Today I have another reader question for you. The question was, “Can you acquire probate property using a lease option”? To answer this question, you need a little understanding of how probate works.
When someone passes away, there are certain steps that have to be followed to settle an estate.
The Simplified Probate Process
The typical process is something like this:
- Someone dies
- The assets in the estate are sold
- The creditors are paid
- The heirs get what is left
There are a lot of other things that happen during the probate process, but this is the short version of how an estate is settled.
Why a Lease Option Strategy Doesn’t Work
The reason you typically can’t acquire probate property using a lease option is because with a lease option, there is no sale. There is a lease with an option to purchase the property at a later date, for a specified amount of money which is spelled out in the option. The lease and the option are two separate documents.
Remember that the assets in the estate must be liquidated. Therefore in almost every case, the property must be sold to pay the creditors. Any remaining money will be divided the remaining proceeds among the heirs.
Are There Exceptions to This Rule?
There can be if the property in the estate passed directly one of the heirs. When that happens, the heir that inherited the property might not want to bother with owning the property. In that case they might agree to delay the sale and do a lease option, however this isn’t typical.
What is the Usual Way to Acquire Probate Property?
Most of the time it’s a good old fashioned cash sale. If there is an investor that buys the property they will bring cash to the table whether it’s actually cash or some type of investor financing. If the property is listed, the buyer will usually be a homeowner getting a traditional mortgage.
What Do Market Conditions Have to do with Your Exit Strategy?
A lot more than you might think.
The type of market you are experiencing (a seller’s market vs a buyer’s market) will always determine the availability of good probate deals for investors. There will be a lot more opportunity for investors to acquire probate property in a buyer’s market simply because it will be harder for the heirs to get rid of those properties that need a lot of repairs or updates.
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