As an investor, a big part of your investing strategy relies on finding affordable properties that’d make for solid investments. Many times, the best way to find good opportunities is to identify off-market investment properties. This article will show you how to find off-market rental properties that will make good investments.
In today’s highly competitive market, it’s very difficult to score great deals on the MLS. Based on Realtor’s Monthly Housing Report, the number of total active listings was down 28.4% in January 2022 compared to the same time last year. Compared to January 2020, the first month of the year saw a 60.4% decrease in active listings. Due to the low inventory nationwide, prices have risen, competition has increased, and your returns as an investor are at risk. This is why it’s so vital to find off-market properties.
Our goal in this article is to provide you with an overview of what off-market means in real estate terms. We will also show you how to find affordable off-market properties in the US and how to decide when an off-market real estate deal is a sound investment.
What does it mean when a property is off-market?
An off-market house or rental property is not marketed for sale to the general public. These properties are not listed on a multiple listing service. They are also known as off-MLS listings, or pocket listings (because real estate agents keep this type of listing in their pocket, metaphorically).
Off-market properties are marketed to buyers through private channels. Sellers may choose to keep their properties off market, because they want to restrict the numbers of buyers and avoid a bidding war, test the waters on a particular price, pay less in commissions, or to keep the property sale private.
According to a report by the National Association of Realtors (NAR), 11% of sellers find a buyer for their property without ever listing them on an MLS.
Buying and selling off-market properties has several advantages. These include more affordable home prices, less competition, and complete confidentiality. The latter is particularly advantageous for real estate investors who may wish to keep the sale private from their tenants. Let’s look at how to find off-market properties.
How to find off-market properties in the US for investing: 15 Tips To Know
Tip #1 - Connect with top local real estate agents/brokers
Local professional real estate agents and brokers can be a good resource when looking for off-market deals. Contrary to popular opinion, agents do not solely work with properties listed on an MLS. They are capable of arranging off-market transactions too.
Some realtors have a list of homes they have exclusive rights to sell. They may be willing to give you these deals if you prove to be a serious buyer. Once they know you well, they may even start reaching out to you about off-market deals.
That said, the National Association of Realtors (NAR) has agreed to put an end to off-market property sales. Realtors are required to list a home on the MLS within 1 business day of marketing the home to the public. So, investors who want to buy off-market property in this manner will have to work with a real estate agent, not a realtor who is a member of NAR.
Tip #2 - Send out direct mail postcards
You can send out targeted direct mail to property owners who may be interested in selling. Sending direct mail postcards can be an effective way to find off-market deals. In some cases, the owner might not even have thought about selling if they hadn’t received your mail.
This makes you the only buyer privy to the deal. Direct mail is one of the oldest methods investors use to find off-market rental properties. You could reach out to FSBOs, expired listing owners, absentee owners, divorcees, and distressed homeowners, among others.
Tip #3 - Use Zillow
Some sellers who decide to sell their property without a real estate agent may post the listing on Zillow. Also, some homes may be listed on Zillow before being listed on the MLS. It’s possible to set up notifications so you’re alerted to Zillow off-market properties that meet your specifications. However, caution is always advised when dealing with Zillow off-market listings as there have been past reports of fraudulent listings on Zillow.
Tip #4 - Join a REI Club like RealWealth
Real estate investment clubs can help investors locate off-market opportunities around the country. These clubs often connect you with property teams that sell completely renovated real estate properties in hot markets.
RealWealth works with property teams around the country that specialize in selling fully renovated REAL Income Properties™ that have property management in place. Most of the properties sold by these teams are not listed publicly and are only available to our members. Sign up for a free membership here.
Tip #5 - Reach out to local builders and contractors
Due to their relationship with property owners, local builders and contractors can often lead you to incredible off-market deals. They can often provide you with a list of homes available for sale.
The homeowner may inform the contractor of their intent to sell and ask the contractor if they know any possible buyers. If you know the contractor, you can secure a real estate deal before the home is even finished.
Tip #6 - Connect with wholesalers
Wholesalers sell and buy off market properties regularly. They can be a source of lucrative deals on a regular basis.
However, you should take into consideration that homes bought from a wholesaler will often need serious rehab. It’s crucial that you take time to analyze the deal and see if it makes sense for you, profit-wise.
Tip #7 - Browse public records for short sales and pre-foreclosures
A homeowner asks the bank for a short sale when they are unable to pay their mortgage due to financial distress. The home is usually sold for less than the mortgage value. However, short sales can sometimes take up to a year to complete.
Distressed homeowners wouldn’t want to wait that long, nor would they want their home to be foreclosed. And so they would readily accept a good offer from an investor.
You can browse public records to find short sales and pre-foreclosures in your area. You can get a list of pre-foreclosed properties and find the names and mailing addresses of the property owners using a good skip tracing tool or skip tracing service.
A major drawback of short sales is that they can drag on until the lender is satisfied. Also, there may be expensive repairs to be carried out on the property. Try to work with someone who has experience in dealing with these kinds of sales.
Tip #8 - Ask family and friends
Chances are one of your close friends knows about an off-market real estate listing. Who knows? This might even be a chance to bring up partnership talks or raise money to fund your investment.
Ensure you mention the specifics about the type of deal you’re looking for so you don’t waste time checking properties that aren’t a good fit for your investment goals.
Tip #9 - Reach out to property management companies
Getting in touch with property management companies is a smart way to build your rental portfolio. The owner of the rental property under the care of a property manager might be looking to sell. In most cases, the home will need significant rehab and refurbishing.
But your work is easier since you already have a management company who can supply information for deal analysis, and also help manage repairs.
Tip #10 - Find distressed properties by driving for dollars
Driving for dollars is exactly what it sounds like. It involves driving around several neighborhoods looking for properties that could make good rentals. You could reach out to the owners of such homes and make them an offer.
It’s also helpful to look out for properties with signs of distress, such as a damaged roof, cracked driveways, broken windows, overgrown yards, and other evidence of neglect. Usually, this is due to the owner being out-of-town or unable to pay for the maintenance. So, they may be more receptive to an offer from you.
Tip #11 - Network with other investors
Networking with other professional real estate investors is always beneficial but it’s especially useful when searching for off-market properties. When you’re in touch with investors, you know what’s happening in the market; what properties are selling; and for how much. Some off-market real estate deals are sure to drop on your lap.
Getting in touch with other investors will also provide you with insights into their investment strategy which can be helpful in knowing what to buy and when to sell.
Tip #12 - Browse for sale by owner websites
For sale by owner websites allow owners of properties to list their homes for free.
- Some of Zillow’s listings are temporary off-market homes. It allows properties to be listed as “Coming Soon” 30 days prior to being listed on the MLS
- Opendoor allows real estate transactions to be conducted without appearing on the MLS
- Mashvisor helps you find off-market homes in the US
- You can also find some decent off market real estate listings on Craigslist
There are many other off market property websites that list off-market houses and investment properties before they’re listed on the MLS. You should bookmark and check them often so you can be aware of any profitable deal as soon as it drops.
However, it’s pertinent to note that due to the nature of the Internet, you’re likely to find more than one unscrupulous seller. If an offer sounds too good to be true, it probably is.
Tip #13 - Connect with lawyers
With a network of lawyers who specialize in divorce, foreclosure, and probate, you’d always be privy to information about off-market property deals. For example, probate attorneys would connect you with people who have inherited properties they don’t want to keep.
You can access pre-foreclosure listings that other investors are not privy to if you work with a foreclosure lawyer. You can find these attorneys as a referral from a real estate agent or by joining an investment group.
Tip #14 - Use Propertyradar's Quick list
Propertyradar is one of the most common real estate prospecting tools, featuring enhanced property data and homeowner data from public records and other sources.
The Quick Lists feature of Propertyradar helps you find the type of property you’re looking for in your location of choice. These lists are arranged into different categories based on foreclosure status, owner situation, distress, tenancy, and other investor criteria. You can use this list to find motivated sellers.
Tip #15 - Search foreclosure pages on bank websites
Many banks maintain online lists of foreclosed properties, but not every bank will sell to individual buyers. One of the more common practices among large lenders to dispose of REOs is to bundle them into a package and sell at a discount to investors.
National lenders that list bank-owned properties on their websites include Bank of America, CitiBank, and Wells Fargo.
How do you decide if an off-market rental property is a good investment?
While the purchase price matters, there are other expenses that should factor into your analysis, such as taxes, property management, costs of refurbishing and rehabbing, and attorney fees. All these costs will affect your profit margin.
There are a few ways you can check to see if an off-market property is the right fit:
1. Check the neighborhood
The location of a rental property is a significant factor to consider. It affects the amount you can charge for rent. It also determines your vacancy rate.
Neighborhoods can be grouped into classes, based on the proportion of homeowners to renters, namely, A-class, B-class, C-class and D-class. A-class neighborhoods are dominated by landlords. C-class communities are densely populated with renters while B-class neighborhoods are somewhat in between, with a 35%/65% ratio of renters to homeowners.
You should look to buy rental properties in B-class and potentially C-class neighborhoods with low vacancy rates.
2. Use the 1% rule
The 1% rule is a useful formula you can use to narrow down your investment options. You can use it to decide whether a property is worth further examination.
The rule states that a property’s monthly rent should be equal to or exceed 1% of the total initial cost of the property, including renovation. So, a property you bought for $500,000 should rent for no less than $5,000 per month. You can check the rent charged on properties of the same type in the neighborhood to find out a property’s expected rent.
However, you should keep in mind that some states such as Washington, California, and New York enforce rent control. This means they do not allow landlords to increase rent beyond a certain level.
3. Make sure the rent covers the mortgage and other expenses
The rent you charge on your rental property should be able to cover the mortgage payment and other major expenses. Before buying an investment property, you can enter the cost into a mortgage calculator to estimate your monthly mortgage payment. While unforeseen expenses might come up periodically that eat into your cash flow, for the most part, rent should cover your expenses.
Now you know the meaning of off-market properties, how to find off market properties, and how to check if you’re getting a fair deal. Keep in mind that not all of the deals you find will be profitable. Be sure to conduct careful research, evaluate the risks and calculate the potential rewards before moving on any property.
If you want to outsource the grunt work of finding off-market single-family and multi-family investment properties for sale and analyzing deals, then you should join RealWealth. RealWealth is a real estate investment club that simplifies the process of investing in real estate by providing free education, investment coaching, and connects investors to property teams and managers selling off-market properties around the country. At RealWealth, you gain access to investing information and an expert network that puts you ahead of the curve. Check here for a couple more tips on how to find off market properties in the US.