What is probate, and what does it mean to investors? Many real estate investors use the probate process to find, acquire at a discount, and sell / lease properties for a significant gain. With a little bit of money and time, you could even make this a full time career. Most investors, when they look at probate, think that it is too difficult to complete, with a low success rate. My question is, how many offers have you submitted to typical owners that have been rejected? Personally, I have submitted many, many offers, and have only acquired a handful of houses at the proper price for significant gains. But let’s get into the meat of the probate process…
When a property owner dies, the property owned must go through the probate process, or the process of distributing the assets according to a will, or at the discretion of a probate court in the event that there is no will. Now, here in Texas, if a married person dies intestate (without a will), then their spouse automatically inherits the assets, except for specific cases such as children that don’t belong to the surviving spouse, etc. There are ways to avoid probate, but that is for another edition…let’s move on to the required probate steps.
If the deceased had a will, an executor would be named to manage the probate process after death. If the deceased did not have a will, an administrator from the court would be named to handle the distribution of the property. The executor or administrator would then have to follow these basic steps to complete the probate process:
- Inventory and collect all property owned by the deceased.
- Pay off any debt or taxes owed by the deceased. Often, an ad is run in the local paper to call any lien holders of the deceased to make claim against the estate, so the personal representative can handle all debt issues appropriately.
- Once all debt is settled, then the personal representative will carry out the transfer of property to the descendants as described in the will, or per the state’s intestacy laws.
The personal representative must be careful to observe the fiduciary responsibility they are under. They must keep funds in interest bearing accounts, treat all descendants equally, and get the probate process completed in a timely manner. Failure to do so opens the door for descendants to remove the personal representative and further delay the probate process.
So What Does Probate Mean to Investors?
Often, when a deceased person leaves property behind, descendants are not interested in inheriting the property, due to having to pay taxes, and the general grief of owning a property you do not inhabit. They simply want to get cash from the property. So this opens up an opportunity for someone to come in with a low offer, and end the frustration surrounding the beneficiaries of probate process. Especially if there is more than one beneficiary, your offer might be just want they need to stop the quarrels among themselves and end the probate process quickly. Stay tuned as I will delve into how to find and acquire probate properties…