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How Do I Find Off-Market Multifamily Properties?

There are many reasons someone enters the field of real estate investing. A natural progression through real estate investing for many includes starting with local single family units (so that the investment stays small and the management simple) and progressing all the way to larger-scale multifamily units that can actually encompass hundreds of apartments and take a great deal of investment knowledge and management capabilities.

Multifamily apartments can be as small as five units or can be many stories high with dozens of units. Some multifamily units can also encompass complexes with several buildings present. The possibilities are endless.

Individuals that invest in real estate know there is always some risk involved. But starting with single family, shifting to smaller multifamily units, and then moving on to much larger multifamily apartments is a common path among many serious investors.

However, once the progression to large multifamily is made, there are ways to make significantly more income by looking for "off-market" deals. The larger and newer multifamily units are typically listed with a broker, although some online sources for these also exist. These multifamily housing units (MFH) typically range from newer units that are considered Class A to older multifamily units that are considered Class D.

The quality value-add MFH are typically difficult to find, as they are not readily advertised or listed. Searching for larger multifamily that are off market Class B or C can be a wise alternative. However, finding these is a lot of work. The larger and more desirable the complex that an investor is seeking, the harder it can be to find such a thing off-market.

Get Creative to Find Great Off-Market Deals

The major obstacle to finding off-market MFH opportunities—especially those that are 40 to 100 units, Class B to C+, in a 60-mile radius of a larger MSA (metropolitan statistical area)—is that many of the deals that are made on these types of properties are found through extensive networking, relationships, or referrals from one investor to the next (or one Realtor or industry insider to the next).

Let’s use the Mobile MSA as an example of a metro area. It is primed for great growth and has been continuously expanding for years. In fact, the Mobile MSA in 2019 had 500,000 residents and is the 3rd largest city in Alabama—so, it’s a great entry point for investors to get some pretty lucrative returns.

However, finding good Class B or C MFH remains a problem for many serious investors in these types of areas.

In real estate, there are plenty of programs and online resources to search when looking for single family housing (SFH). But this is not especially true for MFH deals. So, what does a real estate investor do to locate a good off-market apartment building? Here are some options.

Driving for Dollars

The first option is the one that is missed by many when seeking these types of deals: Driving around throughout the area in which one is seeking the deal is often not even considered!

Since many listings are not posted or advertised anywhere, driving around can reveal good large-scale apartment buildings. Signs might be posted or a search for the property through online research or even court records can then be initiated.

A savvy investor can save time, money, and aggravation by simply hiring someone to do the driving through areas in which they have an interest in purchasing a property. It is possible then that a simple cold call to the owner or owners of the property can result in a potential deal being made down the road.

The reason for non-listings seems to be that sellers of MFH properties don’t have the time to waste on individuals who are not a good prospective buyer—especially on the larger Class B or C investment properties. Actively driving around looking for a property can make a seller more responsive to showing the property, as time was taken by the potential buyer initially.

Tapping Into Relationships

Another great option for finding these types of multi-unit properties is by establishing good relationships with brokers, insurance agents, property managers, and others involved highly in the real estate business. This is relationship and referral marketing at its best. After all, real estate is definitely a relationship business.

Establish Criteria for Your Search

Any type of serious investor in MFH properties in any large MSA should always have guidelines in place before they even begin their search.

These guidelines should include:

  1. Identifying Criteria: Where to purchase, when to purchase, the overall size sought, the classification of an area/property, and of course, the costs of purchase. Overall, any potential investor must know how much they can afford comfortably and know what their financial expectations are. Any property, even Class B, must always bring in enough money to cover the initial investment and sufficiently provide enough dividend yield. Research is needed above all else.

  2. Approaching Owners: This was touched on above. Finding a property that can be affordable and is attractive to a potential buyer can be achieved by cold calling owners, real estate agents, insurance agents, or others somewhat involved in the real estate investment field. Well-crafted letters can also be sent to those involved in any way in the real estate investment field.

  3. Establishing Relationships With Others: This may be the very best way to find good Class B or C, large-scale properties. Relationships with the right brokers, insurance agents, attorneys, and property management companies can yield information on upcoming sales of Class B or C properties. Attending real estate meetup events, seminars, and conferences can be enjoyable, informative, and most of all, productive in the years following attendance. Maintaining solid relationships with brokers and others in the real estate field can really yield significant results in locating properties for years to come and garnering knowledge of impending sales long before these properties even hit the market. The old saying “the early bird catches the worm” really applies to this methodology. Relationships are everything!

  4. Having Financing Options Identified: Whether financing privately with money already in-hand or financing with a loan or other options, it's useless to even consider approaching anyone about a sale of a Class B or C large scale property without the necessary financing already in progress or fully established. No seller anywhere is going to seriously consider any potential real estate investor if the financing is not possible.

All in all, it is an achievable task for a serious real estate investor to find good off-market properties with enough time, determination, and effort put into the search.

Let’s consider an example. An investor that we will call “Bob” was seeking a 60 to 100 unit Class B property in the Mobile MSA for a year with little success. Then, he attended a small real estate meetup event and met a seasoned investor, from whom he learned that his requirements needed to be more specific. Bob was advised to engage in more cold calling and write more letters to property owners.

However, since Class B & C properties are in such high demand, it is essential to take into consideration some factors before even approaching any owner with a request for a possible sale. The experienced investor explained to Bob that the requirements of a good MFH property should include:

  1. Age of Property: The older, the less valuable (usually) and more upgrades might be needed.

  2. Location: Is the location seeing a population rise or decline? Having enough individuals to rent to is essential.

  3. Tenant Income Levels: Again, if income levels are spiraling downward, the investor may want to back away immediately.

  4. Appreciation Rate: Is this going up or down based on age, population, and other demographics?

  5. Overall Monthly Income Level: Does the monthly income level justify the outlying capital invested? How long will it take to recoup the initial investment?

  6. Amenities: These do count in income levels. Typically, the more amenities a property includes, the more rent that can be charged per unit.

So, by building solid relationships, Bob eventually bought a good off-market multifamily property that he could comfortably afford and that generated years of solid income for him and his family. Without doing so, and without thorough researching plus cold calling and other forms of marketing himself, he would not have found this property.

In the end, investors looking for good Class B & C, off-market, large-scale properties MUST learn not to just look for the properties but also to learn to market themselves!

Bob was a little shy about letters and cold calling initially, but after doing it a few times, he became more comfortable. Nine months later, his efforts paid off with the acquisition of a great property that he had his sights set on.

Being proactive is always the best approach in any type of real estate endeavor. Get out there and just do it!


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