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This Old House - Do-it-Yourself

Real Estate Investing: The Lure of Off-Market Properties

Written by Posted On Tuesday, 09 January 2018 12:10

How do successful real estate investors find the right properties when everyone else is looking for the same thing? One way is to look for properties that are not yet on the market. Since these private deals have many advantages over listed properties, let’s take a look at what they are, why they appeal to both investor and seller, and how to find them.

Good for Investors

There are many benefits to buying a property off-market. The biggest is that there is less competition. Remember, the more competition a property has, the more the seller is in control. With less competition, an investor can negotiate a deal, creating terms that are best for themselves.

Another benefit of finding off-market properties is that these sales often have unusual circumstances that make a public offering difficult. For instance, in the commercial market, many owners of hotels, retail space, office buildings, and apartment complexes sell privately in order to keep current tenants from panicking. Finding out about these opportunities will put you in the driver’s seat as fewer people will know about the upcoming sale.

Other circumstances that can lead to private sales include:

· Deferred maintenance – The property needs work before it could sell on the open market

· Poor tenants – The property has poor tenants or no tenants, making it difficult to sell

· Owner financial trouble – The owner of the property is having financial difficulty and needs to exit the property quickly

These special circumstances allow an investor to come in, make minor improvements, and bring rents up to current market rates. Doing so can increase their ROI substantially.

Good for Sellers

One appeal is not disturbing current businesses or tenants. If current tenants catch wind of a potential sale, they may become concerned and determine not to renew their lease. When buildings are not fully rented, the price of the property decreases.

The market value of a property also decreases if it fails to sell. If a property is put onto the market and doesn’t sell within two to three months, the value of the property decreases substantially, leaving investors with the upper hand. So, many sellers prefer to sell off-market with a confidentiality agreement so that there is no public failure to sell. This also gives them a longer window to find a buyer.

10 Ways To Find Off-Market Properties

The best way to find off-market properties is through your network. Consider asking the following people for leads:

1. Real estate agents: Expired and withdrawn MLS listings are an excellent source of off-market properties that were unsuccessful in the open market. This could be a good source of willing sellers.

2. Home Builders: When people decide to build a home, they often need to sell their old home. Talking with builders can get you names of potential home sellers before they put their home on the market.

3. Rental Agents and Property Managers: Get leads on non-owner occupied homes. Many landlords are not landlords by choice and would be happy to get rid of their properties.

4. Insurance Brokers: Ask brokers to let you know when they have a customer change a policy to landlord coverage or vacant house coverage.

5. Accountants and CPA Firms: Many accountants are aware of clients that need to get rid of property for tax purposes.

6. Investment Clubs: If you are involved in an investment club, you may be able to get leads from those you meet. These are the people ‘in the know’ about investments throughout your area.

In addition to using your network, you can also do some of your own research and footwork. Consider the following:

7. FSBO Signs: Many sellers that use the FSBO method are not successful. Contact FSBO sellers that have been on the market for 4 to 6 weeks. In addition to FSBO signs, you can find these homes on bulletin boards and online sites such as Craigslist.

8. Courthouse: Look for foreclosures, judgments, and liens in county or city records.

9. Estate Sales: Often, estate sales are part of a probate action. The real estate may also be tied to probate.

10. Distressed Houses: Drive through neighborhoods where you would like to buy. Look for homes that are distressed in some way. Contact these owners to see if they wish to sell.

As a real estate investor, it is a good idea to look for properties that are not currently listed. By doing a bit of research and keeping in touch with your network, you will find the right kind of deals for your portfolio. If you’d like more information about finding off-market properties, please feel free to contact me.

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John Trautman

John Trautman has spent his entire adult life in real estate. Purchasing his first property at 23, he learned the process of flipping and real estate holding from the ground up. Real estate continue to be his passion while he spent eight years as an account executive and later a vice President for Washington Mutual in the mortgage division. Holding the position of President’s Council and several years of President’s Club, he learned the lending business from the mortgage office perspective and lender perspective. Throughout his life he has also been a small business owner, commercial real estate holder, property designer, and house flipper.

During the downturn, John followed the deal to Detroit, Michigan, where he invested in single family rentals and multi-family dwellings. Once his returns were realized, he moved quickly to Arizona to invest in another distressed market.

His passion for making a deal and real estate has lead him to create a hands-on real estate investment mentoring club called Real Estate Knowledge Institute

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