The Off Market Myth

A myth that’s been going around real estate investing circles for years is that “off-market” deals are in some way superior to “on-market” deals. The hype has become so crazy that I’ve actually had individuals tell me that they only wanted me to send them off-market deals.

Can you imagine how twisted your strategy has to get for you to only consider deals by their source rather than their merits? There is no logical basis in the idea that off-market deals would inherently trump on-market deals, so I’d like to dispel this myth once and for all.

There’s only one real reason why someone would be seeking truly off-market deals, and that is to bring them to market. I guess this makes sense considering wholesalers seem to be the source of the off-market myth in the first place and since the manipulation ultimately benefits them above anyone else.

Who else would be better at convincing us that off-market deals are the best than those peddling off-market deals or supposed systems to tap into the “off-market” yourself?

It’s All About Competition

To start, let’s examine the context of the myth and try to understand what it is that would bring people to believe that off-market deals are better than on-market deals. I imagine that ultimately it must come down to competition.

Many people who are first getting into real estate investing struggle to find deals that they deem purchasable. This struggle is made even worse when they go online for advice and see the testimonies of others preaching how all their success can be credited to “off-market sources”.

In today’s world, you will not find a source of investment deals free of competition.

So, if you’ve convinced yourself that your path to success depends on you getting deals at a measurably better rate than average in whatever market you’re investing in, you don’t have a strategy – you have a gambling problem. Needing to beat the market average in order to be successful is not a strategy.

The secret to finding success in real estate investing is to find a market that fits your goals and your strategy, not to develop some sort of secret formula that’s going to produce 50% greater results than those of your peers.

If you can find a property somehow, it’s on the market, even if it’s not listed on an MLS.

If you found a pre-foreclosure on Zillow or through your county clerk’s office or some mailing list service online – you aren’t the only person with access to that. In a globally connected world, there are hundreds of individuals looking at the exact same information you’re looking at.

It’s not uncommon for an owner whose home is going to make it on one of these off-market lists (like a pre-foreclosure, absentee owner or tax lien list) to get dozens of mailers a month by investors and wholesalers alike offering to purchase their house.

Compare that to the average amount of offers a seller of a distressed property listed on the MLS receives and it’s clear where the real competition is.

Honest Analysis is the Key

Maybe what draws you in about the “off-market” game is that they advertise that their deals are better.

There’s no single correlation between deal source and deal merit. If you’re concerned about deal quality, what you need to focus on is analysis. The only way to truly know if a wholesale deal is better than the deals on the MLS is to be able to analyze every single deal on the MLS.

And the truth is, wholesalers can’t do that. Most real estate investors can’t do that. Hell, most real estate agents can’t do that.

Most people can analyze a single deal at a time, typically on a spreadsheet, but that only tells you the numbers for that particular property. It doesn’t tell you how the numbers on that particular property compare to all the other properties currently listed for sale or on some sort of “off-market” list.

The people with the least information have the most motivation for peddling the “off-market superiority” idea and in my experience, it just isn’t true.

The Truth

At our real estate brokerage, we analyze every single property we can find that has any investment potential whatsoever, including around 70% of the properties on the MLS, every wholesaler email that comes through our inbox, every sheriff sale property that goes to auction, and many more.

The ugly truth is that “off-market” sources are not only not the best source of deals, but they are also often the riskiest.

Off-market deals are typically marketed by unlicensed individuals using high-pressure sales tactics, sketchy contracts, non-refundable earnest money, and dishonest analysis. All of which raises the question, if it’s such a good deal why wouldn’t they put it on the market?

Do you truly believe that you, as an investor, offer so much value to the seller via your willingness to pay their closing costs and make it a “fast and easy transaction” that it’s worth them handing over an unrealistic amount of equity in their home?

If it’s such a good deal, why would it be off the market? In my experience, it’s off-market because a lie is being told somewhere – typically at minimum by the wholesaler to the seller, and likely by the wholesaler to the buyer as well.

If someone offers you a deal but doesn’t offer you the ability to inspect, perform due diligence, and vet that deal, that should tell you all you need to know.

The Rare Exception

I understand that occasionally people pick up leads through their network that truly are off-market, i.e. no one else knows about it or is getting a shot at it because of your personal connection. Obviously, those deals feel great, especially since you’re getting to help solve a problem for someone you have a relationship with.

But are you really going to be comfortable negotiating for a greater spread then you’d normally expect from other sources? Is this source of deals really going to produce such higher returns that you’d shun the much larger sources of leads?

If you think identifying deals on the MLS with thousands of active listings is hard, I hate to tell you this, but building a viable lead pipeline from the probable distress of people who trust you will be harder.

Above all else, I think everyone can agree that a deal is a deal, no matter the source. A deal is a deal, not because of the source but because of its attributes. And the only way to determine the deal’s attributes is through analysis.

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