What are the Advantages and Disadvantages of Off-market and On-market Deals in Multifamily Investing?

Dear valued existing investors and future investors

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As the multifamily real estate market continues to grow, investors are often faced with the decision of whether to pursue so-called “on-market” or “off-market” deals. So, this week, we thought we’d look at some of the advantages and disadvantages of off-market and on-market deals in multifamily investing.

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What are on-market and off-market deals?

On-market deals refer to multifamily properties that are publicly listed and openly available for sale. On the other hand, off-market deals refer to properties that are not publicly listed and require a more proactive approach from the multifamily syndicator in order to find.

Both options have their advantages and disadvantages, and it is important for investors to understand these before deciding which option to pursue.

On-Market Deals: some advantages and disadvantages

As mentioned, on-market deals are those that are publicly listed and available for sale, usually through a real estate agent or broker. Depending on the stage of the real estate cycle, these types of deals are relatively easy to find and details of such properties can be viewed online or by undertaking physical inspections.

The main advantage of on-market deals is that such properties are readily available for anyone to see, which means there is likely to be more competition amongst buyers. This competition can drive up the price of the property, but it also means that there is a greater likelihood that the seller will accept an offer quickly, as there are more potential buyers to choose from.

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Another advantage of on-market deals is that they are typically more straightforward than off-market deals. The seller will have already completed a lot of the paperwork and due diligence required for the sale, which can save time and money for the buyer. Additionally, on-market deals tend to be less risky, as the property has been publicly listed and the seller is more likely to be transparent about any potential issues or defects.

However, there are also some disadvantages to pursuing on-market deals. The biggest disadvantage is that they tend to be relatively more expensive. The competition amongst buyers can drive up the price of the property, and the seller may be less willing to negotiate on the price or terms of the sale, as they know that there are other interested buyers. Additionally, the due diligence process for on-market deals can still be time-consuming and costly, as the buyer will need to conduct their own inspections and review the seller’s documents to ensure that there are no hidden issues.

Off-Market Deals: some advantages and disadvantages

As mentioned, off-market deals are properties that are not publicly listed and require a more proactive approach to find. These deals can usually be found through networking, direct mail, or other marketing efforts. The main advantage of off-market deals is that such properties are typically less expensive than on-market deals, as there is less competition amongst (fewer) potential buyers, perhaps more so in the recessionary phase of the real estate cycle. This can allow the buyer to negotiate a better price and terms for the sale.

Another advantage of off-market deals is that they are often less risky than on-market deals. As the property is not publicly listed, the seller may be more motivated to sell quickly and willing to negotiate more on the price or terms of the sale. Additionally, because the property has not been widely marketed, there may be less competition amongst buyers, which can give a buyer more time to conduct their due diligence and ensure that the property is a good investment.

However, there are also some disadvantages to pursuing off-market deals. The main disadvantage is that they can be more difficult to find. Because they are not publicly listed, a buyer will need to do more work to find potential properties even if they have access to great news and information sources. This can require a significant amount of networking and marketing efforts, which can be time-consuming and costly. Additionally, off-market deals can be riskier, as the seller may not be as transparent about any potential issues or defects with the property.

Which type of deal is better for multifamily syndicated investing?

When it comes to multifamily investing, both on-market and off-market deals have their advantages and disadvantages, and the preferred option will depend on the investor’s goals and preferences. Some investors may prefer on-market deals because they are more straightforward and easier to find. Others may prefer off-market deals because they are typically less expensive and can be less risky.

CPI Capital have been involved in both off-market and on-market multifamily syndicated deals. Having built a solid network of connections over recent years of owners, brokers and other real estate professionals, we have a regular pipeline of both off-market and on-market deals across the country from a wide variety of sources.

With our experience and market knowledge, the skill is, of course, in selecting the “right” deals offering the best investment returns for CPI Capital’s multitude of passive investors—irrespective of whether the property is off- or on-market!

Yours sincerely,
August Biniaz
CIO, Co-Founder CPI Capital