Is Off-Market a Necessity?

Question

Trying to do my first BRRRR. I have an LLC to get the hard money loan, am reading the Book on Estimating Rehab Costs, have read the BRRRR book, am in talks with some contractors, and have an agent who has me set up with automatic listings form the MLS. I'm starting to feel like this isn't enough though. Nothing new has shown up in my MLS account in over a week, and I just listened to the podcast where Henry and David essentially said BRRRRs will only work with off-market, well-under-asking-price deals.

Is this true? And as a new investor (I bought a SFH as my first property May of this year as a house-hack), how am I supposed to compete / find these off-market deals. Furthermore, should I even be trying to BRRRR right now? I intend on getting a house hack each year which has better margins than BRRRRs, so that should be easier to find, but then my velocity is only 1 property a year. Obviously that's nothing to scoff at, but we all come here to accelerate wealth, and ideally I am able to do more than 1 a year.

Anyone have any ideas?

Evan Polaski · Answer

@Griffin Malcolm, I am going to have to disagree with Nicholas.  A deal is a deal, whether it is listed or off-market.  And "off-market" certainly does not make it a deal.  If so, I will happily sell you my rental property off-market.

Where I agree with Nicholas is: this is a tough market to be buying in, and you need to be patient.  All the books and guru's and YouTubers make it out to be so easy to find deals, just follow these four steps.  If it were that easy, everyone would be a multimillionaire (and those authors/guru's/youtuber wouldn't be sharing the information).

The deals you want off the MLS are not the new listings.  Everyone sees the new listings and all the owner-occupants will be clamoring over them.  You want the one that has been listed for 60 days with no offers.  You want the one that has fallen out of contract twice now, and is sitting stale.

Off-market deals are great and good. But, as you noted, you will be competing with a lot of people off market too.  You will be spending A LOT of time, and often money, trying to find a receptive seller.  It can be worth it, if you uncover that needle in a haystack, but admittedly, you are starting from the back foot (when accounting for time and actual costs associated with finding that deal).

All in all, real estate is tough right now.  When talking single family homes, you still have a lot of buyers.  You have very few sellers.  You have home prices that have barely come down since the peak.  You have interest rates that are the highest they have been in years.  You have high renovation costs.  And your rents, while certainly up, have not kept up with home values and interest rates.  All this to say, it is NOT easy money.  You will be working for your first deal.  You will be working or your second.  And honestly, you will be working for every deal, baring a major economic disaster.

Karolina Powell · Answer

I'm new to this but so far both of mine have been on MLS but I've offered well below asking.  At this point I think I've offered on close to twenty properties at the price that I think they'll be profitable no matter what the asking price is.  My first I bought for 63K when it was on the MLS with an asking price of 130K.  My second I bought for 40K with an asking price of 50K.  I now have several that I'm interested in and have told their realtors what I would be willing to pay.  35K for a home asking 55K, 40K for a home asking for 70K, 70K for a home asking for 100K, 85K for a home asking for 140K.  Last night the realtor for the last one contacted me again as the home has now been sitting for an additional two weeks after I offered to see if I'm still interested.

Andrew Postell · Answer

@Griffin Malcolm this is always a place for shared ideas.  You have some good comments above but I would certainly reinforce what Henry and David stated.  Keep in mind those guys have YEARS of experience.  I've been investing in real estate for over 20 years...my best deals are off market. Every time.  I don't know what your "search parameters" are specifically but I make 100 offers per year to do 2 transactions a year.  Make offers.  Get in touch with wholesalers.  Yes, it's hard.  Only 4% of Americans own 2 homes.  That's how hard it is.  If you can do it now, in this environment, you will be well positioned in 5 years.  Keep at it.

Corby Goade · Answer

This notion that deals can only be found off market is ridiculous. 90% of sales take place on the MLS- not all of those are "bad" or even retail deals. One of the most successful flippers I have ever met buys 75% of his flips on the MLS. The secret here is having a full and deep understanding of your market and knowing how to quickly write aggressive offers when an opportunity presents itself.

The flip side of this equation is that MOST wholesalers are super green and don't have very deep market knowledge. I see off market deals nearly every day that are significantly worse than what I could find on the MLS at any given moment. The ironic thing is that many other new investors buy those deals based on the assumption that off market deals are better and the wholesaler knows the market better than they do.

Are there some good deals off market? Absolutely. Are there some good deals on the MLS? Absolutely. The only way to discern those is to have that deep knowledge of your area.

Nicholas L. · Answer

@Griffin Malcolm

sub to is an advanced strategy for well capitalized investors looking to diversify.  but it has a much lower risk sibling - seller finance.

Griffin Malcolm · Answer

Thank you both. @Andrew Postell I'll look into wholesalers as well. That seems like a great source for leads. Hadn't considered it before since a lot of the books seem to take the approach of becoming a wholesaler yourself as opposed to just using one to get deals.

Ali Nichols · Answer

@Griffin Malcolm I think I speak for many of us. Right there with you. Whether on or off market, finding deals are tough.

My two cents. If you are in it for the long game, go after another house hack, keep learning, keep networking and keep up the momentum.

Griffin Malcolm · Answer

Thanks for the replies everyone. I'm definitely committed to the long game of at the very least getting a house hack once per year. My first home took me 6 months and probably 20 tours to find, so I am willing to be patient.

My agent said she has a seller she thinks is willing to sell soon so that might be a good opportunity. I guess I need to double down on the networking / going to events in the meantime. I will look into Sub-to as well. Haven't done any research into that strategy yet

Ryan Davies · Answer

Sub to is probably the best strategy out there right now due to the low interest rates.

Nicholas L. · Answer

Yes - the best candidates for BRRRR deals are off market.  You need to buy a property so far under ARV that you can double or more than double the value via the rehab.  A 20% or even 50% increase won't cut it - it won't pay for all of the costs to transact, hold, refi, rehab, etc.

Should you try to BRRRR right now?  That's a question for you to answer.  It sounds like you're getting a little impatient... and patience is key.  What if it takes you 6 or 12 or 18 months to find a good deal?  It took me 3 years to find my first seller finance deal.

Go to REIAs and meet other investors - join Facebook groups - go look at 50 properties.

Is Off-Market a Necessity?

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