Experienced investors love off market properties, and even if you’re a newbie investor, so should you…but why? Well, that’s part of what we’re going to explore in this article as we dive into the topic of how to find and buy off market properties for sale. Let’s get started.
What are off market properties?
Before we venture into the art of finding and buying off market properties, let’s make sure we all have a clear understanding of what defines an off market property. To make sense of off market properties, let’s look at how real estate is typically promoted for sale.
Usually a seller would hire a real estate agent. The agent would enter the listing in their local MLS. By doing so, other agents in the area would be able to see the property for sale in MLS, present the property to their clients, etc. Furthermore, MLS would push the listing out to major real estate sites such as Zillow, Trulia, etc.
For a property to be “off market” simply means that the property is not within the MLS database. MLS stands for Multiple Listing Service, and it’s a real estate inventory database only real estate agents have access to.
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Why would a seller choose to sell off market?
Sellers may opt to sell their property off market for several reasons. Here are 3 of those reasons.
#1 For-Sale-By-Owner (FSBO)
Sometimes sellers want to avoid paying real estate commission and attempt to sell their property on their own. This is called For-Sale-By-Owner (FSBO).
While FSBO properties won’t be listed on MLS by a local real estate agent, the seller can still promote the listing themselves using yard signs, holding open houses, and promoting their property on different major real estate websites.
#2 Working with a wholesaler
In some cases, a seller is keeping their property off-market because they are working with a wholesaler. Real estate wholesalers are essentially middle-men who bring buyers and sellers together.
Wholesalers usually have a pool of investor clients that they sell to. Oftentimes, when a seller is working with a wholesaler, they are motivated to sell quickly, and the wholesaler is able to buy quickly with cash and a fast close (usually 30 days or less).
#3 Investors selling to investors
In the real estate investing world, it’s common for investors to do business with each other. As real estate investors build up their network of other investors, they are also building up their clientele.
Maybe an investor comes across a great deal on a fixer-upper, buys it cash, marks it up $10,000, and sells it to another investor looking for a flipper. These kinds of transactions are often cash deals done without using real estate agents using off market properties.
Why are off market properties better for investors
Many real estate investors prefer to buy off market properties. In fact, some investors will only buy off market properties. Here are a few reasons why:
#1 Less competition
With off market properties there is likely to be less competition for the simple fact that less people know about the property. This is great for investors because you can likely negotiate better terms compared to an active listing.
#2 Protection from low appraisals
The primary goal as a real estate investor is to obviously make as much profit as possible. To do this you’ve got to maximize value while keeping your costs down. The two main costs you’ve got are the cost to purchase, and the cost to rehab the property.
However, sometimes as real estate investors, we buy properties that either don’t need any work, or are in good enough condition to rent or flip them as is.
The problem with buying an active listing that we don’t put any work into is that the purchase price will, in many cases, highly influence the value the appraiser comes up with. Simply put, the purchase price will oftentimes end up closely resembling the appraised value.
Now, even with an active listing, you do have the option to have the listing agent (seller’s agent) not disclose the purchase price in MLS, however, the appraiser will likely just look at the asking price was.
The point is – you want the appraiser to give you a fair market value not based on what you paid, but rather based on what other similar properties in the area have recently sold for. Looking at similar, recently sold properties to determine value of a subject property is called the “sales approach” in the appraisal world.
In my experience, when an appraiser knows, or at least has a ballpark of what the sale price was, that becomes the value. If they don’t know the value, they are forced to use the sales approach to determine value, and that’s what you want.
Where to find off market properties
Since off market properties are not active on MLS, they are often harder to discover than active listings. In fact, off market properties may not even be promoted at all through the usual means like social media or major real estate sites. However, don’t fret. Here are 3 ways you can find off market deals.
Reach out to wholesalers
Wholesalers are likely the best and quickest way to find off market deals. A simple internet search should help you find local wholesalers. You’ll likely also find wholesalers at real estate investment clubs, so consider joining one.
Ask your agent to pull withdrawn & expired listings
Your real estate agent can also pull withdrawn or expired listings from MLS. A withdrawn listing is a listing that is temporarily off market. Maybe the seller has decided to do some additional repairs, or maybe the seller has decided to rent the property out for a season. A listing can be withdrawn for any number of reasons.
When a real estate agent signs a contract with the seller, they agree to a certain listing period – usually a year. When that period ends, if the property hasn’t sold, then the listing is expired and is off market.
Seek out FSBO listings
As I mentioned earlier, FSBO stands for For Sale By Owner. In addition to driving around looking for FSBO yard signs, you can also check out the following sites to uncover FSBO properties:
Find off market foreclosures
Off market foreclosures! It doesn’t get any better than that. Now, foreclosures have three different stages: pre-foreclosure, auction & post-foreclosure. By the time a foreclosure hits the post-foreclosure stage it is listed on MLS through an REO agent.
To learn all about foreclosures, and how to locate foreclosures in the pre-foreclosure and auction stages, check out my blog post on how to find and buy foreclosures.
How to Finance Them
In theory, off market properties can be financed just like any other property, however, in some cases the seller, especially if it’s foreclosure, will only accept cash offers.
However, even if you don’t have cash, there are a number of ways you can get the cash you need. Check out my post on investment property loans for the full skinny on how to get cash to buy properties.
Purchasing off market properties can pose a huge win for real estate investors. Knowing where to find them, and how to finance them or get the cash to acquire them, can really put you ahead of your competition. Hopefully this post has helped shed some light.