Probate properties are the existing real estate assets of a larger estate that must be sold off to pay the deceased person's debt or distributed among the closest living relatives, depending on specific state laws. In most cases, real estate goes into probate court if the deceased died without a will designating who would get what.
Investing in probate properties can be a lucrative undertaking in some regards. However, as with most investment opportunities, probate property investments come with pros and cons that you should consider beforehand.
One advantage of investing in a probate property is the potential for profit upon resell. Oftentimes, the closest living relatives are most interested in receiving a check. They are not interested in financing improvements on the property or getting tied up in probate court for years. Because they often live elsewhere, they have no intentions of using the property as a residence either. They want to sell as fast as they can and move on with their lives.
This is the best case scenario for a savvy investor looking to profit. Why? Heirs may be willing to list the property significantly lower than its market value. This provides you the opportunity to go in, do some necessary repairs, and resell the property at a profit. In some situations, the deceased had large amounts of debt. He or she also may have had no living relatives, resulting in the property escheating to the state. Both the state and creditors are mainly interested in liquidating the real estate assets as quickly as possible, providing you with an investing gold mine.
Even in cases when the heirs or the state are interested in turning over the property quickly, it can be a downside for investors if:
the property is too distressed and requires excessive improvements;
the resale value is less than the initial investment;
or, the geographic location of the property is not ideal for potential buyers.
Fortunately for you as the investor, the above disadvantages can be offset by getting an inspection done on the property before you invest any money into it. This allows you to find out about any secret and damning features that could potentially hurt the resale value such as a leaky roof and faulty wiring or plumbing. Plus, it is important to find out about the general value of the area in which the property is located. If the general area is declining in value, it will be difficult to sell the property at a profit as intended.
Yet another disadvantage to buying a probate property occurs when there are multiple heirs who all wish to achieve the maximum extent of their inheritance. In this case, they may not be interested in listing the property below its market value but, instead, are eager to squeeze as much out of the deal as possible. This can make the probate period a long and difficult one, and you may be wise to bow out of such an arrangement for greener pastures.
Overall, probate properties present both advantages and disadvantages to potential investors. However, when the investor adequately researches the probate property and has it inspected for potential value and improvement costs, the venture can prove to be a lucrative one. Contact us today for more smart investing tips.