A quick note from Justin: One of the most frequent topics that I get requests for is probate investing. But since I’m not really an expert in this area I thought I would bring on someone who is! Many of you probably remember Sharon Vornholt from episode 20-21 of the House Flipping Podcast where she shared some details on probates. This time around she’s been generous enough to share with us a few posts on the process of probate investing, starting with this post on the fundamentals.
Take it away Sharon!
* * *
Probate investing is one of my favorite niches. I like to call probates the “low hanging fruit”. I say this is because almost every one of these sellers just wants one thing; they want the cash that is sitting in the house. Rarely do the heirs want the property. These folks can be some of the most motivated sellers of all.
What Business Are You Really In?
If you ask most real estate investors what business they are in, they will tell you they are in the “house” business, however that couldn’t be further from the truth. We are actually in the “problem solving business” that just happens to involve houses.
When a house is in probate and it is part of an estate, the executor and the heirs have a problem. In addition to all of the work that goes along with settling this estate, in most cases they have an unwanted property to sell that they just want to turn into cash.
This can be a very emotional time for them and often they reach a point where they just want to be done. They are looking for a fast, hassle free solution and that is where we come in.
The 3 Categories of Houses in Estates
- “Nice Houses’ – This is the first category of house you find in estates. These are houses that have been well cared for and will almost always be sold to a retail buyer. Most of these houses will be listed on the MLS.
- “Dogs” – These are the houses that either need a ton of repairs or haven’t been updated in decades (or both). Most of the houses that fall into this category will be sold to investors as soon as the executor is able to do sell it. These are the properties your marketing should be directed toward.
- “Maybes” – These are the houses that may be sold to investors, or the executors may try to sell them to a retail buyer before talking to investors. Will they actually be sold through conventional means; well – maybe.
They are what I like to call the “iffy” houses. The executors and the heirs have generally decided they are worth a lot more than they are actually worth, and the repairs will almost always cost a whole lot more than they will ever admit. However everyone involved has decided to stick a “For Sale by Owner” sign in the yard or give the MLS a try.
I am asked all the time if I take these folks off my list when I find out the house is listed. The answer to that question is “it depends. After speaking to someone about the house and looking it up online, if I am still interested in the property I will keep marketing to them. They may mange to sell the property, but there is an equally good chance that it won’t sell through conventional methods.
Your job as an investor is to build a relationship with the decision maker so that when it is time to sell the house your name is the one they remember; the one that stands out in their mind because of your marketing.
The decision maker will be the executor or personal representative. While the heirs may have a say in what happens with the estate, they are not the decision makers unless they are also the executor or PR.
How do you build that relationship? You do that with direct mail campaigns.
Understanding the terminology of probate investing and creating direct mail campaigns that work
You can follow Sharon at her website, http://louisvillegalsrealestateblog.com, where she talks about her journey with real estate investing.