I bought a house yesterday

Yesterday we added to the portfolio. Nothing fancy, just a split level, single family home built in 1975 in our preferred market. The closing was relatively uneventful and the whole process went pretty much as expected. We’re in the process of screening potential tenants. Hopefully soon it will be rented and that will be that.

Again, nothing particularly remarkable about all this. The lesson here is how did we come to find this property and how did those circumstances benefit us in this deal.

There’s an old adage in real estate, “You make your money when you buy.” This was true for us on this house since we bought it about 20% below market value. That’s the point of the adage. If you buy right, everything else pretty much takes care of itself. So how did we do it?

This was an off market deal. Off market means that the seller hasn’t yet “officially” put the property up for sale.  In most cases this means they haven’t hired a realtor yet to list the property on the MLS.  They may have tried FSBO, or maybe not.  The bottom line is they haven’t committed to pay a realtor and consequently haven’t received professional advice on what the property is really worth and the property hasn’t been widely advertised.  That means you, as the savvy investor with your finger on the pulse of the local market, will be in a position to architect a winner deal.  If you get in on an off market deal, you have the ability to evaluate and negotiate before there is any competition.  Good place to be, right?

How did we come across this off market deal?  A friend of a friend, of course.  The seller was a friend of a friend of my wife.The seller had moved out of state a year ago.  At the time they tried, unsuccessfully, to sell their house that they had lived in for 15 years.  They managed to find a renter and became accidental landlords.  We were aware of the house for sale the first time because we are plugged into the real estate scene in our local market, but didn’t even consider it because the price was too high.

Jump ahead a year and the seller’s tenant is getting ready to move out at the end of their lease.  Once again, the seller wants to get out from under this house and makes mention of it to the mutual friend.  The mutual friend knows we own rentals and contacts my wife to see if we might be interested.  My wife’s answer?  Of course we’re interested, if the price is right.  Three weeks later we closed on that house.

What factors contributed to this seller being willing to sell at a lower price than they originally wanted and therefore letting us get a great deal.

1.One failed attempt to sell the house. They had already tried to sell and weren’t successful.  Once bitten, twice shy.

2.Accidental, out of state landlord. They were only renting the house out because they couldn’t sell it. They did not want to be landlords

3.Lots of equity. They had owned and lived in this house for 15 years before moving. They had a nice equity cushion. They didn’t need a certain price because they didn’t have a mortgage payoff number hanging over their head.

4.Certainty of closing. It was more important to them that a deal get done and they get out from under this house then for them to make a big windfall on the sale.  We were an option that provided certainty.  They knew that if we could agree to terms, we would get closed quickly.

In other words, this was a perfect storm of conditions for us to get a great deal on this property.  The icing on the cake is we had just recently decided that we needed to add some SFR’s to our portfolio and hadn’t even really started looking very seriously yet.  This just fell in our lap.

There’s another old saying, “I’d rather be lucky than good.”  I agree.However, I don’t think this deal was luck.  This deal found us, not the other way around.How?  We are known in our market.  Our friends and acquaintances know that we are real estate investors and the players in our local market know us.  Deals aren’t going to find you if you try to keep a low profile.  I’m not saying to be a gratuitous self-promoter, rather, just make sure people know you’re in the game.

How do you find off market deals like this one?  Easy.

• Network.  Be known and plugged into your market.  That means not only with the locals, but also on forums, etc.  People won’t bring you deals if they don’t know you are in the game.
• Leg work.  Drive around your preferred investing areas and see what’s going on.  Do you see people moving out of a house?  Stop and ask if it’s a rental or if they owner is around.  Stop and talk to people at yard sales.  Sometimes they are having a sale because they plan on moving soon.
• Be straight with people.  If you do get a chance to look at a deal, get to the point.  Do drag it out and end up not making a deal.  That will hurt your reputation.  If the deal doesn’t meet your criteria, say so.  Let the seller move on.
• Contact other players in your market.  There are a couple players in our market that are at retirement age and are looking to downsize their portfolios.  These people won’t give you a great deal for lack of knowledge of the market, but rather because they probably have big equity cushions and value the certainty of a deal.
• Patience.  This applies to everything in real estate.  Be patient and don’t go about your business with the mindset that you have to do a deal.  The best deals come to those who are patient and have staying power.

Off market deals can be a great opportunity for growing your rental portfolio.  Use these ideas to position yourself to find and take advantage of these opportunities in your local market.