Buying real estate can be a highly lucrative investment choice. Finding the right niche that takes advantage of your unique skills and talents can give you a jump start in real estate investing. The world of real estate investing is enormous, from large companies with huge condominiums to individuals renting out a couple of trailers. In this article, we give you a few popular niches and how to choose which strategy will work best for your situation.
Importance of Finding a Niche When Buying Real Estate
As with any entrepreneurial undertaking, hyper-focus is the key to building a successful business. You will save yourself a ton of time and frustration if you start by analyzing your local market and competition. Understanding your locality will allow you to spot opportunities and find the “riches in the niches.” These opportunities are often in plain sight for any investor willing to put in the effort and take a chance. These two tactics, focusing on a niche and understanding your local market, will help to differentiate you from all the other investors in your area.
Types of Real Estate Investment Niches
Below we list common niches for buying real estate. While this is not an exhaustive list, these niches often lead to smaller, lucrative niches that investors can find by analyzing their local market.
Single-family homes are the most common type of property in the US. According to the US Census American Housing Survey, 121.2 million residences are occupied single-family homes. Beginner investors often start with these property types due to their availability. When trying to get a feel for your area, single-family homes are a great place to start buying real estate.
Duplexes and multi-unit buildings up to 4 units (quads) are a good way to decrease your cash-flow risk and spread expenses across multiple tenants or income streams. If you own a four-unit complex and one tenant stops paying rent, the other three will help cushion your expense and debt payments while you go through the eviction process. If you are looking to get into the apartment investing realm, this is a good starting point. Banks will often loan conventional mortgages on these properties, allowing you to get your foot in the door for commercial loans.
Mobile-home investing can be a great place for a beginner to start. The overall per unit cost is much lower than your average single family home. There are many sub-niches or creative ways to make money with this property type. The need for affordable homes in the US keeps this asset type a very lucrative option for the right investor.
After choosing the type of property you want to invest in, you need to decide what your strategy will be. There are multiple ways to make money buying real estate, here we list a few that are good ways for the beginner investor to get started.
Buy and Hold
‘Buy and hold’ is a forgiving strategy for the amateur investor to get their feet wet buying real estate. First, you should study your market and figure out how much properties are selling for, what the rental rates are, and the potential investing areas. Afterward, using a buy and hold strategy can be a good long-term investment plan. While purchasing a home outright comes with some expense, there are creative ways to finance your efforts with little or no money down. Two of these loans for buying real estate include FHA and USDA home loans.
If you’re strapped for cash but willing to put in the leg-work, wholesaling could be a viable strategy to get started. Have you ever seen those signs on the side of the road that says “We Buy Houses?” Those are wholesalers. As a wholesaler, you will look for people wanting to sell their home for various reasons, and you “assign” the right to purchase to your investor friend that will buy the property. Your investor friend will give you a “finders fee” if they purchase the property. This is a win-win for both you and your investor and requires little money to get started.
Many investors start off wanting to flip houses. Reality TV shows have made this form of buying and selling real estate quickly seem like a glamorous strategy. While flipping can be a lucrative way to make money in real estate, it unquestionably takes a lot of time, money, and knowledge to be successful. Flipping a property sounds simple: buy the home, fix it up and sell. Easy, right? Wrong. The devil is in the details here. You have to know your market and what makes homes sell in your area. You wouldn’t want to put crown molding in just because that’s what you would want in your home. With that being said a ton of investors make money flipping homes. Just educate yourself first.
Tips to Find Your Niche
Finding your niche is a personal endeavor. What makes you tick? Do you like working with people? Do you enjoy playing with numbers in excel? If you enjoy what you’re doing, you’re more likely to put the effort in to succeed. Getting involved in your local Real Estate Investor Association will give you a good start with finding your niche. In these meetings, you can talk with other real estate investors and find out what they do. This is an excellent way to learn about the strategies others in your market are using so you can see if their strategy might work for you. Do your research. Look at some properties and educate yourself, but be careful not to put yourself in a constant rut of education and no action.
Buying real estate is an essential part of building long-term wealth. To be successful, you must focus on a single part of real estate and not be a “jack of all trades.” Developing a vision for how you can succeed and the steps you need to take will help you become an expert in a real estate niche. As you are searching for your ideal niche for buying real estate, be sure to ask yourself, why am I investing? Financial freedom? Side money? Answering this question will help you decide on the niche that works for you.