Off-market deals can be a terrific investment opportunity, often providing access to high-dollar properties that are not listed on any publicly accessible source. This private real estate marketplace is beginning to open up, with opportunities for a wider range of investors to participate.
Once an off-market property has been identified, the work that must be done upfront to evaluate or “vet” the deal is essentially the same. It is important to cover your bases and gather the information you need to make the best decision. This data is available to you, whether the property is officially “for sale” or not.
#1: Do your own property valuation
When considering an off-market investment, it’s important to come to your own conclusions on the value of a property. The timeframe for these deals can be different than with listed properties; it may be the case that a quick sale is important to the owner, or that a more conventional timeframe can be used. Either way, don’t skimp on diligence in valuation, or take the seller’s word on the value of the property.
You’ll want to establish a reasonable price for the property, and know what you’re willing to offer, based on hard facts. Whether you complete this work yourself or have a service gather the information, determine the Net Operating Income for any commercial property you’re considering (income minus operating expenses), and make sure that you can expect a fair rate of return on your investment.
It is often the case that a property is nearly suitable, but will require some modification or renovation after purchase. Evaluate the potential improvements needed on the property, and ask a trusted contractor to price those for you. Include those figures in your financial analysis as an important consideration for developing your offer.
#2: Review important documents
Looking into any real estate deal should include a thorough review of relevant documents. Due diligence should include collecting and evaluating these items:
- The deed
- Information on current tenants/lease terms, etc.
- Zoning documents indicating allowable uses of the property
- Land and improvement surveys
- Copies of any property bills
- Service contracts
- Any notice of pending legal and/or government action
- Environmental assessments
- Any special assessments or taxes
- Any seller inspections
- All construction plans and warranties in the seller’s possession
- Current title insurance and other insurance
#3: Get independent data
For some property information, it’s necessary to generate new data for yourself. A current land survey and a professional property inspection must be done to ensure that what is being sold accurately reflects the reality on the ground.
Gather information on the market and local trends that may influence the future value of the property.
#4: Know the players
The people involved in a deal are good indicators of its overall quality. Look into the record of the seller or developer of the property. Consider the success of previous projects as well as their reputation. Reach out to colleagues and partners who’ve had dealings with the seller and find out about their qualifications. If these don’t match your expectations, move on to a property that does.