Hi, Reader!

Last week, I told you that some of the best deals I've ever done were purchased off-market and direct to seller. These are value-add deals, where I negotiated directly with the owner and faced zero or little competition from other buyers.

Sounds great, right? It can be, but buying off-market isn't all roses. It can be extremely time-consuming, and there are plenty of moments where you feel like you're wasting time banging your head against the wall.

So, let's get into it. Here are the downsides of focusing on a strategy of buying off-market deals.

Trust is hard to build.

Most people want to do business with people they know, like, and trust. This includes selling real estate. Brokers spend huge amounts of time over months, years, and decades building relationships with people with the hope that they will one day do a real estate transaction together. Relationships over long periods of time generally leads to trust, which can lead to doing business together. When you're trying to land an off-market deal, you should be playing the long-game by building trust over time. This is at odds with the investor who wants a deal RIGHT NOW.

One way I've built trust with Sellers without forming a relationship is by listing my business with the Better Business Bureau. Many people inherently trust the BBB, so when they see that my business has an A+ rating, it establishes some trust. I have gotten multiple deals simply from the BBB website.

It takes a lot of marketing work to scale.

You might be able to get the occasional off-market deal by using your network. Maybe your cousin's best friend's neighbor is looking to sell a property and you happen to meet him at a party, which lands you the deal. This sort of stuff happens, but it's not scalable. If you want to scale a business composed of off-market acquisitions, you have to market your business. A lot.

Mailing letters and postcards, TV and radio ads, digital ads, and billboards are the traditional marketing techniques. I've done most of these strategies, and they can all work. They are very expensive, they take time to be effective, and the hit rates are very low. You have to be consistent and in it for the long-haul. If you send out a few letters to a few property owners and expect to land some deals, you will likely be disappointed. The key to marketing is to be top of mind when the property owner is ready to sell (which is probably not now). This means being consistent in your marketing efforts, which is expensive and requires systems. Most people are not consistent with their marketing, which means they are not top of mind when that owner is ready to sell.

There are other low-cost or free marketing strategies like door-knocking and cold calling. But it really takes a person with other-worldly perseverance to be successful with these.

Modern marketing strategies, like hosting a podcast, having a Youtube Channel, and being a social media influencer have proven to be extremely effective marketing strategies for those that do it right. But quality and consistency is usually the downfall for those that fail with these.

Emphasis on smaller deals

Generally speaking, the larger the deal, the less likely it is to transact off-market. If you're looking to acquire a $40m apartment community or a $10m industrial park, it's extremely unlikely that that owner will choose to sell off-market. An owner of that type of property probably has some investing sophistication and understands that, for a multitude of reasons, they are better off transacting through a broker.

If, however, your focus is on single family homes or small commercial properties owned by a "mom and pop" owner, your chances of acquiring off-market might be better (but only slightly).

Unrealistic property owners

When you do get an off-market lead, this is probably the biggest factor that will contribute to you NOT closing that deal. Great! You got a lead! But the seller might be living on another planet.

A year or so ago, I was feeling a little saucy, so I cold-called owners of some medical office buildings. To my great surprise, one owner said, "Sure, I'd consider selling". After multiple conversations and talking ourselves in circles, the owner refused to provide any information about the property without a signed contract. No tenant info, no lease info, no building info. I can't possibly make an offer under these circumstances, so this lead didn't go anywhere.

Most leads don't lead to anything. The biggest obstacle is usually price, but owners can present plenty of other obstacles that can derail a deal. One seller refused to let me see the inside of the property. One wanted his mom to keep living there after closing.

If you can find a realistic seller with some motivation to get a deal done, you just might land yourself an off-market deal.

THIS WEEK ON THE PODCAST

I talk with Jacob Vanderslice, who specializes in owning and operating self-storage facilities. In this conversation, we discuss the importance of having reoccurring revenue instead of being focused on transactions, the future of self-storage and the increased competition, and Jacob's best tips (and mistakes) for scaling a business.

Listen here on Apple Podcasts.

Listen here on Spotify.

Watch on Youtube.

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Curious about commercial real estate? Read The Top 6 Reasons to Invest in Non-Residential Commercial Real Estate. ​