By Charles Sells
Lately, there have been two things dominating the news cycles: the COVID-19 pandemic (of course) and last month’s presidential election. What has remained surprisingly off-radar is a topic that should have been the third dominant subject of every news cycle: the red-hot demand for single-family housing. Oddly, the fact that housing demand has reached record levels and brought housing prices right along with it – at least in the suburban and rural single-family market sectors – has been relatively muted. While we are certainly hearing plenty about the “urban exodus” from major metropolitan areas around the country, the meteoric rise in housing prices has not been front and center. Maybe there are just too many other things going on.
Real estate investors comprise one population of people who are very, very aware of the stiff competition for properties right now. Passive investors and active investors alike are finding it harder than ever to “buy low and sell high,” as the saying goes, because retail homebuyers are shelling out big bucks to snag just about anything and everything that goes on the market. Unlike an owner-occupant buyer, real estate investors cannot afford to pay asking price on a property that is currently worth far less than market value and is in desperate need of updates and repairs. Retail buyers can pay the money, then opt to hold on the renovations; investors cannot generate returns if they make these types of investing decisions. And that, my friends, is where the most important tool in your passive-investing toolbox comes into play in your 2021 investments.
Networking Looks Different, But the Goal is the Same
Prior to March 2020, real estate investors spent a lot of time networking at conferences, property bus tours, and a variety of other in-person events. So many investors would say, “There is nothing like looking someone right in the eye to know if you want to do business with them!” Then, everything changed. Suddenly, shaking hands was out and bumping elbows was in. Then, everyone was staying a solid six feet (or more) apart. And then, as the world started to try to come back to normal, there were some events where attendees would receive a colored bracelet to indicate whether they were “huggers,” “hand-shakers,” or plain old “stay-backers.” On top of that, most networking was getting done virtually, and most people were not attending conferences unless they were outside, within driving distance, or both.
Many passive investors, in particular, felt isolated from the industry entirely. These investors have always relied partially or entirely on investment managers or boutique investment firms to handle their investments and make sure their capital was being leveraged to its best effect. When they were isolated from masterminds and investment groups, it became very difficult for passive investors to gauge the market and their portfolio performance at all; many reported they did not feel as if they really had a good handle on the “pulse” of their portfolio anymore.
One of the biggest reasons for this is, of course, the home-buying “frenzy” that is happening in many suburbs and even rural areas around the country. Even for an investor who is right in the middle of things all the time, it is hard to believe some of the numbers that are being published right now: 42% increase in homebuyer demand since July, homes selling at an average of 99.5% of asking price, active listings down by 29 percent year-over-year, etc. The upshot is that it’s really, really hard to get good deals right now, but there are still a lot of them out there. That is where your “secret weapon” comes in: your off-market deal network. That’s right: all that networking paid off even if you do not realize it yet.
5 Good Ways to Land Off-Market Deals for Your Passive Investment Portfolio
Savvy real estate investors already know that off-market properties are the best deals around the vast majority of the time. They do not tend to have much competition because they are not being publicly marketed; they often are being sold by individuals who are more interested in a fast, easy sale than garnering top dollar, and the seller often will feel it is worth getting a lower price on the property in order to protect their privacy. Essentially, many off-market sellers have already decided they will pay a premium for you to buy their property! You just have to figure out how to find them.
This is where passive investors shine: They know how to network; they tend to have experience demonstrating credibility, and they also are willing to step back and let an active investment manager or real estate firm handle the “nitty-gritty” details for them. Passive investors actually probably already have the best resource possible for investors in 2020 and 2021; they just have to start using their access to off-market deals.
If you are wondering if you have access to off-market deals and do not even realize it, see if any of the following strategies feel familiar:
1-Agents and other investors have you on their “lists.”
Are there already parties out there in the market who know what you like and get in touch when something comes onto the market they think you would be interested in acquiring for your portfolio? If so, then make sure they know you are interested in off-market properties as well as those listed on the MLS.
2-Contractors call you with potential purchase opportunities.
Contractors often call passive investors with whom they have worked previously when they are called in to provide quotes on a job that seems like a bit too much for the current homeowner. Sometimes, these homeowners are paying to have repairs made so they can list their homes, not realizing a passive investor will pay for the property as-is and deal with the repairs later. Often, boutique investment firms also receive these types of calls if the investment managers have dedicated time to networking with local contractors.
3-Your investor network brings you deals.
When your peers and colleagues can’t buy a property, do they let you know they have something “on the line” they did not end up purchasing? If so, your off-market network is already functioning. Just make sure you stay in digital touch with this network even if you are not able to meet up in person!
4-Your investment managers know you are looking to acquire more properties.
If you have not told your investment managers that you are in the market for more properties, you are potentially missing out on a great source of off-market deals. Most local investors, contractors, and agents know that investment firms have clients looking to buy and notify them when something “interesting” comes up.
5-You have the option to “cherry-pick” properties.
If you work with investment providers who purchase properties in bulk, you may well have a connection that will let you “cherry-pick” properties out of their bulk purchases. Again, this is mainly an issue of making sure you communicate with your deal sources. Once they know you are in the market for off-market properties, they could have a whole list of options for you!
Competition for Properties Will Not Ease Off Next Year
No matter how you do it, if you want to expand your portfolio in 2021 you must get access to off-market properties. The competition for single-family properties is only going to get hotter as we move into the winter months and many states start restricting how many people can gather in a home for the holidays. Having outdoor space is going to become increasingly attractive, as is having a single-family residence in which to live. Real estate investors will continue to have trouble competing with retail buyers unless they establish a route to off-market properties.
Charles Sells is the founder and CEO of Platinum Investment Properties, a boutique investment firm with a national footprint offering clients access to fix-and-flip deals, fix-and-hold rental investments, tax auction deals, and off-market properties. Learn more and set up a consultation at PIPGroup.com.