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Finding Your Niche as a Real Estate Investor
The growth of the housing market makes it a good time to invest in real estate. Demand is high, and more people are looking to rent or buy property. Commercial real estate is also on the uptick, with changing office needs, industrial real estate trends, and other factors accelerating growth in certain markets.
However, it’s best to focus on a specific industry or demographic to help you to thrive in a competitive market. The following tips will help you navigate the vast world of a real estate investor and settle in on the avenues that will be best for your business growth.
Why You Need to Find Your Niche
One of the benefits of specializing is you gain expertise. You will know more about the properties than other investors, which will give you an edge over the competition. Also, marketing yourself as an expert will make sellers feel more comfortable. This can help you secure a better deal.
Once you invest in a few properties in your niche, you’ll build up a name for yourself. This will help you make network connections and become the go-to person for that market. Networking is critical to real estate success, and the better known you are for specialized expertise, the more opportunities you will access.
Tips for Finding Your Specialty
With these benefits in mind, it’s time to figure out the best niche for you. The first thing you want to do is define your goals. Consider what you want to gain from the investment. This may include receiving immediate financial gain or earning passive income. Once your goals are in place, pick an investing strategy. This can help you narrow down your niche options. For example, if you want to attract long-term tenants, then buy residential properties.
The next step is to research the options available. You can search online or talk to a real estate professional. Focus on key demographics or a specific geographic region to narrow down your search and carefully weigh the pros and cons of each option.
Finally, you’ll need to determine your funding strategy. Real estate is a reliable business, but purchasing properties does require upfront costs that most investors won’t be able to — or want to — generate from personal savings. Small business loans and investors or business partners can help new real estate investors get off the ground and begin a portfolio.
Top Real Estate Investor Niches to Consider
After you have a plan in place, here are some common niche markets you should look into.
1. Single Family Homes
These homes are constructed on-site and are built on their own lot. They became more popular for pandemic buyers wanting their own space. In 2019, 44 million people lived in rented single-family homes. Investing in these properties can also be cost-effective because they tend to be cheaper than other properties and appreciate quicker.
Another benefit is that the tenants are more stable. They usually stay longer, resulting in lower turnover rates. Also, these residents are more likely to tend to their yard and pay rent on time.
These properties are also easier to maintain because, with fewer tenants, less upkeep is required. Also, you usually don’t have to pay for certain utilities, such as water.
These are similar to single-family homes and have their own residential lot, except they have two attached living spaces. These residences typically have one household living in each unit. Investing in these properties produces a steady cash flow. One of the key advantages is if a vacancy occurs, you can still receive income from the other tenants. With this stable generation of cash, lenders are likely to give you better deals.
Finally, for the budding investor, buying duplexes can allow you to diversify your real estate portfolio faster. This is because you save time by working with one seller instead of multiple.
3. Apartment Buildings
Apartments are popular choices for recent graduates and singles. Investing in one can provide you with a recurring rental income. Also, you can increase your rental prices due to the higher demand for properties. In 2021, rental costs rose 2.5% from June to July. Plus, you prevent the risk of having a complete vacancy.
You can also find easy ways to entice renters by supplying extra amenities, such as more parking spaces. You can take advantage of certain tax benefits to lower expenses, such as deducting costs associated with maintaining the property. Some of these may include mortgage interest rates, operating costs, or repairs.
4. Self-Storage Spaces
People are looking to settle in suburban areas as remote work becomes more popular, and they need places to house their belongings. Also, those creating office space in their home may need to relocate items to storage units. Investing in self-storage areas requires minimal maintenance since technology allows these facilities to operate mostly independently. They also tend to have low building and construction costs.
However, this is different from investing in a residential property, which is why it’s vital to develop an investment strategy and speak with lenders early on. Commercial real estate can have a steeper learning curve, but specializing in this way can lead to fruitful opportunities in growing markets.
5. Warehouse Centers
Warehouses are a popular market thanks to the growth in online shopping. Many stores rely on these spaces to process digital orders and stock inventory. In fact, retail e-commerce sales were estimated to be $222.5 billion for the second quarter of 2021.
One of the main reasons to invest in this type of property is high-income potential. E-commerce growth does not appear to be slowing down in the near future, and as more retailers invest in warehouse operations, specialized real estate investors will find this to be a smart avenue for growth.
Find the Right Real Estate Investment Opportunities
Investing in real estate can be a lucrative process. However, you want to make sure to research and specialize in one area. Follow these tips to find your niche and stand out from the crowd.
Evelyn Long is a writer and editor focused on home building and construction. She is the co-founder of Renovated, a web magazine for the home industry.