Mastering the Market: Understanding On-Market and Off-Market Real Estate

If you follow or listen to other successful Real Estate Investors you may hear them talking about the term Off-Market Deals. Off-market deals are often referred to as the best way to find great Real Estate Investment deals. You may be asking yourself, "What is an Off-Market Deal?", "What is an On-Market Deal?", What makes one better than the other?.

In truth, there isn't one secret remedy to purchasing good Real Estate Deals. Many factors can make or break a deal but at the end of the day, a great deal has positive cash flow and minimal headaches.

Let's dive into the difference between On-Market and Off-Market Deals and understand the advantages and disadvantages of each.

On-Market Deals

On-market deals are properties that are actively listed for sale on the Multiple Listing Service (MLS). The MLS is the centralized database used to organize and list properties for sale. The sellers of these properties are represented by a state-licensed Real Estate Agent and typically require you to have a Real Estate Agent represent you to purchase them.

The sellers of these properties are usually very highly motivated to sell and get a lot of public visibility to other buyers in your area. These properties are usually priced around their true value and can get competitive depending on how many investors are in your market.

Finding On-Market Deals

Finding On-Market properties for sale is as easy as browsing the web. Finding On-Market Deals is a bit more of an art as there are millions of properties listed for sale each year and most of them are not going to cashflow or work as great investments.

This is where building a solid Deal Pipeline will make finding investible properties much easier. Your Deal Pipeline is the process in which all listings that match your criteria are filtered through quickly. The ones that stick out are moved forward to the Analysis stage of your pipeline where the deep dive into a property's profitability occurs. If you'd like to learn more about the Deal Pipeline check out our post A Beginner's Guide to Real Estate Investing!

To help you find On-Market Deals more efficiently below are some recommended tools and strategies:

Online Tool: RE Analyzer

RE Analyzer offers the Advanced Property Search to help investors fine-tune their deal pipeline to pre-filter properties based on their criteria. Along with typical filters like price and size they also provide their proprietary Minimum Monthly Rent Ratio and Minimum % Below Estimated Value search criteria.

Visit RE Analyzer

Online Tool: Zillow

Zillow is a fantastic tool to quickly search real estate listings in your area. Their search works incredibly fast and offers a lot of great information about active properties. Zillow is intended for home buyers and does not offer many investor-friendly search filters.

Visit Zillow

Local Tool: Real Estate Agents

Local Real Estate agents can be a great source for finding listings right when they hit the market. They have access to the MLS and are likely listing their own client's properties and want to help sell them quickly. Look for agents in your market that appear to be ahead of the rest and begin networking. Looking for agents with big advertising budgets or that you often see on yard signs as you drive around your market. These agents are likely very integrated into the market and can be a great person to have on your team.

Negotiating On-Market Deals

When it comes to negotiating On-Market Deals the biggest factor that plays into your leverage is the Days on Market (DOM). Usually, every seller who is part of an On-Market listing is highly motivated to sell as they have already gone through the process of hiring an agent and had the property listed. Once the property has sat on the market for a bit the seller has likely gotten antsy and worried that the property may not sell. Before you make your offer you must do your best to determine why the property hasn't sold. If it's for reasons you are prepared to tackle then it's time to make your offer.

When making your offer, depending on how long the property has been on the market, there may or may not be other competing offers coming in at the same time. Based on this information can help you determine how aggressive of an offer you are willing to make.

Additionally, it's important to remember that the Real Estate Agent likely provided a Comparative Market Analysis (CMA) to the seller. This is a report that analyzes similar sold properties in their area. This is usually how the listing price gets determined. Depending on how desperate the seller is to sell it may be difficult to convince them to sell for lower than the value on this report.

If the price isn't negotiable for the seller your next option is to offer or ask for concessions. These can be things like the seller paying closing costs or you will wave a contingency if the seller replaces the roof. These sorts of additions to the offer can have real cash value at the end of the deal.

Advantages and Disadvantages

Advantages

• Very easy-to-find listings
• Highly motivated sellers
• Standardized legal process through MLS

Disadvantages

• More competition in popular markets
• Longer closing process
• Less negotiation flexibility

Off-Market Deals

Off-market deals are pretty well what you'd expect by the name. Properties that are not currently on the MLS for sale. You may be thinking "Well isn't that essentially every other property in existence?". You would be correct! As a matter of fact according to the National Association of REALTORS® as of 2018 there were nearly 120 million occupied housing units in the United States.

At the most simplified level, a true Off-Market Deal is one where a homeowner/seller is interested or ready to sell the property and hasn't yet listed it for sale with a Real Estate Agent. Ideally, you catch this individual before they list it and successfully purchase their property at a price that works for both them and for your investment.

Finding Off-Market Deals

As I mentioned at the start of this article many successful Real Estate Investors claim Off-Market properties are the best way to find great deals. There is some merit to this point however, with the data above referring to nearly 120 million occupied houses in the United States it can be like finding a needle in a haystack finding one. Not to mention finding one before it gets listed for sale with a Real Estate agent.

This is where creating an Off-Market Deal Pipeline is an absolute must to begin targeting and purchasing off-market deals. This pipeline is much different than the On-Market pipeline however, as with so many properties in the U.S. figuring out which ones to look into can be incredibly intimidating. At a high level, you need:

1. Dataset of properties with their relevant information and a way to aggregate properties that match your criteria
2. Marketing strategy to repeatedly contact homeowners/sellers to attempt to purchase their property
3. Means to act quickly once they are ready to sell to avoid them becoming impatient and listing the property publicly on the MLS

This is where you can find a Catch-22 in the successful investors' advice. As a beginner investor, you likely don't have the means or infrastructure to set up these slow-moving deal pipelines when you are first getting started. This is where building your experience and portfolio with On-Market Deals can then help you begin to fund your Off-Market pipeline down the road.

To help you get started building your Off-Market Deal Pipeline here are some tools and strategies we recommend:

Online Tool: PropStream

PropStream is a Real Estate Data Service that allows for very sophisticated research of all existing properties regardless if they are currently for sale. This is especially beneficial for off-market properties as you can compile and later contact property owners through this platform to potentially purchase their homes before they list them on the MLS.

Visit PropStream

Local Tool: Driving For Deals

Driving for Deals is a coin termed by Real Estate Investors which entails driving around the market you are looking to invest in. Typically you are looking for properties that don't appear to be kept up with or any other signs of a distressed property owner. You collect the addresses of the properties you like and then get to work attempting to contact the property owner to see if they are ready to sell.

Local Tool: Direct Mail Marketing

With Direct Mail Marketing you are casting a wide net into your market to try and grab the attention of some owners who may be ready to sell. You collect the list addresses in your market and send out postcards or letters (usually multiple over a set period) explaining how it could benefit them to sell their properties to you. There are typically online and local services you can use to purchase or find lists of properties in your area to begin your campaign.

Local Tool: Networking

Word of Mouth is an incredibly powerful and free tool at your disposal. Get in the habit of whenever appropriate to let those around you know you are actively investing in Real Estate and looking to purchase properties. You want those around you to immediately think of you whenever a situation arises in their life that involves an investible property you may be interested in. Getting a phone call from your friend that their uncle needs to sell his property fast could end up being the home run deal you had to spend 0 time or money finding!

Negotiating Off-Market Deals

Having a strong negotiation skill set is going to be the difference maker when it comes to purchasing Off-Market Deals. This is because you will not only be convincing the owner they should sell but that they should sell to you at a price that is likely less than what they believe it is worth.

The single best piece of advice I can give to help obtain more leverage in this negotiation is to understand what the seller is looking for most. Some sellers want the most money possible while others may need cash or a quick close or help moving their things out. There is likely also a reason they contacted you to buy it rather than a Real Estate Agent to list it. Figuring this reason out can put a lot of favor on your end of the deal.

There is a lot of room for negotiation in Off-Market deals rather than On-Market as there likely isn't any other competition at this moment. Use this to your advantage to take a little more time and care to build an offer that is a win-win for both you and the seller.

Advantages and Disadvantages

Advantages

• Less competition
• More negotiation flexibility
• Less structured and more personal

Disadvantages

• High cost of entry to market and find deals
• Limited public information about properties
• Fewer options for financing

Continued Reading

There is so much more content available on this subject than I can fit into one blog post! Please check out these suggestions if you are interested in digging deeper into the topic.

The Book on Negotiating Real Estate: Expert Strategies for Getting the Best Deals When Buying & Selling Investment Property

As you probably can tell after reading this article, negotiating real estate is so vital to your success in purchasing great deals. This book is the gold standard for navigating the whole process with sellers and in particular Off-Market sellers. This book will teach you many strategies and provide examples of scenarios the author has been in. You will walk away from this book with a new sense of confidence for every deal you work on moving forward!

Buy Now on Amazon!

The Multifamily Millionaire, Volume I: Achieve Financial Freedom by Investing in Small Multifamily Real Estate

Don't judge a book by its cover on this one! The title hints towards this book being simply about Multi Family Real Estate Investing. However, there is so much content around Real Estate Investing jammed into this book that far outreaches just Multi-Family. In particular, there are multiple chapters focused on finding and negotiating both On-Market and Off-Market Deals!

Buy Now on Amazon!

Conclusion

Thanks for sticking around to the end! I hope you found Mastering the Market: Understanding On-Market and Off-Market Real Estate to be helpful and informative as you grow your Real Estate Investment Business!

I'd love to chat with you more and help each other along our investment journeys. You can reach me in the RE Analyzer Discord, via Email at info@crepropertiesinc.com, or at any of our social media accounts found at the bottom of this page. Best of luck and I can't wait to see the deals you make!