, view the inventories (which itemize assets), and see which have properties listed. Once you have a list of open probate cases that include real estate, you can take down the administrator or executor’s contact information (found on the docket sheet) and reach out individually to inquire about the property and if/when it will be going on sale.
You can also have your real estate agent do the digging for you; a good real estate agent will have their finger on the pulse of the market — including probate properties. Let them know you’re interested in purchasing probate properties. They can often let you know when new properties go on the market before you’d be able to find them on your own.
How to Buy a Probate Property in Texas
The first step to buying a probate property in Texas is — you guessed it — identifying a property. Once you’ve identified a property that you want to add to your portfolio, you need to get in touch with the administrator or executor; whoever the legal representative is for the probate sale.
If you end up connecting with the seller, who may be a family member, be sure to offer condolences for their loss. Ask if they can put you in touch with the legal representative for the probate sale.
Once you’re in touch with the administrator, you can schedule a time to view and inspect the home. After you decide you want to move forward, you can submit an offer. In a probate sale, when you submit an offer, you’re also required to submit a 10% deposit on the property. The administrator will bring all the offers to the court, which will then choose which offer to move forward with (if your offer isn’t chosen, you’ll get your deposit back).
Because of the need for court confirmation, probate sales are typically a more lengthy sales process; you should be prepared to wait anywhere between two and six months for the sale to close.
Then the waiting game starts. Because of the need for court confirmation, probate sales are typically a more lengthy sales process; you should be prepared to wait anywhere between two and six months for the sale to close.
Once your offer is accepted by the court, they need to schedule a court date to finalize the sale; this court date typically happens 30 to 45 days after the request for a court date. Now, keep in mind that even after you have a court date, real estate agents can continue to show the properties in hopes of securing a higher bid, so scheduling a court date doesn’t mean the property is yours.
When your court date arrives, you’ll need to attend the court hearing in person, where the court will hold an auction for any other potential buyers. If other people are interested in the property, both they and you will have an opportunity to continue bidding on it until only one buyer is left (this process is called overbidding). In order to secure the sale during this process, you’ll need to make the highest bid.
If no one else is interested in bidding on the property, they’ll most likely confirm your offer and the house will be yours. The sale typically takes another 30 to 45 days
If it sounds like a process, that’s because it is. But the deals that can be had in the probate market make it more than worth the effort.
A Few Things to Look Out For
Purchasing a probate property isn’t without its challenges, and there are definitely things you want to watch out for — the biggest being what kind of property you’re getting.
Because probate sales aren’t required to disclose anything about the property, you could be walking into a home that needs expensive repairs — sometimes so expensive that it is a bad investment. Once your offer is accepted, you should schedule a home inspection; if the inspection finds that the home is in a state of disrepair, you should walk away from the deal. You’ll lose your 10% deposit, but it can keep you from making an investment that might sink your portfolio.
Probate sales are one of the best opportunities to make a huge profit in your real estate investment business. And now that you know the benefits, it’s time for you to start investing.