Is a cleanout crew a service business worth building around probate, or just a loss leader you eat?

Question

Running a small service team and I keep getting pulled into probate jobs from two directions, so I want to know how the room prices this.

Direction one: cleanouts are a real business. Estates need forty years of contents gone before anything can be listed or sold, families out of state can't do it, and someone will pay $2,500 to $9,000 depending on the house and whether there's a hoarding situation. Attorneys refer it, executors approve it as an estate expense, and it's repeat work because probate never stops. That's a service line that stands on its own and happens to sit next to investors.

Direction two: an investor buying the house should eat the cleanout and treat it as an acquisition cost, because "we'll take it as-is, don't clean anything out" is one of the strongest things you can say to an heir who's a thousand miles away. If that's true, then charging for cleanouts means competing with the thing that makes the acquisition work, and the smarter play is to run the crew at cost as a way to be the buyer who says yes to the worst houses.

What makes it genuinely arguable is that they're different customers. In direction one the estate is paying me. In direction two I'm paying myself and the value shows up in the purchase price. I've priced the same 1,600 square foot cleanout at $4,200 as a service and about $1,900 in my own labor and dump fees, so the number moves a lot depending on which hat I'm wearing. Also worth flagging that when estate funds pay a vendor, approval of that expense can be a court or representative question depending on the state, which is a conversation for the estate's attorney.

Curious where the property managers and the capital people come down, since you're both looking at this from outside the crew.

Rena Guide · Accepted Answer

A couple of terms here that are worth pinning down, since the answer depends on them.

A cleanout is exactly what it sounds like, removing the contents of a property so it can be sold or rented. In a probate context it matters more than usual, because heirs are often in another state and physically can't do it, and the estate can't close until the property is dealt with. That's why "as-is, leave everything" is a strong offer to an heir. It removes a task they were dreading.

An acquisition cost is money you spend to get a property that isn't part of the renovation itself. If you take a house with the contents in it, the cost of removing them belongs in your numbers before you decide what you can pay. @cobalt's own figures show why the framing changes the answer: $4,200 billed out versus roughly $1,900 in labor and dump fees. As a service that's revenue. As an acquisition cost it's $1,900 of buying power you can hand to the seller in the form of not asking them to clean.

On @halyard's point, being paid by an estate while also wanting to buy the property is a conflict, and how it has to be disclosed or whether it's permitted at all depends on your state's rules and on whether you hold a license. That one needs a lawyer in your state before you take a job like it, not after.

The question that decides it for most people is whether you want a business with customers or a channel that feeds acquisitions. Those grow differently and need different people.

ryanmck27 · Answer

Getting licensed right now and the thing I'd worry about is which side of the table you're on when the estate is paying you and you also want to buy the house. That smells like it needs disclosure, and disclosure requirements vary by state and get stricter once you're licensed. I'd ask a lawyer in your state before running both hats on the same property rather than after.

tonyv88 · Answer

Property management side, and I'd keep them as separate companies with separate customers. We tried running maintenance as both a profit center and an owner-retention perk and it made every conversation muddy, because owners couldn't tell whether a recommendation was a repair or a sale. Same problem here. An heir who's paid you $4,200 and then hears you'd like to buy the house will replay that invoice in their head.

hannah_west29 · Answer

The $2,300 gap between billed and cost is the whole argument and I think it's smaller than it looks. If you run the crew as a service you're also carrying scheduling, insurance, and the dead time between jobs, so the real margin on $4,200 isn't $2,300. Call it $1,100 to $1,400 after overhead, and now compare that against how much extra buying power "we'll take it with everything in it" gets you at the negotiating table. On the two probate-sourced deals I've reviewed, the as-is framing moved purchase price by a lot more than $1,400. What am I getting wrong about the overhead split?

paulgrant17 · Answer

@ledger nothing, I think, but you've assumed the cleanout crew only exists for probate. If they're doing tenant turnovers and estate sales the rest of the month, the overhead is already paid and the probate job really is close to $2,300.

Is a cleanout crew a service business worth building around probate, or just a loss leader you eat?

5 replies