How to Get Consistent Off-Market Deal Flow from Brokers
Off-market deals are highly coveted in the investor community, and for good reason. First, competition is minimal (if not non-existent). Second, the opportunity to test the waters with creative structures is open without competing offers, making creative deals look relatively unappealing. Also, because the investor isn’t competing with other buyers to “win the deal”, there is less pressure to put up a non-refundable deposit before the investor has gone through an adequate due diligence process.
If you’re getting consistent off-market leads from brokers, you’re in a great spot and you might get a few additional ideas below. If not, here’s what you need to know to increase your odds of making this strategy work.
Why Sellers Welcome Off-Market Deals
Most sellers are aware that in order to get the highest and best price for their asset, it should be marketed as far and wide as possible. Best practices involve gathering all offers, pitting them against each other to wring out the best possible terms (often resulting in another round of “best and final” offers), and choosing which one wins.
So, why would a seller skip that seller-friendly marketing process? There are a lot of reasons. Here are a few:
- Life circumstances (not related to property) cause a seller to want or need the proceeds from a sale quickly, or quicker than a formal marketing process would allow.
- “Tired landlords” just want to be done with the property. The prospect of possibly getting a transaction price that is 1-5% higher by marketing the property is not worth the effort and hassles.
- A seller may have received several opinions of value recently and feel that the off-market offer is good enough to accept.
- Personal relationships with on-site staff or tenants may motivate the seller to keep disruptions to a minimum. With all possible buyers notified of sale tours and showings, this can be unrelenting and highly disruptive to the on-site community. With one buyer, the disruption is minimal.
- Upcoming loan maturities may leave owners with an opportune, yet small, window of time where they can sell without a prepayment penalty. If a good offer comes in within this window, it is far more compelling than the same offer that comes in at a time when there will be complications due to large prepayment penalties or loan assumptions/assignments required to avoid such penalties.
Connect with Brokers + Find the Real Deals
Before we get into how to generate a consistent pipeline of off-market opportunities, I wanted to note two things to help guide your off-market deal search:
- Focus on brokers because they control the vast majority of deals. In other words, contacting one broker that is talking to many potential sellers is a high-leverage activity that is worth doing. This doesn’t mean you shouldn’t try to go direct-to-owner, but with one touch (call, email, text) to a broker, you’re potentially getting access to an entire database of candidates.
- Be scrutinous of what truly constitutes an off-market deal. The term is overused and you should define your parameters so you don’t fall into someone else's definition and end up wasting time and energy for a deal that isn’t, well, a deal.
While it may be tempting to bypass a broker and go direct-to-owners to avoid adding fees (which create monetary separation between lowest acceptable net proceeds to seller and highest acceptable price to buyer), the reality is that brokers (at least the good ones) do a lot to get sellers to a point where they are open to considering an off-market transaction. For one, they spend their days building and nurturing relationships with owners, sometimes over decades. In a business where trust is paramount, it goes a long way when a familiar broker advises a seller to consider accepting an off-market offer where the seller is often in the dark in terms of what the broader market would offer to buy the property. The broker is usually the seller’s primary tool to gauge a prospective buyer’s credibility and ability to perform, which comes from knowing the buyer's reputation, past performance, and much more.
Also, a word of caution: beware of faux off-market deals. These are deals that have been shopped all over town (and sometimes the world), and while almost everyone has seen it, it is not listed on any formal marketing platforms so it’s technically off-market. Sometimes, you get an honest broker who thinks a property is off-market only to find that their source was dishonest or didn’t know the truth himself. It is not uncommon to see brokers who don’t have access to Loopnet or Costar bring investors a deal that they think is off-market because somebody said it was or because it’s not on the MLS. Also, properties that were previously on the market but were removed are technically “off-market,” but these properties don’t carry the same benefits for obvious reasons.
The best way to determine if a deal is truly off-market (not listed, hasn’t been marketed recently, and hasn’t been exposed to many) is by speaking directly with the source. If a broker brings it to you and a friend brought it to their attention, try to speak with the friend. If the seller is a savvy investor, chances are it’s being “shopped” or exposed to many more than you’re being told.
How to Get Consistent Exposure to Off-Market Opportunities
- Set up one-on-one meetings
Even if this is only done once, you want brokers to think of you when good opportunities come up. If they haven’t met you in person, you may be categorized in their mind as one of thousands of email addresses and nothing more. An excellent tactic to build rapport is to get to know each other and maybe even become friends. If they like you, they’ll consciously and maybe even subconsciously want to help you.
- Send consistent, quality follow ups
The frequency of outreach depends on the person. You can either feel them out each time you call, with the goal of striking a balance somewhere between annoyingly persistent and “who is this, again?” or you can just ask how often you should follow up. I have found that once every 2-4 weeks works well.
Remember: great deals are often being in the right place at the right time. In this case, seek to be in contact with, or top of mind of the right broker at a time when they find a good opportunity. Keep reminding them of your criteria and be specific—you can’t expect them to remember what you’re looking for when they’re getting similar calls and emails from hundreds of others.
It also helps to follow up with a specific, helpful reminder about a property or owner you discussed that might be worth revisiting due to the possibility of circumstances increasing motivation to sell, including upcoming refinances, life situations, and Brokers’ Opinion of Value (“BOV”) that didn’t lead to a listing.
- Do some leg work and collaborate
If you can show a broker that you are putting in a similar amount of effort looking for deals as they are, most will see you as part of the team, not competition. As long as you remain honest and include them in deals that you work together on, you can often hand-off call lists or stale leads to a broker and they’re more than willing to attempt to foster a relationship with an owner and try to get some traction. This frees up your time and may increase the odds of a success. Be sure you engage in this type of arrangement with a broker you trust.
Tip: Don’t give them a 50+ line item Excel export from CoStar or another source, with no additional work on your end. This is something they do anyway, and comes off as lazy. Give them something that shows that you have hand-picked a particular batch for some reason that ties in with your acquisition criteria. Bonus points, if you can uncover reasons why a particular property owner might be motivated to sell, like code violations made public, or life circumstances you hear about through the grapevine. Good leads like this have a higher hit ratio, and the broker will see you as not only a buyer (of which there are many) but also as a source for qualified leads.
Communicating Effectively with Brokers
When you are presented with an off-market opportunity, it’s important to respond quickly and to provide detailed feedback. Rewarding brokers with quick, high-quality feedback validates their efforts to come to you, and it helps them refine their understanding of your criteria.
In your conversations with brokers, here are a few items that are worth mentioning that can help your efforts to get them interested in working with you:
- Properties you own in their market/area of focus
This plants a seed that if they do right by you, there is the possibility that you will reciprocate by giving them a listing opportunity on one or several properties. It also signals to them that not only do you know the local market, but you’ll invest there, too. This minimizes the risk of you backing out of a deal because of a surprise related to local market due diligence.
If you’re feeling bold and you know a sale is not too far off in the distant future, you can flat out say, “If you find me a great deal, [you’ll be in a strong position to get]/[I’ll give you] the listing on 123 Main Street when I am ready to sell.”
- Success stories proving you will go above and beyond to ensure a broker’s success
Share past experiences that involve you doing something out of the ordinary that led to another broker’s success. If applicable, share structures or scenarios where you will do the same for them. If a broker knows that you can and will do things that are out of the ordinary to leave them better off than other buyers, this can only help.
An example would be bringing them into a deal that they didn’t procure at a reduced fee to manage the transaction and ensure things go smoothly—both because they will help and also as a “thank you” for an extended period of honest hard work that didn’t result in a paycheck for them...yet. Tip: don’t over-promise and don’t put them in a position where they are thrust into an unethical position, like off-the-books compensation.
- Team + track record
This helps build a broker’s confidence in you, and it’s an important part of the package (verbal or physical) that is delivered to prospective sellers to give them confidence in your team's ability to perform.
- Ability and willingness to perform quickly if an opportunity fits your criteria
This is another detail that reinforces the idea that working with you is worth their time.
One final note, if a broker is working hard to show you opportunities consistently, take them to lunch or send them something–even a Starbucks gift card with a personal note, e.g. “Hi [name], thanks for the help finding my next deal. Next coffee is on me!” or similar. If they may be the reason you find a deal that nets big money, this is a very small, but appreciated, token of proactive gratitude.
Good luck out there!