Pros and Cons of an "Off-Market Deal"

8 Replies | Philadelphia, Pennsylvania

Hey BP Community,

I wanted to reach out and hear some local investors feedback on what your opinions are on off-market deals. What do you think the pros and cons of these deals are? Do you prefer your deals to be off-market? Do you take preference to a deal that is off-market? Let me know what you all are thinking. 

New to Philly, but have been investing in Houston and Austin for the past several years. A deal is a deal, period! I don't really care where it comes from if the numbers work.

Originally posted by @Jackie P. :

New to Philly, but have been investing in Houston and Austin for the past several years. A deal is a deal, period! I don't really care where it comes from if the numbers work.

Agreed with Jackie. The source of a deal is only a minor factor in its validity -- does the deal make sense, is it in line with goals? That's what I care about. You can find terrible deals off-market and a great deal on MLS, and vice-versa.

No "cons" that I can think of.  Pros are you can get a better price -- sometimes.

That said, the last two properties I've bought were home runs.  Both of them had 6 figure + equity built in and allowed me to refi out and get all my purchase price + upgrades back so own them with nothing out of pocket.

Normally I wouldn't bother to 'brag' about that but I will only because both of those were 'on market' deals. One was on loopnet (for a long time). And one was on MLS with a TON of tours/offers.


The trick to getting a good price on an on-market deal is being aggressive with terms so you don't have to be aggressive with price.  I realize that's easier said then done. Which is why I always suggest knowing what you can buy so when you see something you can go after it aggressively. 

PROS:  Less competition therefore better price and terms.  It is kind of hard to get a good deal when there are 100 offers on it and they are bidding up the price.

CONS: None that I can think of.  Maybe making other investors jealous that you got a great deal!

Yes there are cons. Expect to do a bit more legwork making sure everything is legit. People go through great lengths (read risky) to get potentially amazing deals in philly. 

With as much competition as there is in the area I’ve bumped into a variety of odd off-market deals. In my opinion they require much more vetting. 

Lots of cash only - no inspections or questions asked - that I’ve watched people buy up after I’ve passed. I’ve even gotten to the table and they demanded that a portion of the sale be in hard cash and the sales price reduced at settlement. I’m assuming to pay off their wholesalers and save on taxes. (Obviously didn’t go for that)

As a result you could expect to do more research on both the property and sellers to mitigate some of the risk. 

Off Market

Pros: 

  • Less competition (maybe...it's safe to assume you aren't the only one being pitched the deal in your inbox). 
  • Lower price (maybe...I see plenty of overpriced off market deals).

Cons:

  • Chain of title and closing process can be (not always) shady, with multiple contracts, assignments, and/or changes of ownership.
  • Less room for negotiation (most are cash only, no due diligence, take it or leave it, close next week).
  • More downside financial risk - with no inspections or due diligence, you better know what exactly what you're getting into, and/or be able to weather the inevitable surprises.
  • Less recourse - in many cases, you're dealing with unlicensed individuals who have no regulatory authority policing them or enforcing rules that protect the consumer.

MLS

Pros:

  • More info available up front.
  • Clearer chain of title and cleaner closing process.
  • Everything is negotiable (price, closing date, due diligence period, financing options, etc).
  • Less downside risk with availability of inspections and process for resolving inspection deficiencies.
  • More recourse - agents are licensed and should be following legal and ethical guidelines.

Cons:

  • More competition (if buying) - The MLS is arguably the single best way to market a property for sale, and ensure the maximum number of eyeballs can find it if they are looking. Great if you are a seller (or represent the seller).