The United States is at the beginning stages of an incredible economic turning point dubbed the “Great Wealth Transfer.” As the financially successful Baby Boomer generation ages and passes over the next 20 years, it is estimated that over $30 billion in assets will be transferred from them to the Millennial generation.
Unfortunately, much of this wealth may pass without proper wills and instructions in place. Without proper estate planning, the left-behind assets, including inherited property, can create enormous legal headaches in the probate process. When a person dies without a will, the process of selling off and dividing the remaining estate can become a complicated issue.
Providing a win-win solution to tough probate deals with probate wholesaling can be an incredible strategy for savvy real estate investors to implement.
In this article, you will learn:
Ready to understand the ins and outs of this effective and underutilized investing strategy? Read on to learn more about Probate Wholesaling!
Before we define probate wholesaling, let’s break down and define the elements of probate. It is critical to first understand the general probate process before understanding the real estate investing piece.
Probate is defined as the legal process by which a deceased person’s estate is handled and distributed. Every state will have its own guidelines and laws around probate law.
The probate process is opened with a petition by the deceased’s family or appointed attorney.
The probate court will then look to see if there was a will left behind by the deceased. If the deceased individual has a valid will, this is called testate. The probate process can be relatively quick and seamless in this case.
All interested parties and potential creditors to the will are notified. The probate court will appoint the executor of the will. Bottom line: the executor’s job is to process the intentions of the will and ensure the assets are distributed to the rightful heirs per the will’s final instructions.
If the deceased does not have a will, this is called intestate. In these more complicated cases, the probate court will appoint an administrator. An administrator has the same responsibilities of executing the assets of the will according to state laws.
Both executors and administrators are called "personal representatives".
The probate process has a lot of moving parts! Here’s a quick video to give you a general overview:
The following is an outline of key terms and definitions around the probate process:
Will: A will is a legal document outlining the deceased’s intentions for his or her estate upon death.
Estate: The term encompassing everything the deceased owned at the time of death, including money, personal property and real estate.
Testate: If a person dies with a legal will in place, this is called testate. A legal and enforceable will generally allows the probate process to run much smoother.
Intestate: If a person dies without a legal will in place, or if the will is considered invalid or inauthentic, this is called intestate. This can create a troublesome and lengthy probate process as the estate will then be distributed according to the state’s laws.
Beneficiary: A beneficiary is a named person in a will (can also be called an heir) who is entitled to inherit whatever is outlined in the will.
Executor: The named individual in the will charged with carrying out the wishes and intentions of the deceased.
Administrator: In the case where there is no will left behind, this is the individual appointed by the state court to carry out the estate. Serves the same function as the Executor.
Personal Representative: Another name for both Executors and Administrators. The Personal Representative has an obligation to execute the will or the state’s orders for with loyalty, duty and responsibility.
Petition: A document filed with the court to open the probate process.
Probate Letter: A letter from the probate court authorizing the personal representative (executor or administrator) to have control over the estate’s assets during the probate process.
These definitions may vary slightly depending on which state you are in.
Wholesaling is when an investor finds and gets a subject property under contract for purchase, then assigns the sales contract to a third party. Wholesalers typically never purchase the property themselves. Wholesalers are paid when wholesale deals close and the third party purchaser pays them a finders fee.
Just getting started in real estate wholesaling?
Check out How To Wholesale Real Estate Step By Step!
Often, personal representatives are ordered by the probate court to distribute all assets of the estate. If the estate includes real estate, the personal representatives usually must arrange to sell the real estate and then distribute the earnings to the heirs after all creditors have been paid.
The end goal of the personal representative is to close the estate successfully, either according to the will’s intentions (testate) or by state laws (intestate).
This can be an incredibly overwhelming process to personal representatives. If the real estate is in bad condition or requires extensive renovation or repairs for resale, this can become a massive financial and time burden.
Savvy wholesaling real estate investors who understand how their local probate regulations work and who are willing to review detailed court records can provide an incredible service to these personal representatives.
By offering to purchase the property in as-is condition, these investors can offer a fast and reliable closing option to the personal representatives.
Probate wholesaling is an investing strategy where the investor works with a personal representative as s/he is administering the estate.
The wholesaler will make an offer to purchase the subject property from the estate and then assign the purchase contract to a third party for purchase.
This can allow the probate process to move much faster and reach a successful and seamless closing of the estate.
Probate law varies from state to state and county to county. Therefore, it is critical for investors to educate themselves fully and understand their local probate laws extremely well.
Investors can learn more about this type of investing by reading books, listening to a podcast, attending a webinar, networking with other investors, or taking probate classes.
It is also important for investors to understand that probate wholesaling can take time and patience. Generating probate leads requires creativity, patience, a robust lead management system, and a willingness to play the long-term game.
It is also critical for the real estate investor to thoroughly understand the lingo and best practices of local probate in their area.
For example, many state probate courts define limited authority versus full authority of the personal representative. This makes a difference in the overall sale timeline of the subject property, which can ultimately affect the sales price.
Here’s a short video outlining the different types of authority related to probate and estate law:
Because probate law varies between states and counties, many real estate investors are intimidated by probate investing. This means that by taking the time to educate and become an expert, you can immediately tap into an underutilized investing strategy.
Understanding probate in your target market is a great way to have an advantage over your competition!
Here's a step by step overview of how probate wholesaling works:
Utilizing local county probate records, your investing marketing efforts or your internal network, create a list within your target geographic area of potential probate properties. Work hard to create a strong relational network of estate attorneys and probate clerks.
Using a scripted yellow letter, handwritten letter template, or other customized direct mail option, write a letter to the personal representative of the probated real estate. It’s important to outline your cash offer and terms and make a strong case for how you can provide value and best help the personal representative. Remember, they may be feeling overwhelmed and you can provide a valuable service to help them!
Treat this appointment like a professional listing appointment. Schedule an appointment, show up early, and maintain your professionalism. Make sure you understand the local laws and regulations around the probate so you can fully understand the situation the personal representative is facing.
If the personal representative agrees to your offer, complete all appropriate paperwork to ensure the property is under contract. Make sure to include and explain the assignability clause in the contract.
Once the property is under contract, you can start shopping the deal to your investor network or send out your own marketing to locate a third-party buyer. You may have potential buyers who want to rehab the property for a flip or hold it as a rental property. Having an active cash buyer list at this stage can be very helpful in quickly identifying a willing investor and getting a deal arranged.
Once the third party buyer is located, execute the assignment contract, and assign the contract to the third party buyer.
Work with the probate personal representative, the probate attorney, the title company, and the third party buyer to coordinate any logistics leading up to the closing. While this step isn’t necessarily required, you can provide additional value to all parties by helping to coordinate efforts and ensure a smooth closing.
Once the deal is closed, you will collect your wholesaling fee. But your job isn’t over! Follow up after closing to check in on the parties and ask for referrals or a recommendation. Also take the time to thank any county probate clerks who assisted you in locating the deal, as well as thanking anyone in your network if they referred the deal to you.
Locating probate leads can require time, patience, and a bit of detective work by the real estate investor.
If the investor has the capital, he or she can purchase probate lead lists. These paid lead sources include:
Paid lead lists can be customized to the investor’s specific search criteria including geographic area, type of home, mortgage balances, or tax delinquency status.
Utilizing county records or skip tracing, the investors can research to locate the estate personal representatives’ contact information. Skip tracing can help investors find contact information including mailing addresses, phone numbers and email addresses for relatives of the deceased.
Often, probate real estate leads will come from absentee owners. Heirs to the estate may have received a property that they have no interest in actually owning or maintaining.
Investors can also research local pre-foreclosures and short sales in their target market. While more complicated, these sellers often require assistance and may be trying to navigate a tricky probate case on their own.
Investors can make phone calls and create targeted direct mail campaigns with unique messaging specifically targeted to personal representatives of estates.
When conducting probate marketing, it will be important for the investor to express sympathy for the representative’s position and compassion for the deceased, as well as outlining a specific purchase plan that will work for the estate’s timeline and needs.
If you are trying to create a robust probate lead list for free, your best bet is to work directly with the county courthouse. Probate is considered a public record, so leads can be found by researching and pulling your own lists locally. A Google search can help locate the county courthouse information to start.
You can also search the local classifieds (online or in the newspaper) for local real estate listings. These may be listed for sale by owner (FSBO) or with a traditional broker.
Investors can also work with local real estate agents and search the MLS. Real estate professionals are a great source for probate sales leads.
Keywords in the MLS to indicate potential probate listings include “estate sale”, “out of state owner/seller”, “must sell quickly”, or “as-is, where-is condition”.
Some investors will also review the local obituaries and then cross-reference this information with local county records to see if and when a probate case was opened for the deceased. This strategy requires not only looking at the obituaries from the current and last week, but taking the time to go back at least a month.
Another free resource is establishing credible relationships with local probate and estate lawyers. These professionals work with estate heirs daily. Not only will they understand local estate laws, but they can be a source of qualified leads.
If you are interested in expanding into probate leads, a great place to start is finding a real estate investing mentor who has utilized this strategy before.
Start by reaching out and networking within your local REIA group and establishing strong relationships there. Having a strong network to mastermind with is essential to building these skills. These types of groups can also be great sources for building your cash buyer investor lists!
Read Also: Can You Wholesale MLS Properties?
One major pro of wholesaling probate properties is the relative lack of competition. Many investors are intimidated by probate because of the variances in local and state probate laws.
For those investors willing to put in the work and do the research, they will enjoy the lower competition from other investors and tap into a robust lead network that is currently underutilized. The probate niche can be incredibly lucrative for those willing to put in the effort.
Generally speaking, probate leads have more motivated sellers than other types of real estate investing. Most estate administrators are eager to complete the probate process quickly. Many heirs who inherit property have no interest in keeping the property and will be more willing to part with it quickly.
Finally, with an aging population in America, probate leads are poised to become a growing part of the real estate market in years to come. The probate niche can be part of your investing success story!
One disadvantage of wholesaling probate properties to some investors is the upfront research required. The probate process will intimidate many investors away.
Also, the probate process can take time and will require the investor to have patience and empathy. If an investor wants to be more hands-off, this type of investing strategy may not suit them.
Wholesaling probate properties requires extensive research into local probate laws, patience as you build and fill a strong lead pipeline, and empathy for your grieving and overwhelmed clients.
Remember, these estates are often being executed by the deceased’s loved one. Understanding and sympathy are critical!
For the right investor, probate wholesaling is an excellent investing strategy that will help you have an advantage over your competition, locate quality leads, assist clients in need and build a lasting real estate business that can sustain any market.
Have you successfully closed a probate wholesaling deal? Tell us about it below in the comments!
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