Choosing Your Niche & Strategy

Insiders Secrets for Buying an Investment Property Series

There are dozens (if not hundreds) of ways to make money in real estate, and it’s up to you to educate yourself on those options and choose the niche you want to get into. You don’t need to choose them all, many of them will likely not feel like the right fit for you and your goals.

Being successful as a real estate investor is all about choosing one niche & becoming a master at it before moving on to anything else.

Once you identify the niche you want to get started with you will be able to narrow down your focus, become an expert, network within that niche and begin building wealth by executing your plan of action.

The Most Common Niches

Raw Land

Raw land is nothing more than basic earth. Land may be improved and it may be leased or rented to create cash flow. It can also be subdivided and sold for profit. Some investors buy raw land with hopes (or plans) to sell it to be used in developments like the construction of a freeway or housing developments.

Single-Family Houses

The most common investment for most first-time investors is the single-family home. Single-family homes are relatively easy to rent, sell, and finance. That said, in some areas of the country, the rents from single-family rentals may not be enough to provide positive cash flow

Multifamily Properties: Duplexes, Triplexes & Quads

Small multi-family properties (1-4 units), bought properly, can produce a good amount of cash flow and you’ll often see less competition than when you search for single-family homes. These properties can serve as both a personal residence and a solid investment. One major plus is that most banks evaluate small multifamily properties (less than 5 units) with the same guidelines as single family homes, making it much easier to qualify for the loan.

Small Apartment Buildings

Although the line between small and large apartment buildings is not set in stone, you’ll typically be looking at 5-50 units for a small apartment building. These properties often provide significant cashflow and have less competition because they are too small for big professional real estate trusts to invest in, but are too large for most novice real estate investors. These properties are valued based on the income they bring in, creating an enormous opportunity to add value by increasing rent, decreasing expenses and managing the property effectively.

Large Apartment Buildings

This refers to the large complexes you see that have pools, work-out rooms, full-time staff, etc. These properties can cost millions, but also produce stable returns with minimal involvement. They are often owned by syndications- a group of investors who pool their resources.

Real Estate Investment Trusts

In the most simplistic definition, a REIT is to a real estate property what a mutual find is to a stock. You can buy shares in a REIT via your stock account, and they often have a relatively high dividend payment. This is one of the most hands-off approaches to investing in real estate.

Commercial

Commercial investments vary dramatically in size, style, and purpose, but ultimately will involve a property that is leased to a business. They can provide good cash flow with consistent payments, but also have a much longer holding period during times of vacancies, often sitting empty for many months or years. Unless you are starting from a very solid financial position, investing in commercial real estate is not recommended for beginners.

Mobile Homes

An incredible barrier to entry, mobile homes can be invested in with little money out of pocket. Whether it’s a home in a park or on its own land, you can apply the same strategies you use with single family homes to mobile homes.

Tax Liens & Notes

When homeowners don’t pay their taxes, the property can be foreclosed on and resold to investors for the amount owed, leading to incredibly inexpensive investment properties. Be sure you do your due diligence as tax-liens sales are complicated transactions that require research, knowledge & experience.

Investing in notes is the buying and selling of paper mortgages. When a home is purchased with a loan, a “note” is created explaining the terms of the contract, the owner can choose to sell the mortgage to a note buyer. Just like any other real estate investment, a note will often be sold at a discount when a seller is motivated, you’d then begin collecting the monthly mortgage payments and can keep the note or sell it again in the future.

The Most Common Strategies

Buy and Hold

By FAR our favorite strategy here at Parker Properties, buy-and-hold involves purchasing a property and renting it out for an extended period of time. Among numerous other advantages, the mortgage is paid down each month, decreasing your principal balance and increasing your equity over time.

Ultimately, there is much more to buy-and-hold investing than meets the eye, but if you learn how to evaluate and purchase good deals, have a quality manager, and manage your assets properly, you’ll be on your way to running a massively profitable business as an investor.

Flipping

One of the most popular tactics (due to reality television) is house flipping, buying a piece of real estate at a discount, improving it, and selling it at a profit. Flipping is not a passive activity, it’s more like an active day job. Many investors flip homes to fund their more passive investments.

Wholesaling

Wholesaling involves finding real estate deals, writing a contract to purchase the property, and then selling the contract to another buyer. Generally, a wholesaler never actually owns the property they are selling; instead, they put a deal under contract and sell that contract for an assignment fee. Many investors choose to begin with wholesaling due to its low start-up costs.

Realizing the abundance of options available to you may be overwhelming, but remember – focus on one niche and one strategy at a time. You may use a variety of strategies throughout multiple different niches over the lifetime of your career as an investor. But for now – become an expert at one thing, succeed in one area before taking on others.

Next up in our Insiders Secrets for Buying an Investment Property series is – How to Find the RIGHT Property.  The profits you make as an investor can be made or destroyed at the time of purchase. Learn how to find the RIGHT property next week!