Starting out real estate investing is like going to a chocolate shop. A chocolate shop offers you a wide variety of chocolate for chocolate lovers. A chocolate lover like my daughter could easily spend more money than planned because she had not decided on the kind of chocolate she wants.
That is why I recommend that you choose a niche once you decide to start investing in real estate. Remember that the first step in real estate investing is real estate education
There are several categories of real estate investing you can invest your money
Here are the types of real estate you can start investing your money
- Residential real estate
- Commercial real estate
- Raw land
- Retail real estate
- Mixed use real estate
- Real estate investment trust
The majority of beginners, real estate investors, start investing in residential real estate
Why residential property? Residential properties are easier to buy and initial start-up capital for investing is cheap.
For example, you can buy a property with as little as $5000 in down payment and get a mortgage for the rest of the asking price
You need to choose a niche you’ll be investing in residential real estate because there are several categories of property. Remember the story of the chocolate shop I told you earlier on…
You see in a chocolate shop you can have …dark chocolate. White chocolate. You also have chocolate with Mixed nuts…nougat, caramel, and Waffles… at the end of the day you have to decide what type of chocolate you want to buy
Just like you have subtypes of chocolate…that is how you also have categories of residential real estate
You have the residential real estate that is…single family, duplexes, triplexes, 4 unit, small multifamily units (6-25 units) and large multifamily units. These residential properties have their pros and cons.
The key to choosing a niche you want to invest is doing your homework about them. Then assessing whether investing in residential properties fits into your objective of building wealth
I started investing in single-family residential properties 15 years ago because the start up capital was affordable. I also had the experience of buying my own home and a good credit score.
In hindsight, I was glad I started out my real estate career with single-family properties. I made mistakes with the first property that were costly.
The mistakes learned from my first attempt at investing in real estate investing helped build a profitable residential property portfolio.
The other benefit of choosing a niche in residential real estate is that you can focus on learning and mastering your niche.
How do you choose a niche? This is the question many novice investors ask me. The answer is simple.
You need to first of all study the types of real estate available in your area. Next find out if these types of real estate meet your investing objectives. You then ask experienced investors what you need to start investing in that niche of residential real estate that you like.
Finally ask yourself this question? Will I enjoy being an investor in residential properties for the long term?
Now that you have chosen your niche…the next thing you want to determine is your strategy.
There are two types of strategy you can decide on: The first is buying and holding properties. Or buy and flipping properties
The key to choosing a strategy for investing in real estate depends on your investing objective.
For example, if your investing objective in real estate is to earn active income then the buy and flip strategy is the right strategy for you.
Flipping properties could generate substantial income stream for you when you take time to master the art of flipping
On the other hand, if you are interested in building wealth and passive income…then buying and holding real estate is your best strategy
I am a buy and hold investor in residential real estate because my long-term objective is to build wealth. I have started looking into buying and flipping properties in order to add to my other income streams
In summary when you are starting out in real estate investing you need to invest in your education. Then choose a niche and strategy for investing in real estate.
In choosing a niche and a strategy in real estate investing you need to be clear about your investing goals