In the world of real estate, you never know what is on the horizon. There are plenty of times when a deal, or situation, is thrown on your lap completely out of the blue. Such is the case with inherited properties. Dealing with a property in probate is one of the most difficult, and time consuming, processes you will go through in real estate. Because of the many laws and red tape associated, an inherited property can take months before title changes hands. When it finally does you can be left with a property that hasn’t been updated in years and is in dire need of maintenance. This puts you in the proverbial “catch 22” of not knowing exactly what to do with the property to maximize the bottom line. Here are the five most common challenges to selling an inherited property with deferred maintenance.
- Limited Capital: In a perfect world you would have access to unlimited capital and do whatever work is needed on the property. Unfortunately, this may not be the case. Money may be tied up in other properties, your line of credit may be maxed, or you simply don’t have the capital to do the work you desire. By not having capital it sets off a chain reaction of potentially negative events. You won’t be able to make the improvements you desire which will leave you with limited selling options. There is little question that buyers almost universally want to buy a turn key property, unless they are getting a severe discount. If you don’t make improvements your buyer pool will be limited, and it will be reflected in your sales price. You can try finding capital through credit cards, private lenders or short-term partnerships but each of these options have drawbacks and will diminish your bottom line.
- Selling As Is: If you don’t have capital to make improvements, you are forced to sell the property in as is condition. You essentially defer the responsibility of the improvements from you to the buyer. This creates numerous problems for many reasons. As we stated, your buyer pool will immediately decrease. Many buyers don’t have the desire, or financial wherewithal to throw money into a new home purchase. Buyers are having a tough enough time coming up with any significant down payment let alone money for improvements. This leaves you with a buyer pool of investors and buyers looking for a discount. On the surface you may think that any profit you can get from an inherited property is a bonus. In reality there are many fees and expenses that are associated that need to be recouped. Additionally, if the inherited lacks equity your bottom line won’t be nearly as big as you may think. With an as is sale you will most likely have to pick the best of mostly lowball offers.
- Lack Of Market Knowledge: An inherited property doesn’t have to come from someone in your immediate family. If there are limited options, you may be the only choice in your extended family. It would be great if the property was in a market you grew up in or know like the back of your hand. However, what if it is in the other side of your state, or even a few states over? This requires a completely different strategy, regardless of what you want to do with the property. Having capital is great, but if you don’t use it wisely you could essentially be throwing money away. You need to make the right improvements for the market that can maximize the profit and expedite the sale. Doing a little research online is helpful, but nothing replaces actual knowledge and first-hand experience in the market. Reach out to a few local real estate agents and contractors to help guide you through your options. Always talk to at least three of each before committing to anyone.
- Timeframe: Going through probate can be a long and grueling process, even if there is a will. By the time you take ownership you can easily feel drained and beaten down. The last thing you want to do is wait another extended period to complete your improvements and wait for a buyer. If there is an extended amount of work needed in the property you have two choices. The first is do whatever is needed, regardless of how long it takes. Waiting a month or two to get the work done has significant advantages. The second is to find a quick sale and take the first halfway decent offer. If not, it can easily be another handful of months before another offer comes your way.
- Carrying Costs: The biggest issue with hanging onto the property for any period of time are the carrying costs. Every month you own the property you must cover the property taxes, insurance, utilities and a slew of other expenses. This is not to mention the payment to your attorney for their work on the probate and any other fees along the way. By not selling right away you can quickly get behind the eight ball, forcing more desperation and prompting you to make decisions with the property you normally would not. What you may think you are saving by not initially making improvements you end up losing by carrying the property.
Most buyers want their properties fresh, updated and turn key. If there is deferred maintenance, you need to strongly consider doing the work prior to putting the home on the market.