Lessons from the Pros

Real Estate

Gray Market and Off Market Real Estate Acquisition Strategies

Gray market and off market real estate deals could provide investors with an advantage or Edge in the real estate market place, but what real estate acquisition strategies are available for those wanting to purchase these type properties? We’ll discuss that here.

People shaking hands in a real estate transaction

Gray Market Real Estate Acquisition Strategies

These are real estate strategies where a property has limited exposure to the public.

Tax Sales

Property taxes are the way local governments pay for things, like schools, safety and construction.  If a property owner doesn’t pay their property taxes, how does the local government recover the revenue? Answer: by some form of tax sale. There are two types of tax sales: tax lien sales and tax deed sales.

Tax lien sales are where the county/municipality sells their right to foreclose on the property to the highest bidder for the unpaid taxes. This allows the lien buyer to pay the tax debt to the county and then charge interest to the property owner. After a predefined period (which varies from state to state) if the taxes aren’t paid the buyer of the lien can then foreclose.  This is a process that must be followed carefully so that the deed is fully transferable.

Tax deed sales are where the county/municipality forecloses on the property after a defined period of non-paid taxes (which varies from county to county). The property is then sold to the highest bidder.  The buyer now has clear title on the property.

Tax Deed and Tax Lien processes vary by state and county to county.  Here at OTA Real Estate, our Deal Board provides an opportunity to find properties where the owner is delinquent (behind) on their taxes. Investors could then possibly jump in front of the county by buying the property, thereby keeping the owner from losing the property to the county and allowing them to get a good real estate deal for themselves.

REOs – Real Estate Owned (by who – the bank)

This is the last stage of the foreclosure process where no bids were accepted in the amount to cover the loan. In this instance, the bank takes legal position of the property. An investor can now purchase the property directly from the bank.  With the Deal Board, we have access (in some counties) to see the most recent properties taken back by the bank.

Foreclosure

A foreclosure is the legal process where the lender calls the note due for nonpayment of the mortgage/loan.  The property is usually sold to the highest bidder at a public auction.  This is a good way to purchase distressed property, however there are drawbacks. For example, the property must be purchased in cash (no traditional financing can be used) and the property is sold in as is condition with no inspections.  This gray market strategy is best suited to the most seasoned real estate investors.

Off Market Real Estate Acquisition Strategies

Off market properties are only discoverable to real estate investors. They are not being marketed to the public

Pre-foreclosure

Pre-foreclosures are properties where the owner is behind on the mortgage but hasn’t yet received a foreclosure notice. The investors can purchase the property directly from the owner, hence reducing cost and getting the owner out from under the mortgage.  This can help the owner save their credit and move on.  The investor, in turn, gets the property below market value with built-in equity.  This off market real estate acquisition strategy takes knowledge of foreclosure distress as well as the ability to remedy it quickly (meaning access to quick financing).  It also takes skill on the side of the investor to negotiate with the seller and the bank, in some cases.

Bankruptcy

The off market opportunity in bankruptcy will vary state to state, as it relates to homesteading laws and the kind of bankruptcy filed. In some states, bankruptcy will protect an individual’s home.  Purchasing property in bankruptcy may involve court intervention. Purchasing bankruptcy property is an intensive and rarely pursued off market real estate acquisition strategy.

Divorce

Purchasing a property from a divorcing couple is not an opportunity for the faint of heart.  Divorces can be one of the most difficult distress situations to pursue. Often the property is in the name of both married parties and an agreement must happen for the property to be sold, meaning it takes a skilled negotiator to close the deal. Both parties will need to sign the deed and proceeds often are split between the divorcees.

Targeted list

With targeted list, the investor develops a profile of properties with criteria they are looking for. An example of this profile might be:

  • Free Real Estate Investing Workshop4 plexes
  • Within the zip codes of 90002-90003
  • Non-owner occupied
  • 20+ years of depreciation
  • Owner lives out of state

The investor can now use this real estate profile to create a query on the Deal Board to target the exact kind of property they want and that have a high probability the owner will be open to selling the property.

Probate

Purchasing probate off market real estate opportunities involves a process which settles an estate.  Often the process will include the sale of the property because it must be sold to pay debts or distribute the inheritance to heirs.  As investors, our goal is to get to these properties early and offer the estate a price that will allow them to move on.  Being early increases the investor’s odds of getting the property under market price.

These are some of the top strategies we teach and provide data for (on our Patent Pending Deal Board).

None of these strategies are without work, but they give the investor an opportunity to solve a problem or lend a solution that helps the owners.  Win,Win.

Good Fortune,

Diana D. Hill Diana@OTARealEstate.com


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.