Probate properties offer profit potential

Are you a real estate agent looking for listings with littleor no competition? Are you a home buyer searching for a below-market-priceresidence few other buyers know about? Can you keep a secret?

If you answered “yes” to two out of those threekey questions, keep reading.

Purchase Bob Bruss reports online.

I’m referring to the little-known “underground”real estate market of probate properties. Probate is the name given to thecourt procedure to distribute assets of a deceased person, whether thatindividual died with or without a written will.

Although there are several key methods to avoid probatecosts and delays, such as use of a revocable living trust or holding title asjoint tenants with right of survivorship, each year approximately six millionnew U.S. probate cases are filed. Not all these estates involve real estate,but several million do.

WHY CONSIDER PROBATE PROPERTIES? Theobvious major reason is to acquire a property at a bargain below-marketpurchase price with little or no competition. If you are a licensed realtyagent, and if you understand the local probate property procedures, you canobtain the listing from the estate executor or administrator with virtually nocompetition.

Unless there are probate problems, such as a will contestor unpaid creditor problems, most real estate left by a deceased owner can besold by the estate representative without legal complications.

“Exposure to the real estate marketplace” is theenemy. That is the key message of the great book “Creating Wealth ThroughProbate” by James G. Banks (Dearborn-Kaplan Publishing Co., Chicago, 2005,$18.95, available in stock or by special order at local bookstores, public librariesand www.Amazon.com). Banks explainsprobate property secrecy usually results in a bargain sales price because thereis little or no wide exposure for probate properties to the local real estatemarket.

FINDING PROBATE PROPERTIES ISN’T EASY. Thereare many reasons why properties owned by the estate of a deceased owner aresold. Reasons include the creditors must be paid, the heirs don’t want the realestate they inherited, and estate taxes must be paid from the estate assets.

For example, several years ago my good friend David wasnamed executor in the will of a deceased homeowner who left his house torelatives living in a distant city. The house of the deceased was in badcondition. David hired a local real estate broker, Mark, to market the housefor sale to produce cash for the heirs. The broker arranged painting andcleaning the house at a cost of several thousand dollars. After the house wasin marketable condition, Mark listed it for sale. It quickly sold at a slightlybelow-market price, which satisfied the heirs.

The result was the estate got rid of a less-than-perfecthouse, the heirs got cash from the sale of a house they didn’t want, and thereal estate agent earned a full sales commission.

To find potential probate property listings, real estateagents and investors need to be diligent. Sharp agents and investors clip thedaily newspaper obituary notices, look for published legal notices to creditorsand notices of petition to administer estates, check probate court public filesto determine if the deceased left real estate to be probated, and check withestate executors and administrators to learn if real estate will be sold.

FOUR KEY PROBATE PROFIT OPPORTUNITIES. Whetheryou are a real estate agent looking for probate listings, an investor searchingfor a probate profit property, or a home buyer hoping for a bargain-priceresidence, there are four key profit opportunities:

1. BUY FROM THE ESTATE EXECUTOR AT A BIG DISCOUNT.Depending on the estate circumstances, such as whether the deceased left bigdebts to be paid from the sale of real estate, it may be necessary for theestate executor or administrator to sell the deceased’s property. Mostexecutors and administrators are “amateurs” so they usually want aquick, easy sale and are not motivated to get top dollar.

2. BUY FROM THE HEIRS AFTER THEY RECVEIVE PROPERTY TITLE. Anotherprobate buying opportunity occurs after the title to the probate property isdistributed to the heirs who often don’t want to keep it.

For example, years ago I bought a house where the elderlyowner died of natural causes. Many people don’t want to buy such a property.But that didn’t bother me. The house had been listed for sale many months withan excellent agent. Then I made my purchase offer of 10 percent cash downpayment with a 90 percent mortgage to be carried back by the three heirs.Father Ward, priest at the local Catholic church and one of the heirs, liked myoffer. He recommended his siblings accept it, which they did. The result was asatisfactory sale for all.

3. BUY AT A PUBLIC SALE OF THE PROBATE PROPERTY. If thedeceased property owner left no will so a private real estate is usually notpossible, the local Probate Court might order a public sale of the property.That often means the estate administrator will list the property for sale witha real estate agent, subject to confirmation by the Probate Court. Localprocedures vary.

4. PUBLIC AUCTIONS BENEFIT SELLERS, NOT BUYERS. Farmsand difficult-to-sell probate properties are frequently offered for sale atpublic auctions. Heavy bidding frequently results in sales prices at or abovefair market value. If you want to purchase a bargain-price property, buying atan auction is usually not wise unless there are few other qualified bidders.

PROBATE PROPERTY PURCHASE PITFALLS. If youare interested in acquiring a probate property bargain, you need to know ofseveral purchase pitfalls:

1. PROBATE SALES ARE “AS IS.” Mostprobate property sales are “as is.” That means the seller does notmake any warranties or representations. The result is the seller has no duty topay for any repairs due to defects. Because the estate seller usually is notfamiliar with the pros and cons of the property, the estate is in no position todisclose defects.

In other words, the probate property purchase rule is”caveat emptor” (let the buyer beware).

If the buyer wants to make the purchase offer conditional ona professional property inspection, a termite (pest control) report, ormortgage insurance contingency, such clauses must be specified in the purchaseoffer. Otherwise, the buyer has no recourse for undisclosed defects.

2. WORK WITH THE ESTATE EXECUTOR OR ADMINISTRATOR. Theseindividuals usually want to get the estate closed as quickly as possible. Ifyou express an interest in a specific property owned by the estate, chances areyou can negotiate acquisition of the property if you adopt a cooperative andflexible attitude.

3. ASK IF THE ESTATE WILL FINANCE THE SALE. “Itdoesn’t hurt to ask” is the rule if you want to buy a home or otherprobate property but financing is a bit difficult. In such a situation, don’thesitate to ask. Better yet, make your purchase offer with a clause providingthe estate heirs shall carry back financing on the terms specified in terms youoffer.

4. HAVE A PLAN FOR THE PROPERTY. To be asuccessful probate property purchaser, you need a plan. Maybe it is to live inthe residence. Perhaps it is to fix it up and earn a huge resale profit for”flipping.” Or perhaps you have grand ideas to develop the propertyfor bigger and better uses.

SUMMARY: Most probate properties owned by a deceasedproperty owner offer huge potential profit opportunities, whether you want toacquire that property for personal use or as a “quick flip”profitable property sale.

But it takes work and persistence. However, the rewards areextremely worthwhile, especially when repeated over and over. More details arein my special report, “Probate Property Profit Secrets Revealed,”available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or bycredit card at 1-736-1736 or instant Internet delivery at www.BobBruss.com.

(For more information on Bob Bruss publications, visit his
Real Estate Center
).

Copyright 2006 Inman News

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