An off-market property refers to land, homes, or commercial real estate that is for sale and is not listed on the Multiple Listing Service (MLS). Foreclosures, short-sales, and bank owned homes are all considered off-market listings and are a great way to get a good deal on a property or investment project.
What is a Sheriff Sale?
One of the best ways to find off-market listings is through sheriff sales. Sheriff sales, or auctions, come at the end of the foreclosure process when the defaulting homeowner can not repair their financial problems with the lender. Properties that are sold at a sheriff sale are sold as-is and it is up to the buyer to conduct their own due diligence on the properties they bid on.
Sheriff sales include properties ranging from single-family homes, multi-family homes, mixed-use properties, larger complexes, and even commercial buildings that are local to the county where the auction is being held.
Purchasing properties at a sheriff sale leaves room for a high profit potential, especially considering there isn’t much competition on foreclosed properties sold at auction. The sale of these properties are usually advertised four to six weeks in advance, but some states release property information up to eight months before the sale. This gives potential buyers enough time to research the property, the condition of the loan, and the condition of the homeowner.
For the diligent investor, or those looking to expand their fix and flip portfolio, sheriff sale properties are the perfect opportunity. While the types of properties for sale range across the board, they almost always have one thing in common – they need some TLC.
Research on a potential property is the most important part, whether you’re purchasing through an MLS or a sheriff sale. The problem with purchasing a property at auction is you may not be able to inspect the property before bidding on it. This leaves little chance to access any property damage, repair costs, zoning, or even environmental issues. This can also lead to overbidding on a property if you are unable to research it correctly. Purchasing a property for more than it’s worth can result in a large profit loss.
Another disadvantage to purchasing homes at auction is the large cash expense. Although the timeline for payment of a property depends on the state, some properties must be paid in full on auction day, while others may require a thirty to sixty day payment period.
How to Find Off-Market Properties
Sheriff sales are one way to find a steady number of off-market properties listed below market values. Knowing and understanding other sources for off-market deals gives you a greater chance of finding them and closing on one.
Real Estate Websites
Real estate agents and property owners can list their own properties as off-market properties. There are multiple websites that feature foreclosed listings and auctioned homes which are considered off-market. Investors can use these websites to their advantage by regularly searching and pinpointing these investment opportunities before they go to sheriff sales or auction.
Direct Mail Marketing
Experienced investors often believe that one of the most efficient ways to to find off-market listings is through direct mailings. Investors can send letters, postcards, flyers, etc. to homeowners who may be interested in selling their property. These direct mailings explain that the investor is looking to buy an investment property, contain an attractive offer and phone number. Sometimes homeowners have not considered selling their property until they see a written offer and have a direct contact to get in touch with.
Real Estate Networking
Expanding your network is one of the best ways to find investment properties, including off-market deals. Reaching out to your real estate network, joining local networking events, staying connected with investors and agents, and, in general, continuing to build a network is important – especially if you’re seeking off market deals.
Found an Off-Market Deal, What’s Next?
Once you find an off-market property you’re interested in, it’s important to research the property to make sure it’s worth your time and investment.
- Perform a Title Search. The cost of a title search will be nothing compared to the potential loss from not investigating the condition of the title.
- Evaluate the Property. Depending on the location, county, and property itself, you may not be able to physically walk the property to assess the condition. Some things you can do to determine the profit potential is determine the market value using comps in the area, get an option of the price from the appraiser and/or broker and subtract that from the market value to see if there is a large profit potential.
- If allowed, Inspect the Property. Depending on the location, county, or property itself, this may not be an option – but if it is, pay an inspector to assess any damages or repairs that must be made. Subtract the cost of repairs from the potential profit calculated in step two to help determine the profit more clearly. If an inspection is not allowed, make sure to leave room for extra expenses for repairs.
- Calculate Profit Potential. Using the number you’ve calculated from step three, make sure to subtract potential closing costs, costs incurred from holding the property – loan payments, taxes, insurance – and any additional expenses to determine the potential profit.
- Determine the Maximum Bid. After you have calculated your potential profit, determine the highest bid amount you can make while still making a profit. Any bid over the break-even amount will result in a loss.
Investor Tip: if you are unsure about a property, don’t make an offer!
Secure Financing Early On
Investors who are preapproved for a loan for an off-market property, will stand out against any potential competition. Not only does this make closing a faster process, but it also assures the seller that you are qualified to purchase the property for a certain amount.
If you are ready to get approved for your next investment property, we can help! Apply Now.