← BiggerPockets Real Estate Podcast
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- [00:00]
Henry Washington
This is how to find Investment properties for only $150,000 the best properties in your market are not on Zillow. You're scrolling listings every day. 250,000 300,000 nothing cash flows. Meanwhile, other investors in your market are buying properties for 150k or less. That's because on market listings are only half the picture. There's a whole other world out there of properties that you can buy at deep discounts if you know where to find them. I've built my entire real estate business on off market properties. That's how I can buy deals at 50 or 60% off of their true value and create a huge profit margin after I fix them up, of course. But a lot of investors waste time and money on off market deal finding strategies that will never work for them. I've researched them all, from wholesalers to sending mail, cold calling, door knocking. So I'll share with you which are worth the effort and which are a huge waste of your time and money. If you're tired of competing with every other investor for the same overpriced listings and you're ready to hustle for real value, this is your playbook. What's going on everybody? I am Henry Washington, co host of the BiggerPockets podcast and today we're going to deep dive on one of my favorite topics and that is off market deal finding. Almost all of my deals have come from these strategies and I'm going to share them with you right now. First, I'll explain what off market deals are for anyone who's not heard of this concept and then I'll describe some of the more popular strategies for finding off market deals. And lastly, I'll give you a framework to help you pick which strategy is right for you and your goals. Let's start by defining off market versus on market when we're talking about on market deals. These are the homes that you can typically see on Zillow or Redfin that are listed for sale. This is what the majority of people are looking for when they're trying to find a home to buy. An off market deal is, well, the opposite of on market. It means the property was never listed for sale on the MLS or the open market. So an off market deal could be something as simple as you overhear your neighbor talking about thinking of selling their house and and so you make them an offer to purchase it and you're able to buy that property without them listing it on the open market. Congratulations, you just bought an off market deal. When people traditionally hear the phrase off market deals, what they're thinking of is investors who spend time or money and build some sort of system where they find a list of people who may potentially be willing to sell their home if someone makes them the right offer. And then these investors go directly to the sellers and shoot their shot, make them an offer. If somebody says yes, then they're able to purchase an off market deal. So now that we know what an on market deal is versus an off market deal, let's talk about why anybody would want to buy a house off market anyway. Seems like it takes more effort and you'd be partially correct. I think finding a good deal either on or off the market, if you want to do it consistently, takes a good amount of time or effort. Why people specifically search for off market deals? Well, the main reason is money. When you buy a property off market, typically you're able to get the property cheaper than when you buy a property on market. And that's not necessarily because off market deals are in worse shape than on market deals. It's merely just more a function of not having to pay the middleman. If you list your property on the market with a real estate agent, that real estate agent has to get paid. And when you don't have to pay that agent, it typically means you're able to purchase that property at a little bit deeper of a discount because there's not an intermediary to pay. So why do I mostly focus my deal finding strategy off market? Well, same reason I can get better margins and have more protection by buying deeper discounts by going direct to seller and not having to pay the middleman. So how do you go about finding off market deals? Well, you've got to change what you're looking for just a little bit. When you think about an off market deal, what you are trying to say is you would like to buy a property, hopefully get some sort of a discount and you have an opportunity to make money. And so if you stop thinking about finding off market deals as looking for a house to buy, and start thinking of finding off market deals as looking for the situations that would cause somebody to to need to sell their property at a discount, then it becomes a lot easier to find. No one just wakes up in the morning and says, I sure would love to sell my house for $100,000 less than after repair retail value. Right. They're doing it because they're usually willing to sacrifice price for convenience. We all know that if you want to sell your house on the market, there is a process that takes place. This process could take anywhere from three months to six months or a year. So it's not a very fast process when a seller wants to sell a home on the market, but it is a more profitable process because typically they're selling the home for retail value. With off market, you are looking for people who are saying, hey, I need to sell this and I need to sell it faster. Is there someone out there who can help me with that situation? And if you get good at knowing what those situations are and how to find those situations, you can put yourself in front of people who need speed and convenience more than they need top dollar. So how do you look for those situations? Well, it's fairly simple. Your job, if you want to find off market deals, is to find or generate a list of people who own properties in the area you're looking to purchase in. And the properties are within the buy box that you have. So you need to have those things def before you go spending time or money looking for off market deals. And then you have to search for two things. You need to search for equity and you need to search for motivation. Why equity? If somebody owes $90,000 and the property is worth $100,000, you can't come in and offer them $50,000 to buy their house because that means they would have to pay $40,000 to sell you the home. No one's going to do that. But if that same seller only owes $10,000 and they need to sell that property fast, and you can meet their need by buying that property and you offer them $50,000 for the property, well, now they walk away with a $40,000 check. So the house must have equity in order for you to create a win win situation where you can make an offer at a price point that makes sense for you and at a price point that makes sense for the seller. The second thing every off market deal needs is motivation. You need to be looking for motivation. In other words, what is motivating this seller to need to sell and get speed and convenience over price? There are several reasons why someone would need to sell for speed and convenience over price. Our job is to search for those reasons. Some of those reasons could be maybe they just need money fast, they're going through some situation, they need fast cash, they're selling their house to get it. Maybe that situation is they're going through a divorce and they need to settle their estate. They need to settle it quickly and there's a time frame associated with that and they're running out of time. Maybe they're retiring and they want out of the business. They're too old to maintain their portfolio. They would much rather get out of their portfolio and do it quickly so that they can move on to focusing on their family. Maybe the property has so much distress that they can't afford to pay what it would cost to get this home into preferable condition to be able to sell it in a timely manner on the open market. There's tons of tools out there where you can literally build a list of sellers in your area who have properties within your buy box who have equity in their home and you can actually search for these different motivations for through different filters on the tools. You can simply just Google off market deal finding tools. You'll be inundated with a bunch of links for a bunch of different ones. They all work very similarly. Hey, we've got to take a quick break, but we'll be right back to talk about more off market deal finding
- [08:41]
Dave Meyer
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- [09:40]
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- [10:20]
Dave Meyer
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- [11:57]
Henry Washington
and we're back on the BiggerPockets podcast, let's jump back in. All right, so now that you know how to get a list of people who have equity in their home and who have motivation or a reason to want to receive an offer for going price in lieu of convenience. We have to figure out how to get those people on the phone with us or in front of us to have a direct conversation. And this is the part that's going to involve several methods which you've probably heard of before listening to this episode, like sending direct mail or making cold calls. But before you just go doing any of these methods that I'm about to cover after this section, you need to understand what is involved. Finding deals, whether on the market or off market, costs you something it is not free. If you want to find deals, you have to spend money or you have to spend time. So before you go spending any of those resources, time, or money, take a budget, sit down and have a realistic conversation with yourself about how much time you can spend to find leads each week or month, or how many dollars you can allocate to finding leads or deals each month. Once you have your budget, it will make it a lot easier for you to pick one of the strategies that we're going to cover, because you'll understand if you have enough of the resource that it takes for that method to be successful. So now let's talk about the actual strategies that you use to get these sellers to actually talk to you. I would say the one off market deal finding method most people have heard of before is direct mail marketing. And direct mail marketing is very simple. It's just you sending a piece of mail to the people on your list saying, hey, I'm an investor in this market. I would like to make you an offer on 123 Main St. I can buy it quick, I can be super convenient. Give me a call, give me a text, give me an email, whatever your call to action is for them, it's simply just a piece of mail. And the people who receive that mail and are interested will hopefully call you. You have the conversation, you go look at the house, you make an offer. The next semi popular method for finding off market deals that people have probably heard of before is cold calling. Cold calling is simply you calling the leads on your list. Maybe it's you calling them yourself and saying, hey, I'm interested in buying your property at 123 Main street or there's other variations where you hire a company who specializes in this. There are tons of third party companies who make cold calls for a living, for real estate investors or for other products or services. So you can hire somebody to call for you, or you can hire a person like a VA or a freelancer to make the calls for you. But all of them are variations of the same thing, which is to call the phone number of the leads on your list, call and see if they would be willing to let you make them an offer for their property. And probably the third method that people have heard of is to simply door knocking or knocking doors. That's what James Standard calls it, right? Lots of real estate investors got their start knocking doors. And knocking doors is simply just you going to the addresses on the list that you have and physically knocking on the door and seeing the seller's home and having the conversation about you potentially making them an offer for your property. Now I can tell you one thing. There's probably nobody listening to this episode that heard me talk about any of these methods that didn't get a little bit of a knot in their stomach. Because all of these methods share a common denominator and that is they're all a little bit uncomfortable. Right? You can't really escape the uncomfortability. The goal is to find the strategy that you have the budget of time or money to afford to do properly and afford to do in enough volume and afford to do long enough for it to produce the result that you're looking for. The best part about deal finding strategies both on and off market is they all work. Every single strategy I've talked about now or that I will talk about in this episode works. Where people fail with deal finding strategies both on and off market isn't because the strategy doesn't work. It's because they don't do it in the right amount of volume or spend the right amount of time or money, or it's just too uncomfortable for them to want to proceed with the strategy. So it is imperative that you choose a strategy you can afford to fund with your time or money and that you know you can stick to even though it's slightly uncomfortable. This is why I don't knock on doors. I hate the concept of knocking on a door. I could lie to myself and say I'm going to knock 20 doors today no matter what, and then I'd knock on one, I'd get scared and I'd never do it again. That strategy is way too uncomfortable for me, for my personality, for what I feel comfortable doing. I also don't do cold calling. I've used cold calling in the past, but I paid a third party to do it because I don't want to cold call people and have conversations that's too uncomfortable for me. I know I wouldn't stick to it. So I chose direct mail as one of my strategies because the people who are calling me from my direct mail actually want to be having a conversation with me. They may want to curse me out for sending a mail, but at least they want to be talking to me. And so it makes that level of uncomfortability comfortable enough for me to know that I can stick with it. So pick a strategy you can afford to fund and that fits who you are. Don't lie to yourself. When you spend enough of the resource that it takes, you do it for long enough and you're not uncomfortable with the strategy, the strategy will produce the result. That's the best part about deal finding. All right. We got a pause here, but we're going to have more about finding off market deals right after this break.
- [18:09]
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- [19:35]
Henry Washington
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Wholesalers are real estate investors who do all of the Marketing and put in all of the work that we outlined previously and they generate the leads, but they aren't the ones who typically close on the properties. They go spend the time or the money they use off market deal finding strategies, they generate leads or people who say, hey, I would like to have you buy my house for this price point. And then they take that contract or piece of paper and they go find a real estate investor like myself who is willing to spend the money to buy that deal. And then they charge what's called an assignment fee and they make a fee for connecting the buyer and the seller. And so if you don't want to go do all this uncomfortable work that we've been talking about, you can leverage wholesalers who are willing to go do that work and then provide you with the deals. Obviously for a fee, you're not going to get as good of a deal because again, you're paying a middleman. But it is a way to get potentially better deals than you can find on the MLS because it's still leveraging off market deals. Another strategy that was pretty popular maybe about 10 years ago and then fell off for a while, but now is coming back quite a bit actually are auctions. Auctions are typically some sort of foreclosure property. So pre foreclosures, foreclosures, sheriff sales, where property has been seized in some sort of criminal activity. All of these properties can get auctioned off and every city, state or municipality probably has some sort of property auction that they do on a weekly or monthly basis. You can do some googling or calling down to your city or municipalities head offices and seeing if they have auctions and when they are. Again, it's a more comfortable strategy because you're not truly dealing directly with the seller. And so it's not as personal as talking to a person who lived in the home. But there's some caveats with auctions. A lot of auctions you're not allowed to actually see the inside of the property before you bid on it. And a lot of auctions require you to pay cash in full on the day of the auction if you win the bid. So it's a very cash liquid business. You need to have cash or access to quick cash typically to be able to buy them. There are exceptions to this and auctions that do allow you to use lending. So please do your due diligence. Make sure you research heavily the auction and the rules before you just go start bidding on properties and end up in a world of hurt because you bought a Deal that's a piece of junk or you gotta come up with a whole bunch of cash you ain't got time to get. And the other methods, and honestly this is the methods most people choose when they're doing off market deal finding strategy, because they're the most comfortable is just networking. So that's going to real estate events, telling people you're looking for a deal, hoping that they have a lead for you and they give you a lead, or working with agents who have what they call pocket listing. So a lot of agents sometimes get leads for listings and they don't actually list the property because they know that the seller maybe doesn't have the time or maybe doesn't have the money to fix up the property and they don't think it's worthwhile to list it, but they know it's a lead for the right buyer. And if you can network with these agents and get them to send you some of these pocket listings, you can essentially buy the property. You'll have to pay the agent and they will typically get their commission as being an agent that represents either you or the seller in the transaction. But usually you can get these properties at a little bit of a discount because again, they don't fit the typical on market deal mold. So those are several ways that you can use to find off market deals. Some are going to be easy and not as profitable. Some may be harder but yield more profit. You've got to figure out which ones are right for you, the deals you're trying to buy, given the resources that you have. I can hear everybody now. I know what you're thinking, man. Just tell me how much time or how much money I need to have ready to go in order for these deal funding methods to work. I'll be honest, I wish I had a perfect answer for you that would tell you exactly how much time or money you need and then it's going to work perfectly. It doesn't work like that. Different strategies work at different time frames and at different cost levels in different markets. If you're going to send direct mail in a massive city like Houston, Texas, there's tons of investors sending tons of mail and people are used to getting mail. And the more used to mail people are, the lower the response rates are versus if you live or invest in a smaller, more rural market with less investor activity sending direct mail, this may be the first time somebody's sent them mail to make an offer on their property. So your response rates are higher. In other words, you're going to have to spend more money and more time in bigger, more popular markets than you would spend in lesser, more rural markets. What I would urge you to do is to leverage some sort of AI tool, cloud chat, GPT, whatever your preference, but feed it your budget, let it know how much money and how much time you have. Let it know the strategies you're comfortable with and the strategies you're uncomfortable with. Let it know your goals, how many properties you're looking to buy, and in what time frame you're looking to buy those properties. And then ask it, based on my budget and based on what I'm looking for, do some research and let me know what methods for finding deals off market would be best to maximize my budget and help me meet my goals. And then before you go spending money, make sure you bounce your plan off of seasoned investors. Go to networking events, talk to investors who have implemented some of these strategies, stress test it and see, hey, this is the plan I have. Do you think this is enough? Why or why not? Because every market's got its different intricacies. You have to do the work yourself to determine what your budget needs to be or what success will look like and how much that takes. But we've got a lot of great tools and data literally at our fingertips that can help us narrow that down. All right, well, now you know about off market deal funding and hopefully you have a whole lot more frame of reference to help you determine if looking off market for deals is right for you. Again, off market deals are simply just deals that are not listed on the mls. There are people who are willing to sacrifice price for convenience. We have to figure out how to find those people and then we have to determine if we have enough of the resource it takes to find off market deals in order for us to produce leads consistently. So how much time do you have and how much money do you have? And then you marry that into to an off market deal finding strategy that your budget can afford to do until it works and that you can stick to even though it's slightly uncomfortable. If you put all those pieces together and you implement an off market deal finding strategy, I promise you it will produce results. Where people fail in off market deal finding is they simply don't spend enough of the resource that it takes and do the strategy long enough. I promise you these methods work. That's why they work in so many other industries besides real estate. You get direct mail from the cable company, from your lawn care companies, from the solar companies. They all send you mail or postcards or letters lenders. Lenders are sending you mail. Credit card offers are sending you direct mail all the time. All these super smart companies wouldn't be doing it unless it works. But they have the budget. They can afford to do it for long enough for it to produce the results. That's our job as investors. Can we afford to do it and can we afford to do it long enough to produce the result? If you do, you are going to be well on your way to finding very profitable deals off market Deal Finding all right everybody, thank you very much for listening to this episode of the Biggerpockets Podcast. I hope you got some valuable information and I look forward to seeing you on the next episode.
- [28:44]
Dave Meyer
Thank you all for listening to the Biggerpockets Real Estate Podcast. Make sure you get all our new episodes by subscribing on YouTube, Apple, Spotify or any other podcast platform.
- [28:53]
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- [28:53]
Dave Meyer
Our new episodes come out Monday, Wednesday and Friday. I'm the host and executive producer of the show, Dave Meyer. The show is produced by Ian K. Copywriting is by Calico, Content and editing is by Exodus Media. If you'd like to learn more about real estate investing or to sign up for our free newsletter, please visit www.biggerpockets.com. the content of this podcast is for informational purposes only. All host and participant opinions are their own. Investment in any asset, real estate included, involves risk, so use your best judgment and consult with qualified advisors before investing. You should only risk capital you can afford to lose. And remember, past performance is not indicative of future Biggerpockets LLC disclaims all liability for direct, indirect, consequential or other damages arising from a reliance on information presented in this podcast.
- [29:31]
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