Top Eight Reasons Real Estate Buyers Want Off-Market Properties

In the world of real estate investing, we know you have many different options to acquire real estate properties. The markets have heated up again and so has the desire for off-market properties. Why off-market properties? What is the basis of the desire for these listings? We asked a couple high-end real estate investors why they love to buy off-market properties and here is what they told us.

Off-market properties are desirable for cash buyers for the following six reasons:

  1. There is presumably less competition because the property is not on the open marketplace like Multiple Listing Service (MLS). They don’t have to worry about getting outbid by several other investors.
  2. off-market-propertiesThe property is exclusive and therefore, based on who you know, you will have access to different types. Some higher end properties never get publicly listed; and so if your broker isn’t well connected, you’re going to miss out.
  3. The buyer can use the perception value of a property as off market to monetize it to other buyers.
  4. There are fewer broker fees since usually two realtors will split them.
  5. off-market-propertyThere is more time to make a decision. Since there are fewer buyers who know about the property, it could take the seller longer to sell it. This means you might be able to take more time making such a big decision.
  6. Avoid looking at tons of homes. We can get overwhelmed by the amount of homes on the market. When shopping off-market, you don’t have to look at so many properties.
  7. Banks and private lenders tend to be more lenient and excited about these deals. The lower degree of competition involved improves the chances to close escrow.
  8. Finally, these deals are good candidates to cross-collateralize against other deals.

How to Analyze Any Buy and Hold Real Estate Deal

A Real Estate investment is one of the few tangible assets that, given the proper amount of maintenance, will appreciate in the future. There are two ways to approach a direct real estate investment: buy and flip, and buy and hold. Although buy and flip can yield quick rewards, it also involves large outlays and more risk, since most buy-and-flips involve renovating and reselling a fixer-upper.

In this post, we look into the buy and hold strategy, which doesn’t promise the immediate return of property flipping, but is much less risky. The challenge however is this: out of all the potential investment choices you can go for, which one will build wealth?

There are two drivers of return for a buy-and-hold deal – regular payments from a tenant, and the promise of future price appreciation for the property itself. You evaluate the profitability of an investment property through statement that lists down the profits and losses. However, choosing the right property is trickier than looking through a list of properties and profits, because far too many realtors and wholesalers do not present a full picture of their proposed investment:

  1. Be especially careful of projected (or pro-forma) statements, since these use estimates which, based on our experience, tend not portray the actual performance accurately. You’ll want the actual numbers to make the right decision.
  2. Secondly, you’ll want the other members of your management team, such as the property managers, insurance agents, realtors, title companies, and lawyers to look critically at the numbers.
  3. Finally, you’ll want a sense-check from three objective realtors and real estate investors who know the area well. This is important because they don’t have a stake in the outcome, and can afford to give impartial advice.
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3 key ways you can use to efficiently analyze a property

With so many resources out there, getting stuck at the analysis phase is a real possibility. To prevent analysis paralysis, remember the Pareto principle: 80% of the outcome is determined by 20% of the inputs. This means that if you know the right 20% of the places to look, you can quickly get 80% of the information you need. Here are the three key ways you can use to efficiently analyze a property:

  1. rent-meterUse totalviewrealestate.com to quickly view the market values of a property, and rentometer.com to determine the rental rates in an area.Both sites are very easy to use – type in a specific address, and information aggregated from various real estate sites is immediately returned. Do note that property values may be lower than actual transacted values due to tax considerations, and that you might want to discount rental rates to account for any contingencies.
  2. Find realtors who are investor-friendly. They know what investors are looking for, and can often provide alternative deals should the current one pan out. There are three attributes of an investor-friendly agent: they are often real estate investors themselves, most of their clients are investors, and it is easy to approach and speak to them. Always go with these guys – they are worth their weight in gold, and give you the skinny on off-market properties with profit potential.
  3. Other real investors often have a wealth of information of the area they live in. Admittedly, this sounds counterintuitive – why tip off the competition? But in practice, real estate investors are a friendly bunch and will gladly help analyze your property. Most of the time, they will even check the place out, send you pictures, and give you a local’s perspective on the property.

In the next part, we take apart a profit and loss statement and use it to quickly evaluate the attractiveness of a buy-and-hold investment.

12 Biggest Mistakes Real Estate Investors Make

If you’re reading this article, you already know and understand how one can make a lot of money in real estate. More important are the ways not to lose money in this game. Here is a list of the biggest mistakes commonly made by typical investors:

  1. Listening to people who don’t invest in real estate – When you look at the Forbes billionaire list, the majority of these folks have made their money in real estate.
  2. Real Estate InvestorListening to people who want to charge you $5,000+ to teach you how to invest in real estate – Save your time and your money. These “gurus” won’t teach you anything you can’t learn on your own on the Internet. There is a wealth of information out there that is either free (like our webinars) or at a minimal charge. I say “gurus” and not gurus because most of them are like my MBA professors, teaching something they don’t actually do.
  3. Newbie mistake – Thinking you know it all – no matter how much real estate you’ve read about, heard about, or watched, find a seasoned investor who can mentor you. If you do your first couple of deals with him/her (even if that means less than a 50% split), you will learn much faster and significantly reduce the learning curve.
  4. Being easily discouraged – Investing in real estate has its ups and downs. It’s about progress, not perfection. Keep a positive attitude and be patient: nobody gets rich over night. If you want that to happen, play lotto.
  5. Buying strictly for appreciation – Whether it was a rental property or a fix n’ flip, this is how many people lost their shirts (and pants) in 2007-2009. They were betting that prices would continue to go up. You should invest for strong cash flow first (Net 7-12%); and if you do it right, you will also get some equity when you buy. That is a win-win situation for an investor.
  6. Real Estate InvestorUnderestimating the repairs needed on an investment property – It can be very difficult to assess the amount of repairs a house will need. This is exactly why you need to build a solid team in the area in which you are investing. On this team should be three very good general contractors. You can use Angie’s list to vet out the best. It is important to get a bid from all three to make sure nothing is overlooked. I would then add an additional 10-20% to estimated costs to cover unforeseen repairs or upgrades. The more you do this, the better you will become at it.
  7. Don’t over-improve a rental – This is a very common mistake among young investors. Don’t make a house much nicer than other homes in the neighborhood. It will cost you more money and the return on investment isn’t worth it. You never want to have the nicest property on the block: the home won’t appraise as much.
  8. Buying old homes without experience – The older a home, the more repairs and maintenance it will likely need. When calculating your cap rate, make sure to allot a higher percentage for your maintenance reserve. A flip’s profits can be eaten away by hidden costs such as electrical, plumbing, foundation, chimney, etc.
  9. Using cheap or bad contractors – You will always get what you pay for and a contractor can make or break your investment. Use sites like Angie’s list to find the best ones in the area in which the property is located.
  10. Not having enough money to complete a flip or hold a rental property – If you underestimate your repairs, you could run out of money and into major trouble. If you can’t cover all the costs for a flip, then you might be better off borrowing from a private lender.
  11. Not putting an agreement in writing – If you’re partnering with friends and/or family to buy a property together, make sure you put everything in writing as disagreements will occur; and at some point, someone will want to take their money out.
  12. Overpricing a property – When investors run over budget or tries to squeeze too much out of a flip by pricing it too high, they run into trouble. They do this if the flip costs more than they thought, took longer than they thought, or they are making less money than they thought. Pricing a home too high makes the situation even worse. It increases the days on the market and makes others believe there is something wrong with the property.

Conclusion

We will all make mistakes when it comes to real estate investing. The key is only to make them once and minimize their risk and damage. I have underestimated repairs before and it has cost me money. Don’t be afraid to invest in real estate because of things that can go wrong or people who discourage you. Make a plan, do your homework, listen to the right advice, and start making money.