My First Deal Might Be a Probate

17 Replies

Hey everyone,

So I've been mailing letters to probates in my area (both to the petitioner and the attorney) and I finally got a lead. Got a call from the son of the deceased who is the administrator to the estate.

Wondering if anyone is willing to comment on what their exit strategy would be, given this info:

ARV: 325K

Owe: 200K

Payment: 1200

1 month in arrears

est repairs: $15K

The son seems very motivated to unload the house.

My initial reaction (being that I don't really have any of my own capital to work with) would be to wholesale it. I would offer him $205K cash for it. (ARV x 70% less repairs and $7k fee for me). Doing this would allow him to pay off what is owed and still walk away with 5 grand.

Is this the best exit on this kind of deal though? Being that I'm new, obviously wholesaling is the easiest exit strategy to wrap my brain around, but I'm not opposed to get funding (private and/or hard money) to do the fix and flip myself instead of wholesaling it to another investor. Just wanted to see what any of you thought about the deal in general and how you'd work it.

Thanks in advance!

Jason

I would Offer to buy subject-to existing loan. 

Have you asked for and reviewed probate Letters to determine whether full or limited powers? Limited means court confirmation required. 

Also, given your unrealistic pricing, you are asking him to do all the heavy work and you make $7K? And you haven't figured how to pay the attorney nor court fees and allow other creditors likely in this estate. 

At minimum, you'll need to sharpen your pencil.

He's got about $100k equity.  He'll likely have to get much more desperate before he takes $5k for it.

@Rick H.  thanks for responding. I think I'm just a little naive to the process. The son does have full control, that much I do know. The property definitely wouldn't appraise for 325 as-is, but I do see your point. I guess I was just assuming he was willing to part with the equity in order to avoid inheriting a 1200/month mortgage payment.

The subject-to option seems like it might be appealing to the seller though.

I also think I need to learn more about the probate process in general. Sorry for the noob question. Thanks for the help!

@Jason Pachomski  No sweat.  But, think about what you would want if you were in the same exact situation.

I suggest that you re-think what the term motivated means, from the perspective of standing in a seller's shoes.

If you are trying to 'will' this person into selling you their estate asset, think again. This is where people new to real estate fail, as they miss the very important skills required called selling.

This is the reason folks get frustrated when they can't figure out why they can't make money...because they can't close deals. 

I'm not trying to be negative and certainly not trying to discourage you but rather trying to introduce you to the need for and importance of learning sales skills, which includes qualifying people. Your probate PR might be very motivated but listen the attorney more than you, so part of qualifying includes determining who else influences your prospects decision process and if/how you must sell them on your plan, as well.

Either way, hope it works out well for you and don't give up.

Rick Harmon, you may enjoy quipping out criticisms, buy you lack of helpful information shouts loudly. sell your stuff some other place.  That's two cent.

Also, I can't believe I did this, but I forgot to leave out one key detail (for anyone just now reading this): the $220,000 owed is on a REVERSE mortgage. I've started researching how that affects a potential deal. My mentor here in LA sent me a quick message saying "because it's a reverse, it'll have to be paid off"). If anyone can speak to the situation with the reverse mortgage in mind I'd be forever grateful. Thanks again everyone.

Originally posted by @Jason Pachomski :

Also, I can't believe I did this, but I forgot to leave out one key detail (for anyone just now reading this): the $220,000 owed is on a REVERSE mortgage. I've started researching how that affects a potential deal. My mentor here in LA sent me a quick message saying "because it's a reverse, it'll have to be paid off"). If anyone can speak to the situation with the reverse mortgage in mind I'd be forever grateful. Thanks again everyone.

The RM has to be paid in full.  The estate likely has no cash to pay the attorney and expenses without selling the property out of probate.  The estate will collect the proceeds on the sale, pay the attorney and expenses, any other creditors if necessary and distribute the remaining funds to the beneficiaries.

Those numbers ring a bell.  $220K RM in So Cal with motivated heir.  It's not in San Diego, is it?

Yep, the RM has to be paid, but we assumed that anyway.

@Debra Leeson Rick contributes a lot of good advice on this site, without pitching any programs. By the way, his programs don't deal with the advice he was giving regarding understanding people, sales skills, and basic motivations. Newer "investors" seem to think sellers should automatically take their 70%ARV-minus repairs because that's all they know, and that's what they need to do this "wholesaling thing".

Originally posted by @Debra Leeson :

Rick Harmon, you may enjoy quipping out criticisms, buy you lack of helpful information shouts loudly. sell your stuff some other place.  That's two cent.

You may be right!  Who am I to argue what your opinion is worth?

I guess I fail to see why you believe that I'm pitching something. People who have been to my site know I really have nothing to sell (but good will). 

And, perhaps my straightforward suggestions do not resonate well with you, especially if you are new to real estate and have yet to do many deals (perhaps even your first investment).  That's perfectly understandable. 

As for the ability to convince a SoCal PR to sell at a substantial discount, I suggest that one had better have an arsenal of skills and a good understanding of real estate. 

A property with a reverse mortgage CAN be sold subject-2 the loan. Of course, even if the lender has not recorded an NOD, the balloon feature of the loan has been triggered by the death of the last borrower, called a "maturity event" in the servicing industry.

So, buying a property with a looming balloon payment offers fewer choices to monetize since someone will need to pony up a couple hundred grand in order to keep this property  or write a big check from a new loan upon acquisition. 

@Debra Leeson  There are a number of very skilled investors who beg @Rick H.  to be in his presence for the hope of absorbing 1% of his knowledge and experience. though he can be a prickly pear sometimes, he is mellowing with age, and his advice and knowledge are sorely needed on this site. Learn from him while he is still willing to share. My 2 cents

@Derek W.  Thank you adding 'pear' to my description. 

Originally posted by @Rick H. :

@Derek W.  Thank you adding 'pear' to my description. 

 Perhaps more importantly Rick is he added "ly" to the description of that pear. :-)

@Debra Leeson  Rick is one of the genuinely good guys on the site.

Man, I started a brawl  <stands in corner>

For the record, I'm grateful for any advice, however delivered. My mentor here in L.A. has, if nothing else, definitely thickened what I thought was an already pretty thick skin. 

For example: the first "deal" I ran by her was met with a voicemail message from her that went something like this: (without saying 'hi' -- "Your voicemail message is horrible. Just terrible. You need to fix that. Also you are WAY OFF on your comps. Not even close. Call me"

Anyways, quick update for anyone interested. The reason I even pursued this, and why I think the PR is motivated, is that a) he called me off a letter I sent. b) once he found out what I was about, he gave me all the info I requested and then thanked me profusely. c) When I presented him with preliminary offers (not just the old ARVx70%-repairs), I followed it up with "If these don't work for you, let me know what would. I think we could come to an agreement that would really work out for both of us". Again, I was thanked profusely. The benefit I could provide to him, and I think he's in agreement, is that he can walk away from the property as-is. He wants to sell ASAP (his words), so that kind of screams motivation to me. My point is, yes, I'm new to this, but I'm not so ignorant as to assume people are going to be throwing their houses at me and begging them to take them -- especially in the L.A. market.

All that said, @Rick H.  Can I get a hug too? :-)

Thanks again everyone.

Derek W. Donor

here are a number of very skilled investors who beg @Rick Harmon to be in his presence for...blah, blah, blah,

I CERTAINTY will Not be one of them.  good luck

@Debra Leeson  you'd be better off focusing your energy on doing deals instead of posting vitriole in the direction of personalities. 

Just because you don't like the messenger doesn't mean you ought to ignore the message.  

@Mark Pedroza  Please give her a hug. BTW, I had lunch with our buddy Dennis L. today in downtown Sac. Always a please to be around Dennis. 

Meeting my buddies from PropertyRadar in AM at their HQ in beautiful Trucker/ Lake Tahoe, CA. 

Since I work all 58 counties of California and have assets all over, I get to visit with friends I've met everywhere along the way and enjoy helping them find ways to work deals. Another benefit of being an investor.

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