10 Tried-and-True Strategies for Finding Off-Market Real Estate Deals
Typically, most real estate you’ll find for purchase is listed through an MLS or “multiple listing service.” These are private databases that real estate professionals use to help each other and their clients find and communicate about opportunities to buy and sell property. While a multiple listing service is a tried-and-true way to get your property noticed, some sellers decide not to use them.
These opportunities are known as “off-market” or “pocket” real estate deals. Because the seller often isn’t paying a listing fee and other associated costs of using an MLS and the competition is less crowded, off-market deals can represent real diamond-in-the-rough opportunities for a property investor. However, to find one of these deals worth having, you’ll have to know where and how to look for them.
Why go off-market?
If you’re reading this guide, it’s likely that you’re already wise to the benefits of finding an off-market real estate property for sale. In case you’re new to the concept, here’s a quick explanation of why property owners decide to sell without using the MLS and what benefits that could net you as a potential buyer.
For starters, off-market might be your best chance to actually find an affordable investment property in a hot market. There may not be anything in your price range on the MLS, but that doesn’t mean there’s nothing in your price range for sale in your area. Finding off-market properties can be the secret to closing deals and staying ahead of your competition when the demand for real estate is high.
Secondly, off-market deals often mean far less competition in general. When something is listed on the local MLS, it’s everywhere, for everyone to see, including people who may have a stronger offer than your own. However, if you can find a seller outside the MLS, closing the deal is a lot less Darwinian and more likely to end in your favor.
Sellers often choose to forgo MLS listings because they want a degree of discretion and selectiveness in the process. When something is posted everywhere from Zillow to the local paper, the seller and their agent might have to deal with a lot more tire-kicking prospects than they would if they could hand select who they talk to about the opportunity. Property owners with tenants also run the risk of spooking their good residents into not renewing leases before they have any confirmed buyers. This way, sellers can exert a higher level of control of the whole process without committing to selling before they know they’ve got serious interest from serious investors.
Now that you have an idea of the potential return on investment for the effort of digging for a pocket listing, here are a few strategies that can get you one step closer to closing a deal.
The “boots on the ground” approach
Sometimes the best way to find an off-market deal is to take a quick walk or “drive for dollars” around your target neighborhood and look for houses that appear uninhabited or even rundown. These houses have a higher likelihood of turning into off-market deals for you than a house that’s clearly currently occupied or otherwise well-maintained.
Collect a batch of promising addresses in your target area and then use public records to search up the property owners and ask them whether they’ve considered selling their unoccupied real estate. At worst, they’ll say no or quote a price outside your budget—at best, you’ve found an investment opportunity you can turn into a rental property at a fraction of the on-market price.
Just keep in mind that these properties may need a little more TLC and upkeep than ones that have been well-maintained. If you don’t want to deal with property management and maintenance coordination yourself, you can hire a full-time property manager or enlist the help of a third-party property management solutions provider.
Take advantage of good networking
A solid network of contacts is one resource you can’t put a price on, and this is just one of the areas where it pays real dividends. When you have a network of people in the local real estate investment community, it’s much easier to put the word out that you’re interested in finding pocket deals. It’s also much easier for brokers to garner the impression that you’re a serious buyer worth showing their clients’ properties.
If you’re not sure how to build your own network in the real estate world, it may be helpful to attend local real estate events, join Facebook groups and forums, and take time to talk to any property managers, agents, brokers, and contractors that you meet in the course of owning and operating your existing properties. Even if your efforts don’t pay off immediately, it never hurts to have connections—and it could help a lot.
Wander the World Wide Web
You can find just about anything on the Internet these days, including highly-coveted pocket deals. Peer-to-peer oriented marketplaces like Craigstlist are more likely to host properties for sale by the owners, but popular websites like Zillow also allow filtered searches that allow you to look for properties outside of agency listings. Just keep in mind that, because these properties are easily discoverable by the general public, this method will likely involve more competition than those based on networking.
Join forces with a real estate agent
If you already have a connection or two in the real estate world, you may be able to find a real estate agent or broker who’s willing to share their pocket deals and leads with you. At the end of the day, their goal is to sell a property, and yours is to buy one, so this relationship has the potential to be mutually beneficial. Real estate agents often save these sorts of deals only for highly serious or qualified buyers, so keep that in mind when asking for more details on any deals they bring to your attention—any tire-kicking or time-wasting could be synonymous with shutting yourself out of future tip-offs.
Keep in the loop with builders and contractors
When a property is getting ready to be sold, builders and contractors are often the first to know. Whether it’s an owner fixing up their old property in preparation to contact an agent or a house that started construction but never finished, contractors often have insider information that can prove valuable for an investor on the hunt. As an added bonus for both of you, if you do buy a property they tell you about and it needs work, you’ll already have a qualified contractor familiar with the build on speed dial.
Talk to property managers or management companies
You’ve likely noticed that a lot of the entries on this list are all about being in the know with the right people, and this one is no different. Because you aren’t relying on a traditional listing service to find properties for sale, you have to think of the network of real estate investment contacts and events as your official listing service. The more rooms you’re in, the more ears you hold, the more likely you are to come up in conversations about off-market opportunities.
Property managers are people who get around in the investment property space. As the people who take care of these properties and interact directly with the owners and tenants, they’re more likely to have the inside scoop on owners who are looking to sell. Property owners with tenants might be more likely to search for interested buyers outside of the MLS than other property owners because of the need for privacy—the last thing any landlord wants to do is to spook all of their tenants into moving out by publicly listing their building for sale.
You may already know a property manager or two from your own investment properties, but if you don’t, you can make these connections at local property investment events or by joining Facebook groups for your area.
Attend live auctions
If you’re feeling brave, you can always attend a live property auction. Auctions usually involve repossessed or probated properties that range in value and condition. While they can represent an excellent path to muscle your way into a high-value investment, auctions might be overwhelming for new investors.
In addition to typically being cash-only, auctions move quickly, leaving little time to think carefully or inspect potential properties, which are often sold “as-is” and may come with expensive damage. If you’re not the type to make good decisions under intense time pressure, a slower approach may be best.
Direct mail marketing campaigns
Sometimes the best way to find a good deal is to make sure people know you’re looking for one. Direct mail marketing involves sending letters directly to potential sellers in the hopes that they’ll want to talk to you about buying their property. At worst, it goes in their junk mail drawer. At best, you’re the sole investor prospect on a worthwhile pocket deal.
Use public records to your advantage
Public records are great for identifying the owners of properties you earmarked while driving for dollars, but that’s not the only way they can help you hunt down an off-market property. Public records can also help you find mailing addresses or even phone numbers of property holders you’d like to contact expressing your interest. In addition, county records may also hold information about homes going into foreclosure; these won’t necessarily be for sale already, but the current owners might be more willing to consider selling than your average homeowner.
Find a wholesaler
In the real estate world, wholesalers are groups or individuals who contract a property and then flip that contract to another interested investor for a finder’s fee. Wholesalers are effectively a middleman in the process, so this method isn’t as cheap as finding deals directly, but having a good working relationship with one or more wholesalers can be an excellent way to keep a foot in the door of the off-market world.
Other things to consider
Finding an off-market deal is an excellent way to cut down on competition and get your hands on valuable property investments that may have otherwise sat vacant or been outside of your reach. While these deals can be hard to find, they’re often worth the extra effort you have to put in. As a bonus, even if you don’t find the pocket deal of your dreams, many of the strategies for off-market property hunting double as good networking and relationship-building practices, which are invaluable in any industry, property investment included.
One thing to keep in mind is that just because a property is an off-market deal doesn’t automatically mean it’s the right deal for you. You’re forgoing agency and listing fees, but there may be other associated costs that you wouldn’t normally find with MLS listed properties. It’s still a good practice to crunch the numbers and carefully consider what kind of return on investment you can expect from a place before buying.
For example, you may find a vacant property driving for dollars, but it may also need a lot of TLC to be in livable condition. The cost of restoring and maintaining the property should factor into your considerations.
The buck also doesn’t stop at the point when a property is livable and rented out to tenants. Ongoing property maintenance is always going to be a necessity, and depending on the condition of the pocket property when you bought it, some homes will need more attention than others.
Consider your time as a resource just like your money is: do you have the time to handle property maintenance requirements of each new unit you acquire? If not, you have two other options. You can hire a full-time property manager, or you can partner with a third-party maintenance service provider like Flcrm for a more cost-effective solution.