Probate is the legal process that happens when a person dies and the executor must collect all assets, itemize all remaining debts and then liquidate all property to pay debts and distribute assets. Unlike property in a trust, probate requires court approval and is a lengthy process with attorneys and judges. Despite that, here are why probate properties could be the best deals in Los Angeles.
A Motivated Reason To Sell
The probate process can be lengthy. While everything must go through the judge for approval, if there are few debts and adequate assets, executors could be motivated to sell sooner than later to avoid continuing maintenance, property tax bills and the potential of market conditions declining as the property sits vacant.
This is an opportunity for an investor to present a reasonable offer, often still under fair market price, and engage the seller in negotiations. Understanding the process of probate allows a savvy real estate investor to help an executor quickly complete probate proceedings.
Your leverage as an investor is particularly strong in slow real estate markets where there aren’t a lot of retail buyers. Without a ton of offers coming in, the executor is eventually forced to take an offer to close escrow and distribute remaining assets.
The Lengthy Process Reduces Competition
Anyone who has ever bought a property through the probate process will tell you it requires patience. The process is long; it’s that simple. Because of this, not a lot of buyers want to engage in the process. This means you have reduced competition not just among standard consumer buyers hoping to get a deal, but many other investors who don’t want to be tied up in a lengthy deal. Most investors want to get in and out as quickly as possible.
Even if the property gets listed on the market, the idea of probate discourages many from even trying. For an investor who has time and patience, this means you might be one of few, if any, offers to come to the table. Reduced competition certainly helps to negotiate the best possible price and terms for you.
Being able to structure your deals as cash also gives you a leverage point against a lot of competition. Executors don’t want to go in and out of escrow. Once they accept an offer, they want it to close as quickly as possible without financing hold-ups.
Primed for a Quick Fix and Flip
Most probate sales are completed “as is”, meaning the buyer isn’t requesting any repair or credits during the escrow process. Executors like this because they don’t want to deal with the hassle of making any repairs as they work on all other aspects of closing probate.
Many probate sale homes are distressed to a certain degree but rarely to the level of distress of a foreclosure. The type of distress that a probate property is in often is the result of an aging homeowner unable to ideally maintain the home due to a limited budget or physical conditions. A foreclosure is often distressed because owners losing their home often do intentional damage out of frustration.
Because the probate home usually only needs limited repairs and updating, a fix and flip investor is able to get in and out of the property much faster. Of course, this is once probate approves the transaction. But once it has, investors are poised for a faster return on investment.
Keep an eye out on probate court lists. Use them as a means to find opportunities that other investors aren’t looking at. As you work through several probate properties, you will get a better understanding of how to work with executors and courts and efficiently close escrow to rehab properties and sell them for a profit.
These are not the only reasons why probate properties could be the best deals in Los Angeles but certainly are some of the most important.