Property investors are all about finding attractive properties they believe offer a significant return on investment (ROI). The higher the potential ROI, the more attractive a property is. Just knowing this provides a little insight into why property investors appreciate estate sale purchases.
An estate sale purchase involves a home being sold by the estate of a deceased person. More often than not, the deceased person was older and had lived in the home for decades. The property is instantly valuable to an investor as long as it’s priced right.
Actium Partners, a hard money lender based in Salt Lake City, UT, draws a distinction between property investors and house flippers. Though both might find estate sales attractive, Actium says actual investors tend to benefit more thanks to their long-term commitment.
Below Market Prices
Property investors look at a whole host of factors before choosing whether to invest or not. At the top of the list is price. Investors need to limit what they spend on property acquisition. Spend too much and ROI is diminished.
What makes estate sale property so attractive is the selling price. There are exceptions to the rule, but most estate sale properties are sold at below market prices. Why? Because those responsible for liquidating the estate do not want the home. They want to dispose of it as quickly as possible so that the estate can be settled, and life can go on.
How far below market value a house is listed at depends on the market. There are times when investors save quite a bit. Other times the savings are marginal. For the investor, it is a matter of finding that sweet spot that gets an offer accepted without spending more than is appropriate.
Working Through the Probate Process
One of the disadvantages of buying estate sale properties is having to work one’s way through the probate process. To put it as simply as possible, a probate court ultimately has to decide whether to allow a sale to go through. Most of the time this is simply a rubber stamp type of thing. But there are times when courts raise legitimate concerns. There are times when they outright block home sales.
In most states, investors need to post a down payment along with an offer. Assuming the court is okay with the offer, the property must be listed for up to 30 days at the price offered by the investor. Then the investor must go to court and prove the ability to close the sale at the offered price. So there are some hoops to jump through, but they are well worth it if the sale price is low enough.
Investing as a Landlord
Estate sale properties are especially attractive to investors who operate as landlords. In other words, they buy up a host of residential properties to add to an ever-growing rental portfolio. Rental properties generate passive income month after month, year after year.
Investing as a landlord offers an advantage over house flipping. Landlords can afford to pay a little bit more because they intend to make their money over the long term by renting the property out. House flippers do not have that luxury. They need to get a home fixed up and back on the market as quickly as possible. Short-term gain limits the amount of money they can spend.
Estate sale properties are attractive to investors because they can generally be had at substantial savings. And because investors have the time and resources to work through probate, they have a competitive advantage over individual buyers.