Probate, in simplest terms, is the process of transferring a person’s assets once they pass away. Among the many assets that can be distributed during the probate proceedings is a person’s real estate. This means that you, as an investor, can benefit from probate properties.
How Does Probate Work?
If the deceased person (also known as the testator) has prepared a will, which contains clear instructions as to how their assets will be distributed, an executor will carry out their wishes. The executor will have to file the will with the probate court in order to initiate the probate process. If the court finds that the will is valid, only then will the executor be given legal power to act on behalf of the testator.
However, if the deceased does not have a will, their assets will have to be distributed in accordance with state laws. In this case, the probate court will appoint an administrator who will oversee the division of property. So, in sum:
- If a person dies with a will, an executor will carry out the deceased individual’s wishes as written in the will.
- If a person dies without a will, an administrator will locate the deceased individual’s relatives/heirs and divide their assets accordingly.
What is Probate Real Estate?
When a person dies, whether or not they have written a will, their property will be in probate. This means that the court will be responsible for transferring the property’s ownership to the late owner’s beneficiaries. Or, if they have debts that need to be paid, their property in probate must be sold. Probate property may also be sold when a person dies and does not have any immediate relatives.
It’s worth mentioning that probate property only covers properties that are in the probate process. Once the ownership of the property is passed onto and sold by the beneficiaries, it can no longer be considered probate property.
Can Homeowners Avoid Probate?
If you’re wondering whether all properties will eventually be in probate, the answer is no. Homeowners may be able to avoid probate if they put their properties into a revocable trust, which determines who will inherit the property when the homeowner passes away. It is similar to a will, however, it’s only valid when the homeowner is alive and, as the name implies, can be revoked at any time.
Another way to avoid probate is by entering into a joint tenancy. A joint tenancy is when you add another individual to the deed such as a loved one. In this way, that person will be considered the sole owner of the property once you pass away. There’s also the option of preparing the “Transfer on Death Deed” or TOD Deed, which can be used to transfer the ownership of a property to a beneficiary.
What Are the Benefits of Probate Properties?
One of the best ways to buy lucrative residential real estate is to consider probate. Properties in probate tend to be sold for cheap, which is why many real estate investors scramble to secure them. Below, you’ll discover why probate properties are so well-loved by investors:
#1 Beneficiaries May Not Want to Inherit the Home
Beneficiaries of probate properties don’t always want to own a new property that will probably need to be maintained, and in most cases, restored. People who are named as beneficiaries of probate properties also understand that they will ultimately be responsible for paying the property’s taxes. For that reason, many owners will refuse to disclaim the home, prompting the court to sell the property instead.
Or, if the property’s ownership has been transferred, the new owner may want to deal with estate management. This can motivate them to get rid of the property fast, putting you in a strong bargaining position.
#2 The Deceased Owner May Have Debts
If the deceased individual owes money, the executor will have to pay those debts off with the deceased’s assets – this can include the late owner’s property. For example, if the late owner owes $700,000, the executor can sell the property at the appraised value to pay off the debt.
However, in most cases, properties in probate are usually sold for less than their market value. The reason for this is that executors are often in a rush to convert real estate assets to cash.
#3 Probate Properties Are Great for Flipping
One of the benefits of probate properties is you can flip them and sell them for a profit – that is, if the repair costs are reasonable. Do note, however, that the property may be so distressed that it needs so many modifications. The time you put into it may not be worth it.
With that said, it would be wise to consult a property management company to evaluate its condition and provide you with an estimate of the repair costs. And if you do decide to fix it up, consider partnering with a property maintenance company as they can secure lower contractor rates.
How to Buy Probate Properties
There are many ways to buy a house that has gone into probate. The probate process is public, so you’ll probably find records of probate properties in the courthouse. Alternatively, you can directly contact the beneficiaries by obtaining their records from the court, or by informing the executor of the case of your intention to buy. If there are no named beneficiaries, you can buy a probate property from the court. In this case, the process will vary by state, but in general, the court will appoint a real estate agent who will carry out the sale.
As grim as it seems, you can also go through the obituary of the newspaper to get news on property owners who’ve passed away.
A Word of Advice
The probate process tends to be a lengthy one. Since there are many elements involved, and there may be other interested buyers, it can take a couple of months to even years to conclude the sale. If you’re keen on buying a probate property, be on the lookout for properties that were willed to others. The presence of a will can speed up the process, as the executor will no longer need to figure out who gets what.
Consult the Pros at Luxury Property Care
Before you buy a probate property, it’s best to consult the investment experts at Luxury Property Care. We can help you determine whether or not a particular property is worth your time and money. If the home turns out to be in bad condition, we’ll advise you and steer you towards more sound investments.