318: How to Find and Acquire Off-Market Properties

SHOW NOTES FOR EPISODE 318: HOW TO FIND AND ACQUIRE OFF-MARKET PROPERTIES

In today’s competitive market, finding good properties that meet your investment criteria is not easy.  Real estate investors have to be creative and aggressive to locate those “diamond in the rough” properties that will both provide a great return and are positioned for equity growth. In this podcast episode, Bill shares creative insider strategies on how to find and acquire great off-market properties that will not be on other investors’ radar.

Most real estate markets in the United States today are considered to be hot – the prices of homes for sale are increasing with more demand than inventory.  This makes it more difficult for real estate investors to find great investment opportunities due to the intense competition.  For an investor in a hot housing market, it’s also frustrating to bid on property after property after they’ve hit the Multiple Listing Service (MLS) or LoopNet only to lose the deal to another buyer who has outbid you.  If you’re looking for a way to avoid this situation, consider investing in off-market properties.

What beginner real estate investors might not realize is that the MLS and LoopNet doesn’t account for every property on the market.  In fact, a lot of properties are sold every month without ever being listed.  These off market deals are a great source for savvy investors looking for great investment opportunities – for those that know how to find them!  By now you must be wondering: what are off market properties, what are the benefits of investing in them, and how can I find one to buy as an investment property? Keep reading to find all the answers.

What Is an Off-Market Listing?

Let’s start off by explaining the off market definition.  In simple words, off market refers to property (it can be land, a house, or commercial real estate) for sale that is not listed on the Multiple Listing Service or commercial sites like LoopNet.  This means that the listing agent or broker didn’t advertise this property and would have to do the legwork to find buyers.  As a result, these real estate properties are not seen by the public, giving you a greater chance of closing on a deal if you know how to find them.

Reasons Sellers go Off-Market

• Don’t want to freak out existing tenants in the property to be sold
• Don’t want to deal with agents/brokers
• Don’t want to pay high agent/broker commissions
• Embarrassing situation (bankruptcy, divorce, loss of job…)
• Commercial brokers have “pocket listings” for their best clients
• Seller wants discreet sale
• Seller wants above market sale price
• There’s something wrong with the property or loan…

There are many reasons why properties are not publicly listed.  It could be that the real estate agent is holding onto it and waiting for the right offer.  Another reason could be that the property is in the early stages of becoming a foreclosure and hasn’t been advertised yet.  It could also just be that the owner has considered selling, but hasn’t listed the property for sale yet.  Whatever the reason may be, savvy real estate investors understand that these off market deals would make great investment properties. Why?

Savvy investors, commercial brokers and specialty real estate companies covet a property where they are the first to contact the seller.  Keep in mind, just because the property is not yet advertised, it does NOT mean it is a great investment.  However, in this new market where inventory is low and may continue to be, cutting out the competition can be a fantastic strategy.

Benefits of Buying Off Market Homes

1) More Time to Look Over Properties

Off market properties for sale appeal to real estate investors for a number of reasons.  First off, time is on your side as the buyer.  Some sellers expect a quick sale, forcing the buyer to rush to place an offer and close the deal before it’s gone.  As a result, this leaves little time for you to do the necessary due diligence before buying an investment property.  Off market properties for sale, on the other hand, are different. Owners of these properties are usually not in a rush to sell (unless they’re distressed, of course).  In addition, because the competition is lower, real estate investors have the chance to take their time and thoroughly look over the property before making an offer.

2) Stay Ahead of Competition

Buying real estate investments in a hot housing market means competing with hundreds of other property investors.  By the time a property hits the MLS or LoopNet, the chances of you getting a great deal go down.  Here comes another benefit of finding off market deals.  It gives you access to inventory that your competitors are not seeing.  Therefore, buying a property taken off the market means you’ll be competing against only one or two other prospective buyers.  In effect, having access to an off market listing means you’ll increase your chances of purchasing and closing on the property.

3) Negotiations Can Be More Flexible

Because there is no time pressure on you and the seller, both parties will feel more relaxed and reasonable when they come to the negotiating table.  This is why negotiations in off market transactions tend to be friendlier, smoother, and more flexible.  Having said that, buyers usually have the upper hand – especially if the seller is distressed. In this case, it’s in the seller’s best interest to offer something that appeals to the buyer.  As a result, they’re unlikely to place as many conditions on the sale as they may in other circumstances.  This can lead to the kind of contracts that would never be possible in an open market.

How to Find Off-Market Real Estate Deals

So, how does one find these “diamonds in the rough?”  What can you do in this kind of competitive environment?

Below are some of the common strategies and people that can help you find off-market properties:

• Direct mail (targeted mailing lists with very specific language)
• Estate Attorneys
• Divorce Attorneys
• Relocation companies
• Local Builders (These folks tend to “land-bank” properties)
• Other Real Estate Investors
• Commercial Brokers (they call them “Pocket listings”)
• Public Records (for bankruptcies and short-sale opportunities)
• People you know!

But why not look for properties that aren’t yet for sale?  This is a great way to bypass the “middle man” and go “direct to seller.”  Here are a few ideas that can produce great off-market apartment deals.

Driving for Dollars

If you live in the same area you want to buy in, you can always start by driving the local neighborhoods.  Find out, if you don’t already know, where the “B” class neighborhoods are with the better schools, in neighborhoods consisting primarily of single family homes and in close proximity to the better restaurants, shopping facilities and services.

Look for a class “C” looking building in a “B” class neighborhood and you could potentially find a great “value add” opportunity.  When you see those properties, join down the address and look up the properties either online or through the county assessor’s office to get the owner’s name, address and telephone number.  Draft a strong letter or, if possible, call and see if you can find motivated owners.

Google Mapping for Dollars 

If you are an out-of-area or out-of-state investor, you can also cruise neighborhoods, but instead of driving, cruise the neighborhoods online through Google maps.  After doing your research by talking to brokers, agents and others from the area of interest, identify the “B “ class neighborhoods, look for apartments that look like “C” class apartments and jot down the address off the building or apartment sign.   And do the same as above.

• Steps
  • Go to Google Maps
  • Go to satellite view (there’s usually a little box in the bottom left-hand corner)
  • Zoom in on the area you are interested in
  • You can identify by the roofs, which are apartments (most times they are labels)
  • To see a street view of the front of the building, look for the legend at the bottom right corner and click on the box labeled 3D
  • You can see the building from many different angles, go up and down the surrounding streets, get a feel for the neighborhood
  • The images will have dates and that will let you know how current the photos are
  • Right click on the building and you’ll get the address, left click and copy the address and paste it in a doc
  • If you like it, you go to the next step to find the owner
  • You’ll have to identify the county it’s in. You can just do a google search and type in “what county is (paste the address you copies) in?
  • Do another Google search to look up the (county’s name) tax assessor’s office
  • Once you’re on the tax site, look up the property by address (you may have to play with it and cut out most of the address to find it
  • When the address pops up, the owner name will be there. If his or her address isn’t listed, go to the tax treasurer’s office and type in the owner’s name
  • If it’s an LLC, look for the “managing member”
  • Skip tracing – can even get the cell phone number of the owner

Place an Ad

An ad placed on Craigslist or through social media stating what you’re looking for can also attract motivated sellers.  Ask the pointed questions: “Are you tired of tenants, toilets and trash?”

FaceBook Groups

Search for real estate groups within Facebook for real estate investors, wholesalers and others who woud have access to off-market properties.

LOOPNET Expired listings

Look up listings on Loopnet.com that have expired.  Sellers may be anxious to get rid of the property that could not sell on Loopnet

Real Estate Websites

Thanks to online sources, finding homes taken off the market has never been easier. While real estate websites mainly feature properties listed on the MLS, they can also be used to find off market deals.  We feature foreclosed and auctioned homes which – as explained below – are considered off market listings. Investors can take advantage of this by regularly searching the platform and using filters to pinpoint these investment opportunities before anyone else.

Real Estate Agents & Brokers

The first and most obvious way to start searching for off market listings is with the help of a real estate agent. While agents are most familiar with properties listed on the MLS, they are also savvy when it comes to finding homes for sale that are not listed there as well. So, once you’ve decided where to invest in real estate and pinpoint the neighborhood where you wish to buy, search for the top agents in that housing market and reach out to them asking for any off market listings they may be aware of. In addition, some real estate agents even have websites where they showcase their own off market houses for sale and/or services. Buyers can subscribe to such websites and get email alerts about new off market listings.

Direct Mail Marketing

Investors who are experienced in finding off market listings still believe that one of the most efficient ways to do so is through direct mail marketing. This involves sending letters or postcards to homeowners who may be interested in selling. To create a direct mail campaign, you need to first pull a list of houses in the area. You’ll want to target absentee owners and those who have a lot of equity in their property. Send a letter or a postcard explaining that you buy investment properties and express your interest in purchasing their home. Some homeowners don’t even realize that they’re ready to sell until they’re presented with an offer. So, make sure to provide a phone number and make an attractive offer to increase your chances of getting a response.

Real Estate Auctions

Another great way to find off market real estate deals is attending house auctions. Real estate auctions always have a steady number of properties for sale below their market value which would make for great income-producing real estate investments. These could be foreclosures, short sales, or bank owned homes. These are considered off market properties in the sense that they aren’t listed on any major real estate listings services like the MLS. You can keep track of auctions at the county courthouse or scan different auction websites to find deals that have investment potential. Real estate investors need to keep in mind, however, that these properties may be distressed and require a lot of renovations. They are sold “as is.” So, research carefully before placing a bid on an auctioned off market property.

Real Estate Network

Real estate investing is a people business – the sooner you realize this, the better foundation you’ll have when looking for deals. Networking is one of the best ways to find investment properties for sale including those that are off the market. So, remember to reach out to professionals in your real estate network as you search for off market property listings. Also, consider joining a local networking community in your area to stay connected with investors, agents, and others who may know of unlisted properties for sale.

It’s also a good idea to attend real estate events in your area to grow your network. In general, building a network is important regardless of your investment strategy, but it’s especially important if you’re seeking off market real estate deals. Just be sure to be transparent and let people know you’re looking for off market properties. This way, you’ll earn the trust and build the respect of other real estate professionals in your market.

Real Estate Wholesalers

If you’re interested in buying off market properties, then a wholesaler is your best friend. Why? Because this is what real estate wholesalers specialize in! Their job consists of finding distressed homeowners who haven’t listed their property for sale yet, putting the property under contract, and assigning the contract to a potential buyer for a fee. As you can see, a wholesaler will technically do the property search for you – you just need to show up and buy it. However, real estate wholesalers don’t advertise their homes – they utilize a buyers list to sell them. Therefore, it’s recommended to have wholesalers in your real estate network and make sure you’re on their list of prospective buyers. That way, you make sure they’ll reach out to you whenever off market deals come their way.

Builders and Contractors

In addition to real estate agents, brokers, and wholesalers, builders and contractors are also good professionals to have in your network to find off market property in your area. Local builders typically know about homes that were abandoned by the owner mid-project because he/she couldn’t afford to finish the construction. Of course, this is an unfortunate situation for the owner, but it can be a lucrative investment opportunity for a real estate investor who’s ready to dive in, finish the job, and turn a profit at closing. Moreover, contractors are constantly in touch with others in the real estate business. So, if you’re lucky, they can lead you straight to off market listings in your area.

Public Records

Another answer to how to find off market properties is by keeping up with public records like newspapers and state and local government websites. These often feature pre-foreclosures and short sale properties which, as mentioned, can offer profitable investment opportunities. Also, public records will occasionally mention real estate properties that are soon to be listed. Meaning, these are still off market properties and you can contact the owners and buy them before they hit the market and become public listings for others to see! Savvy real estate investors also check public records for expired listings (homes taken off the market after failing to sell). You can directly contact the seller and strike a good deal – especially if the property is distressed and the seller is desperate to sell.

Knock on Doors

The final strategy we recommend for finding off market homes for sale is walking door-to-door and asking homeowners yourself. For example, if there’s a vacant house in your neighborhood, chances are the owner wants to sell it but has yet to list it. It’s also likely that the house is in need of repairs that the owner doesn’t want to deal with. This creates a great opportunity for real estate investors. You can directly talk to the owner without involving a third party. This gives you the opportunity to ask about the property, establish trust, and get a great price. While door knocking is intimidating, the worst that could happen is being told “no.” But if you’ve found a motivated seller, the best thing that can happen is getting an amazing real estate investment property.

How To Buy a Property From Non-Sellers

Buying homes and  apartment buildings that aren’t for sale starts with a three-step search process.  You first decide what you’re looking for and in what market.  Do you want single family homes, duplexes and four-plexes, or larger apartment buildings?  The second step is to start looking for properties that fit your criteria.  And finally, you contact the owners.

Don’t limit yourself to “fixer-uppers” or other “problem” properties that seem more likely to have owners willing to sell.  Probably, most owners of rental properties have thought of selling at one time or another, so you can start with almost any building.  How can you tell when or why a landlord is ready to call it quits?  By asking.

Talking to prospects

Of course, tact is necessary.  When you call the owner, tell him you’re an investor, not a broker.  Tell the owner you like what you see, and you can have an offer ready in a week if he the owner is interested.  What if the owner is not interested?  Thank the person politely and hang up, but send your card or a follow-up letter. Investors often buy from owners that change their minds.

If the owner is interested, explain that you are an investor, so your offer will have to be based on your return on investment.  That means you’ll need to see the books, specifically the rent roll, listing the units and what they rent for plus current occupancy, a financial history of his income and expenses for the last 2 or 3 years, and do some research on the neighborhood and greater market.

Have a confidentiality agreement ready before you call, and let the owner know you’ll sign it and deliver it before you see the books.  It’s possible he doesn’t want the tenants to know he’s thinking of selling.  If so, inspecting the units may have to wait until you make an offer.  Just make an acceptable inspection a contingency in the offer.

Why should you buy income properties this way?  Because having no competition and no sales commission can mean a better price.  Because instead of waiting for that perfect property to be listed for sale, you just find it now.  Look for it, find it, and make an offer.  That’s how to buy an off-market apartment building.

Conclusion

As you can see, off market real estate listings can offer a number of perks to investors which is why they are highly sought after.  Due to their desirability, investors are questioning how to find these investment opportunities.  Before, the only way for you to find off market property for sale was through word of mouth.  Now, however, these properties can easily be located in many different ways.  Some strategies come as no surprise to real estate investors and others who are more creative.  To ensure the best results, we recommend pursuing more than one strategy at a time.

Links to Other Old Dawg Content on Finding Off-Market Properties

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