What niche to specialize in?? Please advise!!

Question

Greeting investors!!!

Was wondering if one wanted to make say 250K/year after 4 to 5 years, What niche in real estate should they go after. For example , i heard that is hard to build significant wealth wholesaling. In what areas of real estate can one make  those returns (above 250 K/ yr) ? If there is a hierarchy where in some fields(eg rehabbing, wholesaling, short selling) one is likely to make more money, what order are they in and why. Additionally, if one works 40 hrs a week and makes six figures, and wants to make the above mentioned income after 4 to 5 years, what aspect of real estate should they specialize in. Please advise, thanks.

Vince

Jim Johnson · Answer

Oh... Real Estate Investing is a big phrase and really need some definition. There are really two types of investing (my take). Passive and Active. Even passive investing might have active qualities unless, your in a partnership or REIT or TIC or something were your just cashing checks and reviewing performance data. So after all that... if your making $250,000 large a year your probably more active than passive unless your really hooked into passively investing with a active partner. Confusing. So my take again... I call my self a passive investor, because I buy income property, increase the value by reducing expenses or adding income, and then selling. The selling is the active part, though really managing the properties is active as well. If I just kept the properties, my investing is more passive. So I might have to make a choice, do I sell the property and make $450,000; or do I pocket the $65,000 yearly after debt service? Anyway, my niche involves income properties and CAP rates, its flipping just not single family homes. The catch is, my tenants make my loan payments, and if I buy the property right, the will pay me a pretty penny to own the property for as long as I want to hold it. No pressure selling, as I am good with a 1031 exchange or the monthly cash. I have done the single family buy and flip thing, and it was more work, less money and more like a job. I was making my money 25 or 50 thousand at a crack, could only do one or two at a time and maybe 6 per year... I also had to pay short term capital gains and could not roll into any 1031x properties. I would say to really look at the daily lives of anyone doing what your looking at to see if that is the life your looking for. For me, I can not drive across town to look at a property, its a flight, rental car, hotel and several days away from my family. That might be a downside. If there is a real problem, same story. Probably a much more expensive flight, and there always seems to be problems around Christmas, Thanksgiving or any time you and your family are taking a long vacation. Now when flipping I was visiting job sites several times a week, managing contractors, sub contractors, material runs, budgeting concerns, showings, offers etc... 
In closing let me leave you with this... take a inventory of your skill sets. What do you love to do, what do you do well, what do you suck at, and what do you hate to do... do not short yourself on this exercise take some real time and search yourself. Ask your spouse, significant other and friends to read your list, and comment on it. Then with the benefit of this list, see what your skill sets lead you to. If you know nothing about construction, you might just want paint and carpet flips. If you do not understand how to value property, you better have someone on your team that does. If your not good at books or accounting, hire it out. Dig deep, you have the skills to do something, just make it the right thing. It should be something you like to do and are good at. Fill in the gaps where your weak. Once you have a direction, find peers to bounce ideas off of. Hopefully local people you can sit, look in their eyes and share a coffee with. Know this- in EVERY peer is a mentor as well. They have different skill sets than you do, so use them. Also- and important- let them use you. Lastly, try to find someone that has paid the dues, is active in investing in you niche, and will mentor or partner on you with deals. My mentor in mobile home parks is now my partner, and my mentor, and my peer, and my friend. The cool part is, even on the first deal, I had aspects where I was able to bring things to the table he could not. I was a peer, and little mentor... I still see him as a mentor, but I bring much more to the table today than I did on our first deal. We are clearly more peer to peer, than master to grasshopper.

Good luck, I hope something in this helps...

J Scott · Answer

I'm sure you can make that kind of money in a lot of areas if you work hard enough and smart enough.  And without knowing your personality, your skillset, your time commitment, your location, your goals, etc, it's difficult to say what the *best* way is...

Personally, I love rehabbing/flipping.  I just started a year ago, and was able to make a gross profit of $225K the first year, resulting in over $150K in net income before taxes (all the gory detail is on my blog if you want to know more).

This was without any real estate experience whatsoever.  I could barely change a light-bulb a year ago (okay, I still pretty much can't :).

Given our trajectory, we expect to double those numbers this year pretty easily, and in 4-5 years, hopefully we're making a good bit more than that.

So, I think I'm a good example of the fact that it's really not that difficult to make good money flipping houses if you have strong plan and can execute on it...in fact, my average work week was about 20-30 hours this past year...