18 Jan The Importance of Finding Your Niche in Real Estate Investing
The Importance of Finding Your Niche in Real Estate Investing
When we all start learning about real estate investing, everything looks amazing. We learn about buy-and-holds, Rent-to-Owns, wholesaling, sandwich leases, agreement for sales, fix-and-flips, and the list goes on. There are so many different ways to generate wealth from real estate that as a new investor, you want to learn it all and do it all. I know the feeling because I was there. I was so pumped full of energy and enthusiasm, and I was so sure of my ability to follow through that I could practically smell the new leather seats on my future private jet. Then this unpleasant thing called reality punches me in the face and I come to the sobering realization that I only have so much time and I really can’t do it all. This is where I realized the importance of finding out what I’m good at; what I actually like doing, and focusing on that.
It is important to find out what type of investing you prefer and focus on that. Some of the greatest investors in the world aren’t great because they have no weaknesses, they’re great because they know their strengths and find situations where the game is stacked in their favor. You should be no different. Let’s face it–you’re not going to be able to do everything, or at least not everything well, so why not just find one or two areas you’re really good at and just kill it? For example, if you’re good at renovations and don’t have a lot of money, then a fix and flip might be a good strategy for you. On the other hand, if you have a lot of capital and don’t want to do a lot of work, then buy and hold is a good choice. As much as Happy Gilmore wanted to play hockey, golf was his game. Find your own niche.
Here, I’d like to share a quick story about how I found my niche and decided to run with it. When I first started, I nearly fell into the price trap. I had already bought one property at that point–a single, detached home in Edmonton, in a new neighborhood that was a new build. I had some solid, freshly graduated engineers renting from me at that point so everything was good. I wanted to buy my next home, but I was pretty strapped for cash, so I started looking in more affordable areas of Edmonton. By affordable, I mean questionable. Great places if you’re looking for a bar fight or to get caught up in a drug deal while going for a walk at night.
However, property prices were cheap. We’re talking low-to-mid $200’s for a detached home at the time, compared to the $400+ paid for my first property, so it looked very attractive from a numbers perspective. I hadn’t really thought about tenant profiles at that point, but thankfully my dad and a couple of investors I’d chatted with convinced me places like those were more trouble than they were worth. In retrospect, I am infinitely grateful and have them to thank for coming this far in my investing career. If I had bought one of those properties, and knowing my personal bullshit limit, I would’ve thrown in the towel a long time ago.
Things really clicked when I bought my second property close to my first – with joint-venture partners this time — and witnessed for myself how the property you have attracts the tenants for whom you’re looking. Due to a higher mortgage, we naturally had to price our rent pretty high to make sure the cashflow worked, but as a result of higher rents, it automatically filtered out any low-income tenants. And since this was a new property, it attracted individuals and young families who had good incomes and preferred a newer product–in other words, mostly young professionals. I’ve been focused on this type of investment property ever since. Other perks which come with this strategy are very low maintenance costs, as everything is new, and very little tenant management, as the tenants are typically less needy. The one downside is higher up-front costs, but in my opinion, this is totally worth it. Not to say this strategy is for everyone, but if you’re like me (lazy with a low bullshit limit) then it’s definitely something to consider.
So, the bottom line is to do what works best for you. In fact, do it until it’s boring because that’s when you know that you’re an expert. When that happens, then you know you’re ready to learn and master the next shiny object.
– Phil Wong