Real Estate Investment Niche

There are a lot of ways one make money in the business of RE investing. As an investor, one needs to understand different type of investment niches and explore the one that they would like to get into. Below is the high level info on common property types that one is likely to deal with.

Raw Land

As the name suggests, it’s another form of saying basic earth. Land can be improved to add value or it can be leased to create cash flow (eg parking lot, solar farm etc). It can also be subdivided and sold for profit. One can also buy raw land and wait for the value to increase with time due to external developments like construction of infrastructure in near vicinity or development being built nearby.

Single Family Homes

This is go-to investment for most first time investors as it is easy to rent, easy to sell and easy to finance. It can be bought with conventional mortgage and not using advanced strategies. However, the rents derived from such investments won’t always be enough to provide positive cash flow.

Duplex/Triple/Quads

Small multifamily properties (2-4 units) can provide the benefits of single family financing and if bought well can provide great cash flow. There is often less competition for these type of investments as you don’t run across first time home buyers but only investors. For a smart investor, this can serve as both primary residence and a solid investment.

Small Apartments

These are above 5 units and generally below 50. These properties are more difficult to finance than single family homes or 2-4 unit properties as they are based on commercial lending standards instead of residential ones. These also need significant more management expertise but can provide great cash flow. There is generally less competition for this property type as they are too small for REITs to invest in and too large for novice real estate investors. One another thing to note is that the value of these properties is based on the income they bring in and not on the comps like in residential market. This means one can add value to these investments if they can add value by increasing rent and decreasing expenses by having good management practice.

Large Apartments

These properties refer to large complexes with pools, work-out rooms, full time staff etc. Many such apartment buildings are owned by syndications where small group of investors pool their resources to purchase these many million dollars of properties.

Commercial

These vary in size, style and purpose. These often provide good cash flow, consistent payments and peace of mind when occupied. However, they also tend to have longer holding periods during vacancies. This can eat up all your profits and negative cash flow and hence not recommended for beginners.

Mobile Homes

This is a generally a home in a mobile home park. These can have tremendous cash flow with little capital investments.

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