Is it possible to buy businesses that are in probate? What follows is a summary of my research. This may be the only post you’ll find on the topic.
As many of you know, I owned a real estate investment company for more than 5 years and I still dabble with it. The key to real estate investment is to make offers on properties that nobody else know are for sale.
In my experience, the best source of leads that meet that criteria are houses that are in probate. They are often unwanted and have deferred maintenance. The heirs want cash rather than the house. Often the heirs are paralyzed with indecision due to the emotional nature of the situation. Everyone is avoiding bold, proactive action because they don’t want to upset the other heirs.
Probate real estate must be found by time-consuming courthouse research that eliminates 95% of your would-be competition.
So I wondered whether you could apply the same principles of probate real estate investing to business investing. My conclusion is that you cannot. Here are the reasons why:
- Most businesses are passed on long before the decedent passes. The owners of valuable businesses think about this kind of thing and prepare succession plans.
- Many people own property, but nowhere near as many own businesses. If you segment the businesses, you will find that many of the businesses lose almost all their value when the owner dies. Think sole proprietorships or barely profitable businesses where the owner works 60 hours per week. When you do the math and figure out how many average monthly probates there are in your county vs. the proportion of those probates that contain viable business entities, you may realize that there will be few or no businesses for you to bid on.
- If a business is incorporated, which most successful businesses are, it will not appear in the assets. The shares might, but it will probably take a good deal of research on every single probate that lists shares in order to find shares that signify an available business in probate. This is the “needle in the haystack” problem.
So, at the end of the day, finding and offering on businesses in probate is probably not a viable strategy for most business investors.
If anyone has a different opinion or experience that contradicts my conclusion, I’d love to hear it.
