Most of the United States is in a very hot real estate market. With housing prices increasing, it is getting tougher and tougher for real estate investors to find great deals. Buying off-market properties is one way to get great deals and avoid the intense competition on the MLS. Most MLS properties are priced too high for investors to begin with and then you must factor in buyers are paying over list price with multiple offers. Buying off-market properties is not easy, but you can get a great deal if you find motivated sellers.
What are off-market properties and how do you buy them?
Most sellers will use a real estate agent to sell their home on the multiple listing service (MLS). Most houses on the MLS are in decent shape and the sellers pay a commission to the real estate agents when their house sells. In most cases, the seller will get more money for their house when they list it on the MLS. The MLS exposes the house to more buyers and real estate agents representing buyers. It is possible for real estate investors to buy from the MLS, but it is tough. I get a lot of deals from the MLS but I am also an agent which gives me a huge advantage.
There are some homeowners who want to sell their home but do not want to list it on the MLS. The home could need extensive repairs, the sellers may not want anyone to know they are selling the house, the sellers may need to sell extremely fast or other factors may cause a seller to want to sell off the MLS or off-market. The difficulty in buying off-market properties is finding motivated sellers, who do not have their homes up for sale.
Here is a video that goes over my direct marketing:
What to consider before buying off-market properties
A lot of real estate investors start off trying to wholesale. The first thing they do is look for properties to get under contract. That is great if you have buyers and know what prices those buyers will pay. If you are just starting out and do not know how to write a contract, what prices buyers will pay, or even how to find buyers you may want to wait to look for properties. It is not fair to the seller to tie up a property hoping you can figure everything out in a week or two. before you go looking for off-market properties make sure you:
- Know the market
- Know what price you are willing to pay or a buyer will pay if you are wholesaling
- Know how to get the home under contract
- Know how you are paying for the property or closing on it if you are wholesaling
If you are out there talking to people and networking go for it, but before you get a seller’s hopes up make sure you have a plan and know what you are doing.
How do real estate investors find off-market deals?
There are many ways to find off-market properties and most of them take a lot of work. Here is a quick break down of ways to find off-market homes at a discount.
Buy from wholesalers
Many real estate wholesalers will sell off-market properties to investors who can pay cash. Most wholesalers do not list their homes on the MLS, but utilize a buyers list to sell their properties. If you can find great wholesalers in your area, you may be able to get some great deals off the MLS.
Drive for dollars
Driving for dollars is when you look for vacant homes. When you find the vacant home you try to contact the owners of the home to see if they will sell it to you. Here is an article with much more information on driving for dollars.
Direct marketing involves sending postcards, letters, posting bandit signs, creating websites and trying to get sellers to call you.
There are many people advertising they have off-market properties directly from banks. Please be careful as banks almost never sell off individual properties without using MLS. You can use your network of investors, agents and other professionals to find off-market properties. Be very careful and do not get your hopes up with unknown internet solicitations.
The easiest way to start marketing to sellers is to stick out a few bandit signs, which are signs that say you buy houses. Investors like to put these on busy street corners or in neighborhoods they want to buy in. Many cities have made bandit signs illegal and if your signs disappear it could be the city removing them or another investor who wants less competition. I do not use bandit signs, because of the real estate agent disclosure issues.
Attracting motivated sellers has become huge on the internet. I even wrote an article to attract motivated sellers. If you can create a website to attract sellers in your area, it can be a great source of leads. I am not an internet wizard, even though I created this blog I have had a ton of help. This company specializes in creating websites to attract motivated sellers. I used them to create a website for my own direct marketing.
Finding Off-Market Property Deals
The most lucrative way to find great off-market deals is to create your own direct marketing campaigns. Creating a direct mail campaign is not easy and there is a reason most investors will never venture into this field or will not stay long enough to be successful. I have my own direct mail campaigns and I have purchased and listed homes from direct mail. Since I am a real estate agent I have a couple different ways to use direct mail, but I have to disclose I am an agent and be very careful buying homes. I always have a seller sign a disclosure that states I am buying the home below market and I may profit from the purchase. Check with state laws if you are an agent trying to buy off-market properties.
How to use direct mail to find motivated sellers
Direct mailing is one of the best ways, if not the best way to find motivated sellers. Direct mail involves sending letters or postcards to people who may be interested in selling their home. There are many ways to create and manage a direct mailing campaign. There are many different mailings to use and many different segments to send that list out to.
The first step in creating a direct mailing campaign is coming up with a list to send mail too. I use List Source to come up with absentee owners in my area. I also use a company that gives me a list of inherited properties. We send different postcards out to each list and update the lists a few times a year.
Once you have your lists you have to send out letters or postcards to the list. I have seen many varying opinions on whether postcards or letters is better and it seems to come down to testing. Everyone is in a different market and everyone’ s list consists of different owners. With some owners, a postcard works better and with other owners, a letter may work better. Try out different letters and postcards and see which one gets you the most motivated sellers calling. Usually, you want to say something about buying houses for cash, with no commissions, repairs needed and fast.
One letter will not get the job done. You have to send out five letters or postcards to the same person before they will respond. You want to make sure you respond right away to any calls. We have a dedicated number set up just for postcard calls so we can call them back whether they leave a message or not.
It is a lot of work to set up a direct mail campaign and it takes a lot of persistence. This is why most investors will not do it or see a campaign through. There is a company that will find a list, create letters or postcards for you and even mail them.
How to negotiate with an off-market seller?
The scariest part of any direct mail campaign is talking to the sellers. Many people will call you very upset that you are sending them mail asking to buy their house. Usually, when you talk to them and explain you are buying houses in the neighborhood and are pleasant they calm down. You will have to deal with some property owners who have nothing better to do than to yell and complain. I had one lady threaten to call the police if I did not stop sending her letters, but she refused to tell me her name or address so I could take her off my list.
There will also be many property owners hoping to sell their house, but they want full retail value without paying a real estate commission. Then you will talk to the motivated sellers who want to sell right away and are willing to take a lower price for their home, because of the urgency or the condition. I talk as much as I can to the sellers to see why they are selling, how much they want for their house and when they want to sell. Many times the sellers are happy just to talk to anyone to tell their story.
Since I am an agent I like to give sellers a couple of options. I am very honest with them and tell them that most of the time they will get more money if they list the home on the MLS. Even knowing they will get more money on the MLS there are some sellers who don’t want to list on the MLS or the homes are in such bad shape that it makes more sense for me to buy them. Otherwise, as an agent, I can list the home for them and make money that way. If you are not an agent you may be able to sell your leads to a real estate agent, but it is illegal in most states for a real estate agent to pay a referral fee to someone who is not licensed.
When you talk to a seller you want to highlight the advantages of selling to you.
- No repairs needed
- No commissions
- No closing costs
- Fast closing
- Cash closing
- No Showings
- No appraisal
These advantages are for an investor who can pay cash for houses and close very quickly. Some wholesalers will use these terms as well assuming they can assign a contract to a cash investor who will buy the property. Don’t lie to the seller and claim you can buy with cash if you have to get a loan. Almost all the successful investors I talk to have a couple of things in common. They know their market like no one else, they are honest and follow through on deals if they say they will buy a house.
It takes a lot of work to buy off-market properties. You must find the property, negotiate with the seller, get the house under contract, and figure out the closing process. If you are wholesaling, there are many more steps involved. I get many deals that are off market for my flips and rentals, but it took a lot of time to figure out the practices to get those deals. If you are considering a program that teaches you all the ins and outs of direct mail and wholesaling I would suggest Flip2Freeedom.