What Is Your Investing Niche?
Regardless if you close a deal a month or a handful a year it is important to have a specific investing niche. Many investors think that being a jack of all trades and investing in numerous different areas of the business is a hidden key to a strong portfolio. While this is true over time you need to plant your flag somewhere and find something that works. Without a bread and butter niche to rely on you will simply bounce around from deal to deal without any real direction. You may close a few random deals, but you won’t be able to build a sustainable business.
Your investing niche could be developing raw land or focusing solely on tax lien auctions. It can be developing large apartment buildings or sticking to single family rentals. It is not cliché to say that there is truly a niche for every type of investor. As long as you are passionate about it and are willing to become an expert you can be successful in whatever niche you follow. Here are some examples of potential investing niches.
Single family rehabs. If you are a real estate investor in 2018 there is a good chance you dabble in rehabs and flips. Without question this is currently the most popular form of investing today. As popular as it may be, it doesn’t mean it is for every investor. Not only do you need to find discounted properties, but you need to do the right work, follow a tight schedule and a strict budget. There is plenty of upside in house flipping but only if you know what you are doing. With the recent influx of competition, it is important to have a backup niche if your market has become oversaturated.
Multifamily rentals. There is an almost natural progression for rental property owners. Most start out self-managing their single-family property and over time explore the option of adding additional units. In most cases owning a three or four family property delivers a greater return on investment in relation to a single family, yet this niche remains largely untapped. Many owners are apprehensive about managing the additional units. Additional units don’t mean additional headaches. In fact, the extra units provide a layer of protection with more rents coming in. With additional rents it makes it easier to justify hiring a dedicated property manager, making your life even easier.
Tax lien auctions. The key to being a successful real estate investor is finding deals with reduced competition. This isn’t to say that tax liens are an untapped niche, but they can provide a unique opportunity. A tax lien auction is similar to a property auction in some respects but also has several unique qualities. For instance, the winner of a tax lien auction receives the tax lien, not necessarily the property. This may eventually lead to the property, but worse case is a guaranteed return. Popularity in tax liens has slowly started to spread but is still a niche with reduced competition.
Mobile homes. When most investors consider mobile home investing they think of large vehicles that can be taken on the road. In reality, investing in a mobile, or modular home, is very much like investing in a condominium. A mobile home community features some of the same perks and amenities as the average condo complex. The biggest difference is the size of the units. The reduced size also comes with a reduced price tag which can make it an ideal niche for someone looking to invest their own funds on a budget. The percentage gains for some mobile home flips rival that of single family homes in the market, but with much less competition.
Commercial buildings. A commercial building is any property with five or more units, including mixed use and retail. It can mean a pizza shop with an in-law apartment upstairs or a twenty-five-unit retail space. Commercial purchases are typically intimidating, but in many respects are the same as any other purchase. The biggest difference with commercial buildings is that they are based more rents received and formulas rather than value. All it takes is one prime commercial building to set your portfolio up for years to come.
Land. If you are looking for a blank canvas to build, raw land is what you are after. There are some definite hurdles and drawbacks investing in land, but the returns are generally worth the headache. Raw land alone is not where the value is, but rather what you do with the land. Building any type of structure takes time, money and resources but in the right location can be a legitimate home run.
By associating yourself with a niche not only will you know what to look for, but you will find yourself with more opportunities. People in your market will know that you are an expert and associate you with the niche. If there is a deal in the niche they may give you the first crack at it. Additionally, you will know which deals are an automatic pass and which to pursue, saving yourself hours of time and effort. If you are interested in a niche you should give yourself every opportunity to pursue it. Not only will you enjoy the business more, but you will see the impact on your bottom line.