If you’re investing in a highly competitive real estate market, you’re likely aware of the challenges associated with operating in a sellers’ market. High prices, bidding wars and a dearth of accessible real estate can make it difficult to break into the most desirable markets.
Fortunately, there are steps prospective investors can take to maneuver into challenging markets. Prospecting off-market properties—also called pocket properties—is one way investors can get ahead of the curve and leverage a competitive real estate environment to their advantage.
Every home is for sale for the right price
Off-market properties are real estate assets that aren’t currently listed for sale. This means they’re not published on a listing service, or available for purchase through a real estate agent.
While it may seem like off-market properties are off-limits, you can, in fact, find many property owners willing to sell off their asset to the right buyer. With proper preparation and consideration, that buyer could be you!
Purchasing an off-market property affords you many competitive advantages over other real estate investors in your area. Because you’re not pursuing a publicly listed property, you can negotiate the purchase price with the buyer alone, and not worry about other investors driving up the cost of the potential sale.
Additionally, searching for unlisted real estate allows you to pursue more unique opportunities that other investors may ignore. Because off-market sellers aren’t in a rush to get rid of their assets, you can take your time and perform due diligence while negotiating an offer. For instance, you can do extensive market research to determine what types of rents you can command or analyze the property’s condition more fully.
It’s important to understand that prospecting pocket properties requires skill, tact and patience. When done correctly, however, prospecting an off-market property can allow you to break into a challenging market and maximize your investment capital.
How to identify off-market prospects
When it comes to purchasing a pocket property, the key challenge is finding a suitable asset and a willing seller. While not every method is right for every investor, it’s usually advisable to try several different strategies to see which method, or which combination of methods, works best in your target market.
Here are just a few tools that savvy real estate investors can use to identify and purchase off-market real estate:
•Direct mail: One way to identify potential sellers who may be open to selling their real estate is by sending out direct mail. Send out mailers indicating that you’re interested in purchasing homes in a given neighborhood, and stress that you’re willing to pay competitive prices. In rapidly changing neighborhoods with hot real estate markets, this is often an effective way to connect with would-be sellers. Be sure to craft an engaging piece of collateral—one with a clear value proposition and the information a seller needs to contact you directly
•Networking: Success in any industry largely depends on your ability to network. Real estate investment is no exception. Networking with other real estate professionals can help you learn the best way to connect with prospective sellers. When building your real estate network, you should be looking to make connections with real estate wholesalers, contractors and attorneys. They may be able to help clue you in to potential off-market investments you can take advantage of.
•Real estate agents: Real estate agents use extensive networks of people based off of industry connections they’ve forged. They may know of a buyer who’s dissatisfied with their recent purchase, or they may know of someone looking for a new home that hasn’t listed their current abode on the market, yet. If you’re searching for the perfect off-market opportunity, consider connecting with a real estate agent. If nothing else, they may offer to keep an ear to the ground on your behalf.
•Wholesalers: Wholesalers are real estate professionals that find discounted homes and put them under contract with investors. Working with a wholesaler is a great way to snag off-market properties. It’s important to realize, however, that wholesalers are ultimately middlemen, so you’ll be paying some type of fee or commission when you opt to work with them. Simply chatting with a wholesaler, however, can give you a better understanding of the state of pocket properties in your area.
•Visual cues: If you see a property that looks like it’s seen better days, the owner may be willing to part with it. Checking a property for signs of neglect can help you identify property owners that may be willing to sell off their asset. If a property is showing signs of underuse, it’s often a sign that the current owner isn’t comfortable with the amount maintenance, upkeep or repair necessary, and could be willing to sell it to free themselves from the financial responsibility of caring for the property.
•Real estate auctions: For investors willing to put time, money and effort into a potentially troubled property, real estate auctions are a great tool. Many foreclosed properties are sold at auctions. With proper preparation, you can use an auction to snag a potentially high-value at an affordable rate. If you spot an auction listing that catches your eye, do plenty of research before going out to the auction itself. You should be fully aware of all issues facing the home before you place a bid.
Purchasing an off-market property often requires creative thinking and careful strategizing. When executed correctly, it’s an excellent way for savvy real estate investors to break into challenging, high-cost markets.
Explore opportunities beyond what’s listed
If you’re looking for ways to begin investing in pocket properties in your region, it’s important to remember that connections in the local real estate scene are one of your most powerful tools. Consult with fellow investors, agents, brokers and wholesalers to learn more about the best way to purchase off-market properties in your region. It’s one of the best ways to find out about potential investment opportunities that may be in-line with your budget and investment goals.
Sometimes, asking a simple question like “would you be willing to sell your home?” is the best first step towards creating your next lucrative real estate deal!