|An Inside Look At Off-Market Real Estate Investments
By Ray Pressley
Many investors recognize the advantages of off-market real estate over listed properties, for a number of reasons. I have dealt with off-market sales for over six years and eventuallybuilt an online marketplace around private offerings, so I’ve heard every question and answer you can imagine. Let’s take a look at some of the specifics of what separates listed and private real estate deals.
What is the appeal of off-market real estate for investors?
One of the foremost benefits of buying a property off-market is that there is often lower competition. When working on acquiring a property, time is of the essence, and an investor can create better negotiating leverage by having fewer interested parties in the property. Often, finding an off-market opportunity can allow a clear window to negotiate and purchase the property under terms that benefit the investor.
Private offerings often also carry unique circumstances. Whether it’s a commercial or residential property, there is a reason the property owner is starting to look for potential acquirers. In the commercial space, properties are often sold privately due to the nature of the property and its current tenants. Hotels, office, retail and apartment buildings are sold privately in order to not disturb the current tenants or the business that is operating on the property. Investors can take advantage of the lack of investor awareness on the new investment opportunity as, often, brokers only send these offering to their trusted contacts.
Another instance in which investors can win with off-market property is when there is something wrong with the property or owner’s financials. Possibly the owner is in financial trouble and looking for a quick exit. Another case I often see is that there is deferred maintenance or a problem with the current tenants – or lack thereof. For an investor, this type of value-add situation offers lots of enticing options. A new owner could rehab the property and bring its rents up to current market rates. Sometimes the current owners are strapped for cash and cannot make those necessary updates themselves.
What is the advantage of selling privately for owners?
I mentioned the appeal of not disturbing the current tenants and allowing business to run as usual. However, the largest reason sellers prefer to sell privately is the cost of failure. The cost of failure is the risk one takes by offering their property on the market. If the property does not sell in one month, two months or more, it’s no longer worth the offering price. Investors have all of the leverage.
Since off-market transactions are most popular with higher-end homes and commercial properties, there is a lot to lose if the market doesn’t bite on the starting offering price. A home listed for $3 million that doesn’t sell for three months is no longer going to fetch $3 million on the open market.
So, selling privately can protect the property owner from the cost of failure and allow them to control the process. Most often, a confidentiality agreement is used to protect information about the asset sale. This provides the property owner with the necessary protection to lengthen their courting period for a new acquirer.
If off-market properties aren’t listed, how can investors locate these deals?
Here are some strategies to find homes or commercial properties that are not available on the open market.
1. Direct Mail Marketing
Postcards and direct mailing flyers have been overlooked in the digital age. If you first identify the neighborhood you would like to buy property in, you can easily acquire a list of all the addresses and names from your local title company. This list is usually offered free of charge.
Send all of the owners in your target neighborhood a postcard that lets them know you are a ready, willing and able buyer. A service such as Lob can make it easy to send direct mail in bulk.
2. Estate And Divorce Attorneys
Start networking with estate and divorce attorneys. I know it sounds questionable, but life happens and people make changes in their lives and the assets they hold. Doing your fair share of local networking can help you know things that might be changing. Often, in difficult times, people prefer a smooth and easy sale of their property. A sale that isn’t public can actually benefit people in such scenarios.
3. Your Broker/Agent Network
If you are ready to purchase, placing calls to all the top brokers and agents in your target market can go a long way. Let them know you are ready to buy and that you are active on all the brokerage websites and real estate marketplaces. Tell them you only want to be notified of off-market properties. You might be surprised to find that you will be the first one to know about new offerings.
4. Contact Owners Of Vacant Properties
Having a vacant property can create a financial hardship, especially if the property has a mortgage. One good way to source investment opportunities is to contact the owner of a local property that is vacant. Often, they’ll be willing to listen to what you can offer. You can find the owner’s information by contacting your local title company and asking for the owner information.
5. Email Campaigns
Create a list of all the property owners and brokers in your area that you think might have information about private sales. Send them an email campaign that details your investment criteria and acquisition needs. These individuals may make note of your requirements and follow up when something crosses their desk.
6. Online Marketplaces
There are a number of online marketplaces that specialize in offering private/off-market listings, including The PLS, The Top Agent Network and Brevitas, the firm I co-founded. There are a lot of properties that sell through these portals, and the same goes for residential marketplaces. You may be surprised what comes up.
Use these tips to get started on your next acquisition. There’s a lot opportunity in deploying these strategies to purchase property off-market.