Estate Sale - Posted by Mark

Posted by Frank Chin on January 29, 2002 at 10:37:58:

Hi Heidi:

There’s always exeptions as I mentioned to Ron in the post above and you’ll have to determine seller motivation.

There’s nothing wrong with heirs overpricing in a hot market, and there’s cash in the estate to pay bills in the meantime. You obviously don’t have a motivated seller here.

What you want are estates with multiple heirs, bills to pay but not much cash, but they want the money quick, and leave town.

If you want overpriced properties, the MLS is full of them every day (including mine). LOL.

Frank Chin

Estate Sale - Posted by Mark

Posted by Mark on January 26, 2002 at 21:41:56:

I’m very interested in a property that is being sold through an “Estate Sale”. Is there any room for creative financing in an estate sale? Who decides to accept or deny my offer?

Thanks!

Re: Estate Sale - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on January 28, 2002 at 21:36:23:

Mark---------------

About estate sales: I posted a response to Frank Chin’s post that may help you some.

Good InvestingRon Starr*******

Re: Estate Sale - Posted by Frank Chin

Posted by Frank Chin on January 27, 2002 at 08:20:16:

Hi Mark:

Let me first say I’m not an attorney or expert on estate sales. But because my dad was a second generation American, he helped many of our relatives through their mourning period as he spoke the language. This includes dealing with some estate matters, and being the executor in several cases.

First, find out who the executor of the estate is, if there’s a will. If not, there’s an administrator appointed by the probate court.

One thing about estate sales is that the family home is usually free and clear, but illiquid. In many cases, the home constitute the biggest portion of the estate.

Estate sales happen when the heirs have to liquidate to raise cash to pay funeral expenses, and estate taxes in most cases. So the easiest way out is to sell Real Estate cheap, pay the bills, and split the proceeds among the heirs. That’s why some investors check out estate sales to pick something up very cheap, ALL CASH.

The complication comes up when there are several siblings, and others. The dad of one of my tenants passed away several months ago and he was going to move into his dad’s home. As he was one of three siblings, he thought it was a simple matter that his brother and his sister would give him a note.

NO DICE. His siblings want the MONEY NOW. They got bills to pay and things to do, and they’re not going to wait 30 years for the money giving him a note.

After postponing his move for several months, I asked him what the problem was. He had trouble getting a conventional mortgage due to his credit in recent years.

So I explained to him that he can get a “no doc” mortgage based on his one third equity of the house. Based on that, his siblings gave him the go ahead to move into his dad’s house, and he should be closing on the house shortly.

I’m bringing this exmaple up because of the dynamics of dealing with multiple heirs plus the executor. These are usually impatient people who will sell cheap but need the cash now. They won’t do creative financing even with their own brother!!

If you can get it cheap enough, you might be able to get a hard money lender. But getting heir’s to carry a note would be extremely diificult.

Think about it, if they go the creative financing route, they could give you a note, and to avoid all the problems of having one of them dealing with you and split the monthly payment, and do that possibly for years, they’ll probably sell the note at a big discount. If they’re going to do all that, why not sell the place at half price for CASH to begin with.

So I think these are the considerations in estate sales.

Frank Chin

Re: Estate Sale - Posted by Ronald * Starr(in No CA)

Posted by Ronald * Starr(in No CA) on January 28, 2002 at 21:35:15:

Frank Chin-----------

I enjoyed your post and some nice thinking.

You may be right about a lot of situations. But, I have heard of occasional situations where the estate or heirs would carry, especially when the real estate market was in the dumps.

I would suggest that, although often you will be right, that it might well pay to inquire about loan-carrying on probate sales. Might be a small proportion where it would work, but probably more than the proportion of typical real estate sales where it will work. After all the owner of the property does not have to get out the equity from the old place to buy a new place – “you can’t take it with you.”

I would think it would be easier to do in situations where there is only one heir, where the heirs are comfortably off financially, or where the property is in great disrepair, thus hard to finance and hard to sell.

Good Investing and Good Posting*********Ron Starr************

Frank - Another Estate Sale?- Lease being sought! - Posted by HFW

Posted by HFW on January 28, 2002 at 18:50:39:

Hi Frank,

I’ve know of a property where it’s an Estate Sale - listed with a Realtor. They want $450K (overprice by at least $40) - but the same Realtor Flyer says they’d consider a $2000 a month lease. This is about $200-400 under rent. In this case I doubt if it’s free and clear because the house is less than 1 years old. I haven’t confirmed yet - but the selling price for these houses new was around $350.

I have a feeling they know property values have gone up - so they’re trying to get as much equity out of the property as possible - but the lease choice makes me also believe that there is a current rather high mortgage on the property and the payments probably under $2000.

Since it’s with a realtor - should I just ignore it?

It’s been vacant since Dec 15th.

Regards,
Heidi

Re: Estate Sale - Posted by Frank Chin

Posted by Frank Chin on January 29, 2002 at 06:28:25:

Hi Ron:

As usual, you have a good point.

Dealing with estates is similar to dealing with motivated sellers. You got to dig and find out the motivation.

Occasinally, if there is

1- one heir
2- he lives nearby
3- there is cash in the estate, or he has is own cash
4- Comfortable with holding Real Estate
5- The numbers work with a note taxwise

Then he can hold on to it forever, or hold a note.

A friend of mine whose mother in law died sold the property in the neighborhood around the corner from me. The house was willed to his mother in law when her parents passed away many years ago, and she decided to live in the home she grew up in.

I find this situation more common than someone renting it out, or holding a note. One exception is a small office bulding in Downtown Manhattan owned free and clear in the family, and they held on to it and the second generation is now renting and managing it.

When my dad served as executor, he found out that New York State had a lower threshold for estate taxes, and it is due around 9 months from the date of death. In an estate where the cash is used up over a long illness, and heirs have to dig into their pockets to pay current real estate taxes plus estate taxes, they want that cash.

So let say there ia a sole heir who lives nearby find RE to be in the dumps, hard to sell, and really wants top dollar carrying the note. What he’s doing is making the estate value, thus the ESTATE TAXES HIGHER. Unless there is plenty of cash in the estate, or he’s got plenty of his own, he’ll have to somehow pay out the taxes in CASH while holding a note collecting NO CASH.

But in estate with plenty of cash to pay taxes, then getting top dollar and trying to collect a note is not top priority either.

So if an estate has 2 million in cash and you can get 100K top dollar with a note or sell it 50K cash today. Taking 50K more, would expose you to some 55% in Federal estate taxes plus NY state estate taxes. Are you really making that much more with the note??

You’re right, ocassionally, there is this one exception what it would work.

Frank Chin