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There's no such thing as "Off Market"

If your business plan is based solely on buying off-market apartment deals I got news for you, the competition is smoking you. This thought is based on those investors who buy apartment complexes over 10 units, and primarily over 25 units. I say that because it’s very common for under 10 units to actually be sold off-market. First, let's define what off-market is. A property is considered to be off-market if it is not being publicly marketed on listing websites or email blasted to thousands and thousands of random investors all over the world. I believe the phrase off-market was probably invented by brokers to make investors feel special. To make investors feel like they were the only ones that that one property was brought to. From a seller's perspective, in the larger apartment world, it doesn't make any sense to expose their asset to just one human being on the planet. And the reason?  SCARCITY. Let me give you an example. Even though I work in Florida, which is arguably one of the top five states in the US for multi-family trades, the stats I’m about to give you on scarcity in Florida exist in almost all markets. In the trailing 24 months from December of 2020, which was probably the hottest sale market ever in terms of the number of trades, looking at the entire northern half of Florida not including Orlando or Tampa, there were only 270 apartment complex sales over 10 units. That includes all market rate deals, student housing, and affordable housing. That equates to only 11 deals per month. If you were an investor who only bought deals over a hundred units, during that same time period there were only five sales per month. That scarcity number only continues to go down if you only buy market rate deals or you only buy deals of a certain age range or a certain location. So let me explain why the phrase off-market doesn't really exist in the way in which you think it does. There are four types of sales. 1) Exclusive listing/public. This is when a seller gives a broker the exclusive listing with an actual written agreement and asks them to publicly market or mass market the listing to tens of thousands of investors. The idea is to get the very best offer from the very best buyer through a mass-market approach. This type of offering percentage-wise is probably the most frequent offering that exists. 2) Exclusive listing/private. This is when a seller gives a broker an actual exclusive listing agreement and only wants the deal privately marketed. The seller does not want it listed on a bunch of public websites or randomly emailed to tens of thousands of people. In terms of the number of deals done this way, while it's not as much as the exclusive listing/public, it's pretty darn close. In the larger apartment world, and with today's technology and CRM database advances, most brokers have a vast database of buyers they can directly and privately contact that rival even what a listing website could reach. 3) Non-exclusive seller. This is when a seller contacts a number of brokers, or a number of brokers contact the same seller, and the seller has agreed to a certain price to sell at, and a fee to pay the broker, but won't give any brokers the exclusive listing. This type of offering is a little rarer because it devalues the property. It creates confusion in the market because no one knows who actually has control of the listing or whether the seller has committed to actually selling it. In this type of offering, you have a number of brokers who are actually trying to sell the property talking to buyers. Simultaneously, the seller is also talking directly to buyers. And there could be an overlap. 4) Off-market direct. This happens when a buyer calls a broker and engages him to specifically go after a certain property that's not on the market. Or it could be a buyer who calls a seller directly and makes an off-market offer. In those scenarios though, it is more likely that the buyer will have to pay at least market value or more for the right to buy that asset without having to compete with other investors. In the larger apartment world, most sellers are pretty savvy. They know the value of their asset. They know they would probably get multiple offers if they went out publicly. And so, in exchange for even remotely entertaining an off-market offer, the price has to be good enough for them to not take their asset to market. Now, I know there are examples out there in which a buyer was able to acquire an asset for a discount off the market value, but those are extremely rare. Between the investor who concentrates on only doing off-market deals versus other investors who go after all deals whether they're on the market or not, the latter will buy dozens more deals than the off-market guy. There are exceptions to the rule. I know investors who it's just part of their DNA. They have to feel like they're getting a discount or buying directly from a seller and that's totally cool. I respect that. But the very best investors, the ones who are buying numerous deals a year, are going after every listing both public and off-market. Two more points. 1) It is highly unlikely that you are the only person seeing that deal. 2) Be aggressive and open to looking at every single deal that comes your way, whether it's public or off-market.


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