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One of the most elusive and desirable real estate opportunities is the “off-market property”. This is a property where there is generally a motivated seller, but the property has not been broadcast on the MLS (Multiple Listing Service) or Loopnet.com and does not appear on any of the national or local real estate sites that “re-broadcast” the MLS and commercial properties.
Savvy investors 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.
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 be resources to 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)
- 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.
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?”
How To Buy An Apartment Building From Non-Sellers
Buying 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 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.
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.
Bill Manassero is the founder/top dog at “The Old Dawg’s REI Network,” a blog, newsletter and podcast for seniors and retirees, that teaches the art of real estate investing. His personal real estate investing goal, which will be chronicled at olddawgsreinetwork.com, is to own/control 1,000 units/doors in the next 6 years. Prior to that, Bill and his family lived in Haiti for 11 years as missionaries serving orphaned, abandoned and at risk children.
