An Inside Look At Off-Market Real Estate Investments

Many investors recognize the advantages of off-market real estate over listed properties, for a number of reasons. I have dealt with off-market sales for over six years and eventually built an online marketplace around private offerings, so I’ve heard every question and answer you can imagine. Let’s take a look at some of the specifics of what separates listed and private real estate deals.

What is the appeal of off-market real estate for investors?

One of the foremost benefits of buying a property off-market is that there is often lower competition. When working on acquiring a property, time is of the essence, and an investor can create better negotiating leverage by having fewer interested parties in the property. Often, finding an off-market opportunity can allow a clear window to negotiate and purchase the property under terms that benefit the investor.

Private offerings often also carry unique circumstances. Whether it’s a commercial or residential property, there is a reason the property owner is starting to look for potential acquirers. In the commercial space, properties are often sold privately due to the nature of the property and its current tenants. Hotels, office, retail and apartment buildings are sold privately in order to not disturb the current tenants or the business that is operating on the property. Investors can take advantage of the lack of investor awareness on the new investment opportunity as, often, brokers only send these offering to their trusted contacts.

Another instance in which investors can win with off-market property is when there is something wrong with the property or owner’s financials. Possibly the owner is in financial trouble and looking for a quick exit. Another case I often see is that there is deferred maintenance or a problem with the current tenants — or lack thereof. For an investor, this type of value-add situation offers lots of enticing options. A new owner could rehab the property and bring its rents up to current market rates. Sometimes the current owners are strapped for cash and cannot make those necessary updates themselves.

What is the advantage of selling privately for owners?

I mentioned the appeal of not disturbing the current tenants and allowing business to run as usual. However, the largest reason sellers prefer to sell privately is the cost of failure. The cost of failure is the risk one takes by offering their property on the market. If the property does not sell in one month, two months or more, it's no longer worth the offering price. Investors have all of the leverage.

Since off-market transactions are most popular with higher-end homes and commercial properties, there is a lot to lose if the market doesn’t bite on the starting offering price. A home listed for $3 million that doesn’t sell for three months is no longer going to fetch $3 million on the open market.

So, selling privately can protect the property owner from the cost of failure and allow them to control the process. Most often, a confidentiality agreement is used to protect information about the asset sale. This provides the property owner with the necessary protection to lengthen their courting period for a new acquirer.

An Inside Look At Off-Market Real Estate Investments curated from Forbes - Real Estate