BiggerPockets Real Estate Podcast

Episode: The Massive Opportunity of Overlooked On-Market Deals
Release Date: November 13, 2024
Host: Dave Meyer
Guest: Dan Nelson, Real Estate Agent and Investor in Chicago

Introduction

In this episode of the BiggerPockets Real Estate Podcast, host Dave Meyer delves into the often-overlooked potential of on-market real estate deals. Contrary to the prevailing trend that emphasizes off-market transactions, Dave brings in Dan Nelson—a seasoned real estate agent and investor from Chicago—to explore why the Multiple Listing Service (MLS) remains a valuable resource for investors.

Guest Background

[01:02]
Dave Meyer welcomes Dan Nelson to the podcast, initiating a discussion about Dan's journey into real estate. Dan recounts how his entry into the market was somewhat serendipitous, driven by his wife's decision to flip properties after they purchased their first home.

[01:12] Dan Nelson:
"We just bought a house. It was... my wife started flipping properties, and I reluctantly began my real estate career."

With over two decades of experience, Dan transitioned from a career in learning and development to real estate, eventually focusing on rental properties to create a more stable income stream.

On-Market vs. Off-Market Deals

The conversation pivots to the core topic: the advantages of on-market deals over off-market ones. Dan highlights that while off-market properties can offer unique opportunities, they often come with hidden problems that can offset potential gains.

[04:30]
Dan Nelson:
"Generally, off-market properties come with a problem. Now, this isn't true of every single one, but they come with a problem and it's a problem that no one's going to pay you for."

Dave and Dan discuss how on-market listings on platforms like the MLS are typically more reliable, as sellers are more likely to maintain their properties to avoid issues that could deter potential buyers.

Advantages of On-Market Deals

Dan emphasizes that on-market properties generally undergo more scrutiny, making it easier to identify and assess their true value.

[05:02] Dan Nelson:
"If you buy something on the market, you could still have a cracked foundation, but you're not going to buy that property. You're going to buy something else."

He provides an example from Evanston, Illinois, where a property fetched $600,000 by addressing layout issues, demonstrating that on-market deals can be lucrative when properly managed.

Challenges with Off-Market Deals

Dave acknowledges the scenarios where off-market deals might be beneficial but concurs with Dan that they require a higher skill set. The rapid decision-making and networking necessary to capitalize on off-market opportunities can be overwhelming, especially for novice investors.

[25:03] Dan Nelson:
"If you're thinking, 'I don't love to make phone calls where I'm having to be in really tense conversations every day,' off-market might not be what you want to do."

Strategies for Cash Flow and Property Acquisition

The discussion shifts to cash flow strategies, particularly concerning properties sold below market rent. Dan explains that many sellers of rental properties maintain rents below market value for various reasons, including being former landlords unfamiliar with current market trends.

[13:04] Dan Nelson:
"Any property that's selling as a rental is likely to have rents below market. Once you turn over those tenants and bring it up to market, there are lots of opportunities in Chicago."

He outlines a three-tier strategy for different property types, emphasizing long-term appreciation and cash flow over immediate returns.

Recommendations for Beginners

Dan advises beginner investors to focus on on-market deals due to their accessibility and the reduced complexity compared to off-market transactions. He suggests starting with properties that require minimal upgrades to achieve market rents, thereby ensuring steady cash flow without excessive initial investment.

[22:29] Dan Nelson:
"If you're an experienced person, the thing about experience is you're going to build your network. People are going to get everything off market. But the best thing is just to start."

Tools and Resources for Deal Analysis

Dave highlights the importance of utilizing tools like the BiggerPockets rental calculator, which helps investors accurately assess rental potential beyond median values.

[35:24]
Dan Nelson:
"Most people look at average or median rent, but you need to look at the top third to understand true market rent."

He stresses the necessity of analyzing where a property stands within the rental distribution to make informed investment decisions.

Final Thoughts and Advice

In wrapping up, Dan encourages investors to overcome their fears and seize the abundant opportunities available in the real estate market. He underscores that owning a property transforms one’s perspective, enhancing their ability to identify and leverage investment potentials.

[39:58] Dan Nelson:
"There are opportunities all over the place. The hardest thing about buying your first property is getting over your own fear."

Dave complements this by noting the cumulative benefits of real estate investing, where each additional property becomes progressively easier to manage and expand.

Conclusion

This episode provides a compelling case for reconsidering the reliance on off-market deals by showcasing the untapped potential within on-market properties. Through Dan Nelson’s insights and real-world examples, listeners gain a deeper understanding of how to effectively navigate the MLS for profitable investments. Whether you're a seasoned investor or just starting, the strategies discussed offer valuable guidance for building a robust and sustainable real estate portfolio.

Notable Quotes:

• Dan Nelson [05:02]:
  "If you buy something on the market, you could still have a cracked foundation, but you're not going to buy that property. You're going to buy something else."

• Dan Nelson [13:04]:
  "Any property that's selling as a rental is likely to have rents below market. Once you turn over those tenants and bring it up to market, there are lots of opportunities in Chicago."

• Dan Nelson [22:29]:
  "If you're an experienced person, the thing about experience is you're going to build your network. People are going to get everything off market. But the best thing is just to start."

• Dan Nelson [39:58]:
  "There are opportunities all over the place. The hardest thing about buying your first property is getting over your own fear."

This comprehensive summary encapsulates the key discussions and insights from the episode, providing a valuable resource for real estate investors looking to optimize their deal-finding strategies.