How to choose a niche

Question

Hi everyone,

Perhaps a subject beaten to death, but I have a personalized question about how to decide toward what niche I should put my efforts ... in the beginning.

I want to buy-and-hold.  I feel this very personally and very strongly.  However, when just starting out, I've heard other people suggest beginning with wholesaling and to save up some money from those profits.  So I started to look into wholesaling, and it seems like this is not exactly the "easier" route I was led to believe.  In fact, it seems like a ton of work and time to build a good wholesaling business that will produce the profits people say I might need to buy a rental property for myself.

Please understand, I have no problem with hard work.  I have no problem with dedicating the time required to make my business successful.  But I do have a 9-5.

What I'm asking is, if wholesaling requires so much time and effort to become successful (i.e. make enough profit to use for down payments for property), wouldn't I would wind up putting all my spare time (outside of my 9-5, which is actually more of a 5-5) and energy into wholesaling, when what I really want to do is buy-and-hold?  If I bust my a** to become a good wholesaler (which I'm not sure my heart would be in), when do I get into buy-and-hold (which is where I know I belong)?

I'd appreciate any thoughts anyone might have ...

Bill Gulley · Answer

I suggest you not get into real estate with the niche mentality at all. Buy and hold is simply holding property longer term for income and appreciation along with tax benefits, all good, I don't know of may owners who hold properties forever, usually you're looking at 7 to 10 years on a house, you can go much longer in MF and commercial. Reasons to sell; taxes, maintenance, neighborhoods maturing, home plans and amenities become dated and updating may not be viable. So, saying you want to buy and hold really means hold over longer periods but you're still going to be involved in buying, selling, rehab and flipping at some point. You're also going to need to stay on top of financing to leverage your investments for optimum returns and risks assumed.

Folks that think they are going to "just do" some niche don't seem to get it, like saying I only want to know how to drive a subcompact car or I only need to know how to boil eggs I'll never put the effort into making anything else. I know, I'm talking to the wall again.

I "wholesaled" properties before I ever heard the term used by investor types, it's a quick way to dump a property selling to others in the business, it's not the most profitable way for most properties, you're simply leaving money on the table for someone else to make. Having a goal of leaving money on the table seems pretty shallow, but to be really successful in life, just lower your expectations.

Learn to buy what you want and where your primary profit center is advanced, but learn the industry to be flexible and able to profit in any opportunity.   :)

William Hochstedler · Answer

To add to Bill Gulley it's the market that's the niche, not how you approach a deal.  I recommend this order:

• Market knowledge
• Experience
• Specialization

As you learn about your market, the individual properties, neighborhoods, or property types will dictate how you approach them as an investor.  Bringing more tools to the table increases the ways you can make money from an opportunity (particularly if it doesn't conform to a particular premeditated strategy).

I recommend licensing to anyone starting out--as it gives you a baseline education and a degree of immersion into the industry for relatively little cost (less than a weekend with a guru).

Good luck!

Elizabeth Colegrove · Answer

@Nicholas DeLouisa Jr

What is your day job? Honestly I would start from day one in the area that you love. We are buy and hold investors. We both have full time jobs, my husband is active duty military so crazy hours. I work in the commercial and multi-family real estate when we are in an area that I can find work :)

. We got started at 23 and 25 when we were young and poor and still on one professional income, his LTJG pay, which wasn't all the high lol. Oh my gosh I remember feeling so poor. LOL Our first purchase was a single family foreclosure that was a cosmetic mess. In retrospect we got lucky because the VA approved it even though it was basically a cosmetic gutter with great bones and a FANTASTIC neighborhood.

My husband and i completely fixed it up with a little family help in the beginning. Soon after we bought the house I got a terrific job in multi-family/commercial real estate right out of my MBA program. I worked two jobs the first 4 months, since I already had a great tax job. We invested all of my income into 2 pure rentals before we were transferred again.

We use our transient military career to invest in personals because they have

1) cheaper down payment

2) Lower interest rates

We live off of one income (my husband's) using mine when it exists (it can take awhile for me to re-establish myself in a new area) into pure rentals.

Because of our transient life style causing home to be "relevant" to the current set of orders. We are also investment for cash flow in 15 years not now. So we have a very unique busienss plan.

• We don't follow the 1%, 2% or 50% rule
• We invest in appreciating market/rent area
• Invest in Class A properties
• Self-Management- Saving management fees and regaining control
• Low Vacancies - nothing to date

In general we follow the south west airlines model. Smaller margin but operated tighter.

Honestly we "fell" into this model. This wasn't the plan. If you asked me 3 years ago when we bought our first house I would NEVER had told you this was the "plan" we fell into it. Life opened up opportunities and we walked into it. The best thing I can suggest to you is to keep an open mind. Be ready to jump at opportunties.

A thing that alot of friends have done is to have roommates. They will buy a great single family home that will work as a pure rental later. They rent at all the "extra" rooms living rent and utility free. Our friends use the extra money to fund retirement baskets but you could use it to scrounge extra "downpayment" money.

I found biggerpockets a year ago well after my model was on it's way to being developed. There are LOTS of different opinions  on this site. There are "rules" but there are many people who are sucessful following their own rules. Use this website as a "guide". Check out the podcasts, blogs, and forums. Learn from other people's mistakes. Another good resource is peoples signatures. I included have create a website about my model with teh web address in the signature. This provides even more information about people's strategy and niches.

Real Estate investing is like life, everyone has their own path and niche. Create your own, walk it proud and learn from your mistakes because you will make them. Don't feel obligated to follow anyone. Everyone has different talents that let them be succesfful.

FYI I buy all my houses off the mls using a real estate agent. so truly don't do something you don't want to do. The key is babysteps and to get started. Our second deal was better than our first, third better than second , etc. We are always improving add on and complicating our plans.

Nicholas DeLouisa Jr · Answer

Well, I wish I would have read your "play nice" comment before I posted the above.  I'm sure it will have some kind of repercussion :-)

Anyway, I was just speaking to my brother-in-law today and he was saying the exact same thing about finding off-market properties.  I thought his view was a bit narrow, but he said his goal was to try to avoid agents and the mls and other listing places altogether.  But in light of what you said, sounds like he has a good point to make that attempt.  I don't truly understand any of this yet 8-)  I know I have a lot of learning to do.  Thanks for helping out!

Nicholas DeLouisa Jr · Answer

Let's take your ridiculous post point by point.  You seem to feel that when I ask a question and someone chooses to answer that question, I am being arrogant to think that the answer is directed to me personally.  That strikes me as a bit insane.  If you want to speak to thousands of readers inside other people's posts, don't use the word "you" eight times, which specifically addresses the original poster's question/comment.  You might be better served writing a book or posting blogs or even vlogging your stupendous intellectual insights on youtube.

"You're lucky I commented on your topic."  Who's arrogant?

As for the 15000+ other posts, they are not specifically written to/for me.  Neither are they specifically written to/for you.  When people post a question they are searching for an answer.  Sometimes more than one person can have the same question.  So when someone reads a post or a thread in which he/she has yet to participate, it is not rational for them to think that anything in said post/thread was directed specifically at him/her, but that doesn't mean that this reader cannot learn from what is being discussed.

No matter what you may think, say, or do Bill, I'm not on my own.  You are not the only person on the entire planet that knows how to invest in real estate.  If you disappeared tomorrow, the real estate industry and all of these nice people would be just fine without you.

I didn't post anything that is not in good practice.  I asked a question - a question which, by the way, gave you the opportunity to preempt a possibly  incorrect course of action - and you lost your cool.

You seem extremely angry, Bill.  All I did was ask a question and you flipped on me.  Then I asked you not to post in my threads if all you had to say were disparaging things, and you came back with vitriol, threats, and name calling.

This is a giant huge forum, called Bigger Pockets.  It's not called the Bill Gulley Not-So-Happy Hour.

Hattie Dizmond · Answer

Ok boys, let's play nice.  :-)

@Nicholas DeLouisa Jr

Just to make sure I was clear, the marketing I was referring to was for the purpose of finding off-market properties to purchase in support of your strategy.  As @Stephen Fryer mentioned, you could hook up with an experienced Wholesaler and let them handle the marketing and locating of the property.  If you get involved with a local REIA and make sure people know specifically what you're looking for and what areas you would like to target, you'll likely have a lot of options that you don't have to find yourself.

Bill Gulley · Answer

Well, Nich, I addressed your question and suspected being so new you wouldn't catch it, as for the talking to the wall comment, don't be so arrogant to think I was speaking to you on a personal level. I speak to thousands of readers on various topics on this forum, that was not meant for you personally but to the thousands of newbies who have certain biases getting involved in RE. You're lucky I commented on your topic. By the same token, please don't read the 15,000+ posts on this site as they aren't made for you either.  You're on your own, if you post anything that is not in good practice expect me to crush the comment like a New York roach under a combat boot. Follow others, please follow the advice you get on forums from anyone that owns a computer and can spell "real estate" :)

Nicholas DeLouisa Jr · Answer

Other than an agent, ads in the paper/online, or sites like MLS ,or redfin, or realtor, etc., I don't have any other ideas.  Maybe driving around looking for distressed properties? Or flyers on cars in shopping centers that have real estate businesses?  Geez, maybe the obituaries?  I really don't know.  But that referral system sounds like a good idea.  And I suppose I could even use wholesalers to find deals.  Like a symbiotic thing.  Hmm... all good ideas, thanks!

Nicholas DeLouisa Jr · Answer

@Ali Boone, @Elizabeth  C. , @Mark Creason , @Hattie Dizmond , @Greg  Frazier , @Bill Gulley , @Adam Hathaway , @William Hochstedler , @Nilesh Makhija ,

Thank you all so much for your responses.  I apologize for not getting back right away, had some family stuff to attend to.

All great info, I appreciate it.

Bill Gulley, it's not about "not getting it."  It's not like I've read a dozen books or a hundred posts that advocate the type of diversification you're speaking about.  I was asking about a niche because there are many many adamant experienced people in the BP world that suggest one of the first steps to getting into REI is to pick a niche and become an expert in it; ditto a market.  That's why I was confused when other people suggest, "hey, do this other thing for a while, and then hope it leads to what you want."  These are contradictory ideas and I needed a bit of clarity.  As far as buy-and-hold forever, I have no intention of doing so.  My current plan is to pick up some small MF properties, save their profits, and then trade up.  Rinse and repeat.  And as for talking to the wall, if you really believe that, then I would thank you not to respond to my posts anymore.

Nilesh Makhija, my brother-in-law is doing this very thing.  He plans to flip to build some capital for his eventual buy-and-hold plans.  As of right now, I am considering this option as well.

Mark Creason, I have yet to educate myself on the tax issues at hand, but to be sure I had never heard of phantom income.  Interesting subject.  As soon as I decide on an accountant I will have to ask about it.

William, Hochstedler, I will be posting a question about licensing in the near future.  It's a topic of conversation in my household, and we do need some clarification.

Elizabeth C., thank you for your encouragement.  I don't feel like I have to follow anyone in particular, but it's nice to hear from people who are doing what I want to do and are successful at it.  The good and the bad stories are all informative.

Hattie Dizmond, I've heard other people talk about marketing, but it's a subject to which I hadn't given much thought.  As a new person, the idea of marketing was in my head as something the agent's take care of.  Then I learned about having to market for vacant units, which seemed obvious and I knew I could do it, but then I heard that a property management company would take care of that (in the larger properties).  I really hadn't even considered having to, I guess, market myself, get out there and kind of hawk my business.  Definitely something I will be researching, thank you.

Adam Hathaway, thanks for the suggestions.  It's interesting you mention the idea of being paid to learn the ropes.  I was considering getting my license for the same reason!

To everyone who responded, thanks again for taking the time to do so.

How to choose a niche

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