On the Radar: Off-Market Deals | Think Realty | A Real Estate of Mind
Investing Strategies

On the Radar: Off-Market Deals

Data-driven strategies to identify deals in 2021

Foreclosures will make headlines in 2021, but real estate investors stockpiling cash in hopes of the Great Recession Part 2 will likely be disappointed. The Fed and Congress have shown little desire to allow a mass wave of evictions and foreclosures, and we should expect more from that playbook in 2021.

For real estate investors, that means off-market deals will once again be where most opportunities reside. In some markets, investors will experience increasing competition from Wall Street money and tech disruptors in a few categories:

  1. iBuyers: Zillow Offers, Refin Now, Opendoor, Knock, and Offerpad are a few of the most established ibuying brands. Covid may have slowed these entities temporarily, but don’t count them out. These tech-savvy, cash-rich buyers spend millions in marketing and also generate revenue integrating ancillary services like mortgages and closings. Some readily admit to losing money on their all-cash, as-is offers.
  2. Institutional buyers: Deep-pocketed Wall Street players are looking to place over $1 billion. Unable to place that money in distressed real estate, they will likely turn to distressed debt, build-to-rent, and buying directly from iBuyer brands. Some of these entities have been around since the foreclosure crisis and continue to amass large rental portfolios.
  3. Major real estate brands: Realogy and Keller Williams have announced their own branded versions of the as-is, cash offer. Other brands are also rolling out various efforts to aid consumers in noncontingent sales, be it a cash offer or money to rehab before a sale. Expect more real estate brands to jump on this wagon next year.

So, why is this important? These competitors will increase your marketing costs and put downward pressure on profit margins in markets where they operate.

Early on in the pandemic, iBuyers briefly disappeared. Real estate investors who left their digital marketing running in March and April probably noticed a dip in advertising spend for key and branded terms. Yes, Wall Street targets known active cash buyers in select markets, driving up rates!

These Wall Street competitors are typically seeking a 7-15 percent discount off an as-is price. They’ve readily admitted to losing money on average, but their unique model of making money with ancillary services will make it more difficult for Main Street investors to compete. And, just because they aren’t in your market now doesn’t mean they won’t be soon.

In your quest for off-market deals in 2021, this means playing a better data game. Understanding what Wall Street is chasing allows you to strategically decide to compete with them, sell them what they are looking for, or avoid the inventory they’re chasing. Every market is different, so homework is a must.

Keep in mind Wall Street is after volume (AKA scale). Spending billions safely and efficiently is not easy. Main Street will thrive where Wall Street can’t survive. That means focusing on strategies that don’t easily scale and on inventory they don’t want. Let’s explore what that looks like in 2021.

Strategy #1: Driving for Dollars

Covid may interrupt your door-knocking game in 2021, but driving for dollars can be a great substitute. It doesn’t even need to be you doing the driving! This strategy is also perfect for investors with a full-time job but willing to spend extra time exploring opportunities on the way to the office or exploring on the weekends.

If you’ve done your competitive analysis, you’ve honed your target inventory. Aimlessly driving through every block of your city is not the highest and best use of your time. Time is valuable, and gas is not free! Creating your list of prospects before you start driving is far more efficient. One specific data point can be very powerful in this strategy because it will drastically change your marketing approach.

Occupancy data. Is the property owner-occupied or owned by an investor? Does that investor live in the county, out of the county, or out of state? Does the investor own one or many properties?

While driving your list, you’re looking for signs of distress like an overgrown lawn, overdue repairs, boarded windows, dead foilage, or tons of newspapers or trash in the front yard. Imagine sending a mailer with a picture to an owner occupant letting them know their front yard looks a mess, and the property is in serious need of TLC. Compare that to the reaction from an absentee landlord that lives 2,000 miles away with this message:

“Hi Sandy, I’m a fellow landlord in Portland. I was driving on Smith Street yesterday, and I wanted to pass along that your tenant on 123 Smith Street is letting the grass die. The city is starting to get aggressive about ticketing for brown lawns. I’ve personally started including lawn care in my lease agreements because of it. I wanted to pass along my landscaper’s business card. He’s reasonable and dependable. I’m also on the market to buy one more rental this year. If you’re ever looking to sell, I don’t even mind buying with tenants in place. Here’s my number if you need any local resources.”

Matching the message to the moment and the prospect is an entirely different ball game from a generic form letter. This approach is highly personal, gives meaningful insights, offers a local solution, and you’re now an ally and a resource.

This is the ultimate off-market list that no one will have but you. Highly targeted, finely tuned, and you’re spending a fraction of the money talking to this small list of prospects consistently instead of a huge farm list that anyone can buy. Whether you decide to target owner-occupants or absentee owners, occupancy data is a fantastic way to refine your marketing message.

Strategy #2: Owner Occupants with Equity

Speaking of lists anyone can buy, the owner-occupant with equity list is one of the most popular. That’s the problem. Everyone has access to that list, and the overused template mailers used to reach these prospects. Ever gone to a house only to see a stack of yellow letters and we-buy-houses postcards from other investors?

It isn’t difficult to refine the list by stacking other criteria to narrow your reach down to specific niches.

Price Point data. Doing your competitive analysis gives you a sense of the competition in your market and the inventory they target. You don’t have to mimic their activity, but success often leaves clues. You’ll probably notice more activity where the target buyer has access to FHA financing. More volume typically means faster sales and more price support. The simple act of focusing your list on price point goes a long way to narrow your reach.

Mortgage data. Want to reach people that own free and clear? Prospects with 50% estimated equity or more? How about people with little equity but with a great loan in place?

From creative financing to preforeclosure deals, there’s incredible potential in layering on mortgage data. Instead of a generic “I buy houses” letter, you could send targeted messaging on specific opportunities.

Take a remorseful suburban buyer who bought in 2020 to flee a big city, only to discover in 2021 that their job has decided it will no longer approve working remotely. They may not have enough equity, but they may have a fantastic loan in place for you to create a “subject to” deal. Or, maybe a master lease situation?

People data. Demographic data is one of the most powerful ways to target your marketing lists. While other amateurs are taking the spray-and-pray approach, you can refine your marketing list based on things like age, interests, and life events.

Take, for instance, a 65-year-old couple who has lived in their home for over 30 years. Chances are they are sitting on a fair amount of needed repairs. Older owners statistically are net sellers of real estate. Whether it’s to be closer to kids or looking to downsize for retirement, messaging to these owners can be more focused on unique pain points like referrals in another state, timing of a sale, cash to move, or referrals to other local pros like CPAs and movers.

Or, how about an investor that strategically targets owners based on the sex of the occupants? A female real estate investor could connect to the household’s female owner and strategically connect via a direct mail piece in her name, a phone call asking for her by name, or finding ways to connect via social media with a more personal approach.

Kids in the home, activity interests, and philanthropic causes are other unique examples of ways to make a connection. Communication is not just about text. Visuals are a powerful way to send clues and build trust. By curating lists on demographics, it opens up unique ways to change out pictures to connect further. The goal is to lower the number of touchpoints needed for conversion because we’ve done an excellent job refining our marketing list and messaging.

Strategy #3: Creating Value

When studying the competition, you’re likely to discover there’s consistency in price point as well as square footage. As an investor, you can join the party, avoid it altogether, or figure out ways to wholesale these flippers precisely what they want. However, there are some other ways to look at property data that most miss.

Property data: Refining your marketing lists targeting property characteristics like the number of bedrooms and bathrooms, indoor square footage, outdoor living space, and property features is easy. For local developers, opportunities here are even more powerful when targeting additions, new construction, lot splits, and upzoning opportunities.

Is there a new large employer coming to town? Is the city looking at upzoning specific neighborhoods? Is a local college expanding in a way that will bring high-paying jobs to town? Will state and local legislation pave the path for new development opportunities?