While most property investors use their local multiple listing service (MLS) to find available listings, it's not the only way to find your next investment property. Properties that aren't listed in this service are known as off-market transactions, and they're more common than you might think. Keep reading to learn more about the meaning of off market in real estate and where you can go to find these investment opportunities.
What does 'off market' mean in real estate?
In real estate, the term "off market" is used to refer to properties that are for sale but not being marketed in the local multiple listing service (MLS). Also known as "pocket listings" to those who are familiar with the industry, these real estate deals are popular among property investors because they offer the opportunity to snag a much lower sale price than one might typically find with traditionally marketed properties.
There are many reasons why a homeowner might be interested in an off-market sale. For some, especially celebrities and other notable figures, choosing to make their listing a pocket listing allows them to maintain some anonymity, For others, it's a way to save money on agent commissions or to gauge interest in what they have to offer the real estate market.
The pros and cons of pursuing off-market real estate deals
Now that you know more about what an off-market sale is and why a homeowner might choose to go this route, the next step is to look at the advantages and disadvantages of pursuing off-market deals as an investor. While there are a few big benefits to going after these types of properties, there are also a few important factors to consider first.
- Your investment property options are basically unlimited: Once you forgo the multiple listing service, the number of off-market opportunities is pretty much unlimited. All you have to do is convince the property owner that selling their home is a good idea.
- There's less competition: Since an off-market home is not being marketed for sale, fewer qualified buyers know the opportunity exists. As an interested buyer, this can also help give you the upper hand in negotiations.
- There's potential for cost savings: Since an off-market listing isn't on the open market, there's a good chance the seller will be able to save on agent commissions. They may just pass some of that savings on to you by accepting a lower sale price.
- You'll have to do more legwork: As a prospective buyer, when you focus solely on finding off-market investment opportunities. it's up to you to find the perfect listed property. You'll have to work on seeking out potential properties as opposed to having all the available options delivered to your inbox.
- There might be less protection: If you decide to go this route, there's a chance that you won't have the experience of a buyer's agent and a broker behind you. You may need to navigate the complexities of the off-market transaction on your own.
- The seller might have tough expectations: If the seller hasn't been working with a listing agent, there's a chance they might have an unrealistic figure in mind for their ideal sale price, and they may be unwilling to budge from that price point. This can be especially tough for investors who are dealing with a preferred return.
How to find off-market properties
After you've considered the pros and cons of targeting off-market deals as a real estate investor, the last piece of this puzzle is to learn how to find off-market investment opportunities. Armed with this knowledge, you'll have everything you need to get started searching for these properties.
Talk to a real estate agent
Although the National Association of Realtors (NAR) has recently made an effort to crack down on pocket listings, they still occur. Particularly if you live in an area where there are lots of notable individuals, you'll undoubtedly run into these kinds of real estate deals.
Find a local wholesaler
If you can't find a real estate agent who can help you find the perfect off-market opportunity, you may want to try to connect with a local wholesaler, whose entire job is to find properties that can be sold below market value to interested home flippers. However, you may have to pay extra for their assistance.
Search public records
Searching public records can provide you with plenty of information about local distressed properties, but they can't tell you how willing the homeowners are to sell. If you decide to go this route, you'll have to handpick potential investment properties to target and market to them accordingly.
Conduct a direct-mail campaign
Sometimes, rather than looking for a specific property, investors will pick an area and send a direct-mail campaign to all of the homeowners in that sphere. Then, once they receive the mailing, any interested sellers can contact the investor directly.
Drive around different neighborhoods
Lastly, there's always "driving for dollars," or driving around various neighborhoods while keeping an eye out for obviously distressed properties. Again, this method may require more due diligence than just simply waiting for available listings to be sent to you, but it can be a great way to find properties to buy and motivated sellers.
The bottom line
Developing an investment strategy around finding off-market opportunities is not easy, but it can be done. If this is the way you want to go, having good networking skills will be extremely important. After all, the more people you know in the industry, the better chance you have of becoming connected to the next pocket listing that's perfect for your portfolio.