How To Find an Off-Market Multifamily Property

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At any given time, there are approximately 5,700 small multifamily properties for sale on the MLS. However, there are more than 4 million small multifamily properties in the United States. That means there are plenty of owners out there who may not be actively looking to sell but would entertain the thought if someone were to approach them—especially since many of them may be tired of the headache of maintaining their property.

Most small multifamily properties are owned by real estate investors, the bulk of them being mom-and-pop landlords (as opposed to large multifamily properties, which tend to be owned by large institutions). These owners are not always sophisticated or skilled investors, and many of them never intended to be landlords.

Maybe they are burnt out. Maybe they have tenants they are tired of dealing with. Perhaps they inherited the property. Or perhaps they attended a weekend real estate guru bootcamp and got excited, but the honeymoon ended long ago.

When a seller deliberately decides to sell a property, usually with an agent, that seller knows they can get a higher price by fixing up their property, increasing their rents, reducing their expenses, and buttoning up their management. But that’s also what you want to do!

You can increase your chances of swooping in to grab these properties by contacting owners directly. You might be able to reach them before they’ve taken the steps toward selling their property, while also saving them the hassle of doing any work.

Furthermore, buying a property off-market doesn’t mean you’re “stealing” a property from someone who has no idea what their property is worth. Many times, especially in competitive markets where a single MLS-listed deal gets a dozen or more offers, our goal is simply to get in before the competition. Because an off-market deal has no real estate agent (agents are typically involved only in on-market listings, so off-market deals are truly buyer to seller), the seller can potentially save tens of thousands of dollars in commissions by selling directly to you. Or, better yet, you can get a discount worth tens of thousands of dollars, while your seller ends up with the same amount of cash after closing as they would have by selling through an agent.

Finally, and this is super important, buying off-market doesn’t guarantee you’ll be getting a great deal. Yes, we are big fans of off-market small multifamily deals, but like single-family homeowners, many owners of small multifamily properties are proud of their work and have pie-in-the-sky opinions of what their property is worth. You must still do the math to make sure you will have the right numbers at the end of the day.

While we want to explain the primary off-market strategies you can employ in your search for your next great small multifamily deal, we recommend that you not try to master all of them to start. Instead, focus on becoming an expert at one of the following six strategies. Then, once you’ve optimized that marketing channel, add additional channels as needed. In this case, it’s better to be a master of one strategy than a hack of all trades!

Key takeaways

• Many multifamily owners have “headache” properties that they would be willing to sell, even though they haven’t decided to do so yet. When you connect with these individuals before they list their properties officially with an agent, you can land some terrific deals.
• Just because you find a property off-market doesn’t necessarily mean it’s a great deal. You’ll need to do the math to find out whether it’s the right property for you.
• Find deals by driving for deals, direct-mail marketing, networking with other owners, talking with local property managers, working with local wholesalers, and searching online marketplaces. The deals are there.

Driving for deals

Most multifamily properties are not hard to spot. With their multiple front doors and numerous cars in the driveway, multifamily properties tend to stand out. The next time you try to find multi-family properties while your driving around, take a few side streets and look for small multifamily properties.

But don’t just drive by—jot down some information, like the address, the approximate number of units, and the condition. Put that information into a simple CRM (customer relationship management) program, such as Pipedrive, Asana, or even just a well-organized spreadsheet, and begin to connect with these owners.

To get in touch, you could always knock on the door. But because these are multifamily properties, there’s a good chance that the person who answers won’t be the owner but rather a tenant, who may not give up their landlord’s name or even know it. Instead, armed with addresses, go home and research the owners of all the properties you’ve identified. You can look on the county tax assessor’s website to see who owns the property as well as the mailing address where the tax bill gets sent, since these typically go to the owner and not the property.

From there, you can either send a letter to the owner (direct mail) or attempt to find their phone number and reach out. There are several smartphone apps that can automate this process, such as Driving for Dollars and DealMachine, as well as many online resources for researching ownership information including phone numbers, alternate names, and lien details.

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Direct-mail marketing

Talk with any high-volume real estate investor and they’ll tell you they’re using some type of direct-mail marketing in their pursuit of deals. Direct mail is one of the most scalable ways to get the phone ringing with prospective sellers and fill your funnel. Ideally, the more mailers you send, the more calls you get, which you can convert to deals. But we’re getting ahead of ourselves, so let’s go back to basics.

Direct mail is the art and science of sending a large volume of mail, usually postcards or letters, to potential sellers with the intention of having a small percentage of them call you with the desire to sell. The process can be boiled down to five steps.

1. Build your list

Imagine going out to your mailbox, peering inside, and pulling out a large glossy postcard with a photo of a big, smiling dog. It says, “Get Your Pooch the Smile He Deserves!” with the phone number of a local veterinarian’s office that specializes in teeth cleaning for pets. How you respond to that ad will depend entirely on your situation. If you have a dog with yellowing teeth, you might rejoice at your good fortune and call the number immediately. If you don’t have a dog, you’d mutter something about junk mail and toss it immediately into the trash.

You see, the response to this direct-mail piece is going to depend entirely upon whom it was sent to. If the veterinarian is sending it to a list of dog owners, success! Sending to people without dogs? Failure. That’s the importance of building a strong list. You’ll need an actual list of names and addresses for individuals who may be in a position to take advantage of whatever you’re offering.

If you’re looking to buy a property, you’ll want to build a list of owners who may be in a good position to sell. Where do you get your list? While you can begin building one by driving for deals in your area, there is a much faster way: You can buy the list.

Some of the most popular list brokers for real estate investors are ListSource (great for residential), Reonomy (great for larger commercial properties), and PropStream (great for both). Simply visit the website, define the criteria you wish to sort by, and then purchase the list.

But this now raises the question: What kind of list should you buy? How do you decide which list is the right list? After all, you don’t want to send doggy dental postcards to the cat lady!

Direct-mail marketing can get incredibly intricate, as you’ll hear on many episodes of The BiggerPockets Podcast. You can buy or build very niche-level lists, and the right list can give an investor an edge over the competition. The most highly specific lists are necessary for single-family houses because few of their owners are ready to sell.

Thankfully, we’re not focusing on buying single-family homes. Because most small multifamily real estate is owned by investors, nearly any multifamily owner can be a prime candidate for direct mail. Therefore, the simplest list you can mail to is “people who own multifamily real estate.” If you want to drill down further, you could narrow down your list by targeting investors who meet any or all of these qualifications:

• Are behind on their mortgage by 30 or 60 days
• Bought their property more than 10 years ago
• Live out of state (absentee owners)
• Have 50% or greater equity in their property
• Are past due on their property taxes

Of course, the narrower your list becomes, the fewer letters you’ll be able to mail. Direct mail is a balancing act between sending enough letters to raise the odds in your favor and keeping your criteria precise enough to not waste money on individuals who will never call. In the beginning, aim for at least 500 owners on your list.

2. Choose your method

Next, you’ll need to decide what type of direct mail you want to send. As with building your list, there are many options, but the most common are postcards and letters. Some investors swear by postcards because they’re cheaper to buy, print, and mail. Others swear by letters because they tend to generate a higher response rate.

Some investors alternate, sending postcards some months and letters other months. I’ve even heard of some investors sending UPS packages, though you can imagine how quickly that would blow your budget. (But, hey, if it makes them a solid return, don’t knock it!) There is no single right way; certain options just work better with different markets, messages, and asset types. You won’t know until you test it out yourself.

3. Craft your message

Once you’ve decided on the type of direct mail you’ll be sending, it’s time to craft your message. Most investors recommend keeping it fairly simple, short, and to the point, but you may find that longer works better. Again, you won’t know until you try. When crafting your message, keep in mind these four golden rules of copywriting:

1. What’s in it for them (WIIFT)? People are busy and selfish (no offense!) and want to know how something is going to help them. “We buy multifamily properties—fast!” is a clear WIIFT statement. Don’t be clever, overly smart, or vague (e.g., “We specialize in solving prodigious problems!”).
2. People skim; they don’t read. Everyone skims almost everything—especially junk mail—so keep it simple. Use short sentences, bold important words, and highlight the most important information. Someone glancing at the document should be able to get the gist of your offering or request in five seconds.
3. Give calls to action. You must give people a very clear, simple next step. Do you want them to call you? Make sure the phone number is large and say, “Call us!” Don’t assume people will know what to do. Tell them directly.
4. Sell the hole. Good marketers know that people don’t buy a drill because they want a drill—they buy a drill because they need a hole. The drill is simply a means to an end. What “hole” are you selling? Speed? Easy closing? Peace of mind? Brainstorm some simple language that, in as few words as possible, explains what you can offer. However, be sure to phrase it so you’re selling the hole, not the drill.

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4. Settle on a vendor

Now you’re at the stage to decide whether you want to print these yourself or hire someone to handle printing. Unless you have absolutely no money to get started or plan to send fewer than 100 letters, we highly recommend outsourcing this, as your time is better spent on more valuable tasks. There are many companies that specialize in printing direct-mail pieces, including several that work exclusively with real estate investors.

5. Mail and repeat

Finally, it’s time to send your mail. However, your job is far from over, because it often takes multiple touches with a seller before they’ll pick up the phone and call. Maybe they don’t have the “headache” today, but three months from now they might be feeling it when they still haven’t received rent from their tenant. At that point, they may remember your mailer and be ready to call you.

At the end of the day, you can test hundreds of direct-mail options, fonts, colors, postcards, and lists. But it’s more important that you mail consistently rather than stress over the color of paper you selected. Don’t miss the forest for the trees.

We recommend mailing your list every single month, changing up the message and the type each time. Mail consistently until (a) they call and tell you to take them off your list, (b) threaten to drive to your house and beat you, (c) you buy the property, or (d) the world ends. Unless one of those four events occurs, mail consistently. You never know when your direct-mail piece is going to land in their lap at just the right moment.

Networking with landlords

As discussed earlier, landlords move through different stages of their business. At one point, they may have loved their small duplexes, but they’ve since decided either to move on to bigger investments or to scale back and maybe even retire. Therefore, connecting regularly with local landlords and inquiring about properties in their portfolio can be a great source for small multifamily leads.

Landlords are everywhere, but finding them can be tricky. Start by attending local real estate meetups, which you can find advertised on websites like Meetup or on BiggerPockets. By networking with those in attendance, you will quickly find out who the real players are and begin building relationships with those people. Don’t be weird about it—just make conversation and get to know them. You don’t have to ask whether they want to sell their properties in the first conversation.

However, don’t stop at meetups. Talk to your friends and family and ask for introductions to their landlords. Offer to take those investors out to lunch or dinner, or simply ask if you can schedule a phone call for five minutes to ask some questions about the local market.

Use social media to let people know what you’re looking for. Consider starting a local private Facebook group or local paper newsletter designed to bring together landlords and address concerns and share advice. Even easier, you can find local investors in your city and connect with them directly on BiggerPockets.

These techniques, along with many more, can help you get in front of numerous landlords. Over time, these landlords may offer to sell you their property. Get to work on developing a strong network of local real estate investors. You may not get a deal right away, but as one of our favorite adages says, “Dig your well before you’re thirsty.” Start digging!

Working with property managers

Local property managers can be an excellent source for leads on small multifamily properties because they are intimately involved in every aspect of their clients’ properties. No, you shouldn’t ask property managers for the names, addresses, and phone numbers of their clients, but you can begin building relationships with those managers and let them know that you are aggressively buying small multifamily properties. Tell them that if they provide you with a lead, you’ll keep the rental contract with them. You may even be able to offer them a referral fee on any deal they pass your way.

Think about it: Property managers know when owners are struggling. They probably know which properties need a complete overhaul and which owners are refusing to get it done. Those owners are prime candidates for selling, so the property manager might pass your message on to them and you could land a great deal.

Working with local wholesalers

Real estate wholesalers are individuals who do all the hard work needed to find off-market deals and then connect you with those deals—for a fee. A wholesaler will typically get a property under contract by signing a purchase and sale agreement with the seller. Then they add their fee to what they paid for the property, and you buy the property from them for the higher amount.

For example, a wholesaler might use direct-mail marketing to find a great deal on a triplex but have no interest, or perhaps financial ability, to purchase the triplex for themselves. They get it under contract for $280,000 and then approach you with the deal for $290,000. If you pay $290,000, the wholesaler and you will jump through the legal hoops to make sure the seller gets their $280,000, you pay the $290,000, and the wholesaler gets the difference, which in this example, would be $10,000.

Wholesale fees typically range from a few thousand to tens of thousands of dollars; the amount is largely based on how good the deal is. For example, if someone is willing to pay $100,000 for a property and a wholesaler has it under contract for $80,000, they could potentially earn a $20,000 fee. But if they got that same property for $95,000 instead, the fee might be more like $5,000. The better the deal a wholesaler finds, the more money they make on the fee.

If that concerns you, keep this in mind: A deal is a deal no matter how much someone else is making on it. If a deal makes sense to me at $100,000, I don’t care if the wholesaler found it for $80,000, $40,000, or $95,000. It’s still worth the same $100,000 to me!

Investors often get bent out of shape about wholesaler fees, but the truth is, people get paid in direct proportion to the value they bring. If they bring more value, they get paid more.

How do you find a good wholesaler?

It’s tough. The problem with finding good wholesalers is the same as trying to find a great real estate agent. There are a million of them out there, but very few good ones.

You see, there’s a common myth in the real estate investing world that says wholesaling is a quick, easy way to make a lot of money. Perhaps you even got that impression by reading the last few paragraphs.

The truth, however, is far different. Being able to find incredibly good deals requires an exceptional level of knowledge, hustle, and organization, coupled with great marketing and negotiation skills. Plenty of individuals claim to be wholesalers but have never wholesaled a deal in their entire life. Many of these wannabes will give up and move on before ever closing their first deal, or use unscrupulous methods to pretend they have deals under contract (such as simply marketing someone else’s wholesale deal and attempting to collect an even higher fee).

Great wholesalers do exist, though. Here are a few options for finding them.

• Search members in your area on BiggerPockets.
• Attend local real estate meetups.
• Call the phone number on any “bandit signs” you see around your neighborhood. (Bandit signs are those ugly, often yellow or white, corrugated cardboard signs that usually have a simple phrase like “We Buy Nasty Houses” with a phone number. They are often found on telephone poles and street corners. The individuals who use bandit signs are often wholesalers.)
• Look for “We buy property” posts on Craigslist.

Next, interview those wholesalers to find out whether they are legit or just wannabes. Of course, there’s nothing wrong with working with a new wholesaler, especially since you aren’t tied to working with only one (as you would normally be with a real estate agent). You just want to avoid the time-wasting and ethically compromised wholesalers. Start building a relationship with the best wholesaler you find.

Since wholesalers deal almost exclusively with single-family houses, you can position yourself as the investor who is willing to look at the larger leads that come their way. Show the wholesaler you are a legitimate buyer and someone who can close. That way you’ll find a great win-win relationship that can be profitable for both parties for years to come.

If you can’t find a great wholesaler in your market, consider creating your own. After reading this chapter, you should have a fairly concrete understanding of how to find off-market deals. The problem, however, is that doing is very different from knowing. So rather than relying on your own willpower to go out and drive for deals, send direct mail, or implement any other strategy, you could partner with or hire someone else to do that for you.

Perhaps you pay them a salary, or maybe you pay them a commission after they successfully bring you a deal. If you have the knowledge and can offer simple directions, there is a never-ending supply of eager, excited real estate up-and-comers who would love to hustle for you.

This blog post is an excerpt from Chapter 12 of The Multifamily Millionaire, Vol. I by Brandon Turner and Brian Murray. If you’d like to learn more about finding the right deals, achieving the right cash flow, and running your multifamily business the right way, buy the book today!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.