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Determining A Real Estate Investing Niche

Updated on July 7, 2014

Surveying the Terrain of Real Estate Investing

You have decided that real estate investing is an activity or business worth pursuing. You have been watching others enter into the action of buying, rehabing, renting, or selling properties, and you do not want to be left behind. But Wait! Take the time to survey the terrain of real estate investing. Consider with a bird's eye view such factors as the economic environment impacting your real estate investing activities. The economy at best could be described as challenging for individuals, communities, cities, states, our government, and the world.

A real estate investor would be wise to identify those factors and apply them to their investing activites. Real estate investing covers a vast array of specialty areas within the activities of buying, renting, and selling real estate. Real estate investing can involve real property, financing, exchange of notes, tax certificates, tax deeds, and other forms of investment.

A serious investor of real estate, will take the time to explore the terrain of the real estate market, in today's challenging economic environment. Looking within yourself, make a determination of your interests, strengths, comfort with risks. As you familiarize yourself with the needs apparent in your market place, identify a need you could meet in an area of interest.

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Turning Challenges To Opportunities In Real Estate Investing

Factors In Selecting A Real Estate Investing Niche

There are a vast array of real estate investment niches that are suitable in a challenging economy. The challenges facing our economy include consumer and governmental debt, high unemployment, and a generally depressed economy. Housing values have or are dropping in many areas of the country. Foreclosures on real estate have been high around the nation. When surveying economic trends that appear to be pointing downward, one might ask if real estate investing is a wise choice. There will be others that consider the current state of the economy to be ideal for real estate investing.

The selection of your real estate investing niche(s) should take into account the current state of the economy, factors that lead to state of the economy, and the needs that have been created by the state of the economy. Real estate investing experienced a bubble of growth in the 1990's that few expected to burst. Real estate markets, the stock market, and many major companies toppled; contributing to a declining economy. The most unpleasant aftermath of the economic decline has been the high level of consumer debt and governmental debt.

Real estate investment financing in the 1980's and 1990's utilized a great deal of creative financing, utilizing other people's money. If managed correctly creative financing can be an effective strategy for real estate investors even in the current economy. I often wonder how many of those foreclosed properties belonged to over-extended real estate investors.

Collective debt, both consumer and governmental are factors that will affect every real estate investor. Debt occurs when we spend more than we earn; it occurs when we take on alligators that we are unable to sustain. For the real estate investor, great care should be taken when determining a profitable real estate niche. Identifying profitable financial strategies to fund real estate deals is more important now then ever.

There are many real estate investing niches to choose from in the areas of buying, selling, financing, and non-traditional investing. The selection of an area of special interest should reflect your investing goals, strengths, and niche fit. The niche(s) you select for your real estate investing activities should also take into account the actual needs of your market place. Every market place is not the same; an investor will be more successful as they meet needs in their target market. A real estate investor's profitability will be enhanced, as they incorporate the most flexible, and cost effective financing strategies, for their investments.

A clear and comprehensive business plan can help a real estate investor effectively navigate the vast array of real estate investment niches. An investor needs to be clear about their personal interests (niche fit), strengths/weaknesses, investment goals, and their comfort with risk taking.

Real estate investing niches should be selected to meet the needs of your market place. The real estate investor should strive to meet the needs of their target market, through their selected investment niches, using financially profitable funding strategies.

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Real Estate Investing - Buying

Real Estate Buying Niches

Today's real estate market has been called "a buyer's market". The price of real estate has dropped dramatically in most areas of the country. There appears to be a recent slowing in price drops but the recovery is expected to be slow. This gives buyers a decided advantage across many venues of real estate. Real estate investing niches in buying include residential and commercial rentals, auctions, foreclosures, REO's, short sales, mobile homes, RV parks, rehabbing, bulk purchasing, wholesaling, and other real estate buying niches.

You the real estate investor will ultimately determine your investment goals and strategies. Your plan needs to reflect the needs of people in our current economy. Many are struggling with high unemployment, falling behind on mortgage payments, owing more on their properties than what they are worth, and the inability to obtain conventional financing for buying or selling.

This has produced a growing demand for rentals and affordable homes for those wishing to buy. An investor makes their true profit after a successful purchase of real estate, when they sell a property they realize the profit. Buying strategies that worked during the housing boom will not work in this economy, as property values have dropped significantly, and continue to do so in many communities. Real estate investors will need to focus on buying niches that result in profits and limit risks.

Residential and commercial rentals are excellent investment niches in the current down economy. Many people are turning to rental property as it is more affordable, more flexible, and offers more financial safety. There are pros and cons that a real estate investor has to consider with real estate rentals. The benfits include depreciation, tax write-offs for expenses and losses, passive monthly income, and more stability than the stock market. The cons include late rent payments, vacancy with loss of passive income, property damages, legal issues with tenants, and ongoing maintenance costs. If an investor is not up to dealing with these type of issues, a property management company could be added to their real restate investing team.

Attending real estate auctions, buying foreclosures, short sales, REO's (bank owned properties) are powerful niches that investors can use to leverage buying power. Rehabbing properties works particularly well in a depressed economy. A trend is developing to buy bulk purchases of properties at greatly reduced prices.

Other real estate buying niches include purchasing mortgage notes, property management, self storage, tax lien sales, and tax deed sales. These are examples of buying niches in real estate, and each should be researched for your market place. We will be covering in more detail some of the buying niches that work in a slow economy.

Wholesaling : Foundational Spring Board For Buying

Flipping & Rehabbing Wholesale Real Estate

Wholesaling is a buying niche that is ideal for the beginning or seasoned real estate investor. It allows a beginning investor or those with limited funds, to enter the real estate investment arena without using cash or credit. This niche, or area of special interest, allows all investors to maximize their profits during the buying phase. Wholesaling is a strategy that can be successfully combined with other buying strategies, to multiply a real estate investor's bottom line.

The process of wholesaling involves three basic steps. First, locate distressed properties that are well below market value, and are in need of repairs. Second, do not make any repairs to the property. Third, locate real estate investors who are interested in/successful at flipping or rehabbing profitable properties. This strategy would work well for an investor with a short term goal of generating cash now, to cover personal expenditures and build their investment war chest.

For this process to work smoothly the investor needs to have buyers in place, or have a plan for identifying these flippers or rehabbers. Becoming involved with a local REI Club provides access to a ready source of buyers/investors. Partnering with real estate agents, brokers, and other real estate professionals can also give you access to investors. You could also try an advertising campaign to establish a buyer's list.

Finding the right properties that will fit your buying goals is also important. It has to be acquired using a pre-established MAO (maximum allowable offer), that will allow all investing parties to make a profit. Therefore, the distressed property that is in need of repairs, on average should have a discounted rate of at least 70% under FMV (fair market value) after repairs. This discounted rate used to be higher, but this could make it more difficult for an investor to find an end buyer in the current economy.

A real estate investor might ask: Where in the world am I going to find properties that meet those kind of criterior? Well unfortunately there are a large number of underwater properties throughout the nation that are in distress. The owner will typically owe more on the mortgage than the value of the property. An investor desiring to be a part of the solution, could actually utilize the strategy of wholesaling to prevent foreclosures. The property could be flipped to another buying investor, and this could include a relative or friend. A lease option could be offered to the seller, to keep them in their home if desired.

The real estate investor could also meet with seller, get property under contract, and offer seller lease option opportunity. This strategy of wholesaling, in combination of rehabbing and offering lease option to seller, provides a ready residual income to the buyer (investor). A buyer opting to hold a property for rehabbing, would do well to have a rehab team available to complete cost effective repairs. The buyer could save even more money if they are able to complete most of the needed repairs. If seller does not wish to remain connected to property, buyer could negotiate for an owner financed contract. These are win, win situations using wholesaling as a foundational niche.

Wholesale Buying of REO's, Foreclosures, and Non-Performing Notes

Working With Gate Keepers To Locate Below Market Investments

Locating a ready supply of below market real estate and deeply discounted notes is facilitated by accessing the resource gate keepers.

REO's, foreclosures, and non-performing mortgages (notes) represent exceptional buying opportunities for investors. REO's are bank owned real estate as a result of owner default on mortgage. Foreclosure is legal process of blocking owner's right to property as a result of their default on mortgage. A non-performing mortgage is a breech in payment or performance agreement, resulting in a lien against a property. Banks and other lending institutions are in the business of making loans. They have no desire to hold borrower's property or mortgage notes.

Although these institutions do not want these non-performing assets, getting to the right person or information can be a challenge. An investor may be able to directly access gate keeper's or asset managers at a bank or other lending facility.

Online resources such as Linked In, can also provide an investor access to real estate professionals. Utilizing the Linked In search engine, enter keywords "asset manager", "portfolio manager", institution, name, location, or other indicators. This should bring up a large data base of contacts, that can be reached by email, or telephone.

Investors need to obtain information on paperwork and other requirements for completion of the investment being pursued. Become familiar with the process of investing in area of interest. Involvement with local real estate investment clubs or online information sites, can help to broaden an investor's knowledge on successful buying strategies.

Applying basic principles of wholesaling with other profitable buying niches will position a real estate investor to more successful buying and selling. The investor makes their profit follwing a successsful purchase, and realizes the profit when the property is sold or held for residual income. This will be a buyer's market for sometime, so master the art of buying.

Wholesaling Strategies For 2012 - Video on Flipping, Wholesaling, and Other Creative Buying Strategies

Short Sales and Private Money Lending

Becoming Part of the Solution For Sellers & Buyers

Short Sales are a very profitable niche in down economies, when housing prices are depressed. The name of this buying strategy can be somewhat misleading, as the process can take between 4 months to a year to complete. It is called a "Short Sale" because the real estate investor is "shorting" the existing bank note in exchange for a fast cash sale.

Typically, the seller of the property is behind on payments; they owe more than the property is worth; and the seller is unable to sell the property using conventional methods. A Short Sale is a preferred option to foreclosure. The investing buyer is helping the property owner to preserve their credit.

Short Sales process has strengths and weaknesses. Pros of Short Sales is that there are a large number of properties that have mortgages that exceed the value of the property. The cons of Short Sales include the length of time required to complete the process; the paperwork involved; and the challenges with successful completion. It can also be difficult to get a buyer to flip the Short Sale to as traditional funding is hard to obtain.

An investing buyer could position themselves to become a Private Money Lender. Building your investment funds by wholesaling and other methods using little or none of your own funds or credit can make this a possibility. An investor can do well in Short Sales if they possess patience, organizational skills, negotiation skills, and discipline.

Combining Short Sales and Private Money Lending services is a very powerful niche for an investor to master. This would allow them to become a part of the solution for many distressed home owners and other investors/buyers.

Thank you to all visitors, your comments are welcome. I will attempt to respond to your comments or questions. Please feel free to offer comments or ask questions.

Real Estate Investor Communication Board

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      WORTHUNLIMITEDACCOUNT 5 years ago

      Great lense on Real estate,most people dont understand how money works.You are correct about the Debt with consumers & government.My business is helping people get out of Debt,check out my Lense!

    • bbires profile image
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      bbires 5 years ago

      @squid-pinkchic18: Thank you for visiting my lens; glad you found it helpful.

    • squid-pinkchic18 profile image

      squid-pinkchic18 5 years ago

      Very interesting lens! I learned a lot here. Thank you!

    • bbires profile image
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      bbires 5 years ago

      @chrisurso: Thank you for visiting my lenses.

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      chrisurso 5 years ago

      More really good info! Thank you.