Real Estate Investment: What’s The Right Niche For You?
One of the key questions to ask yourself when it comes to a real estate investment is, which type of property is best for your individual portfolio growth? There are many to choose from. Some investors diversify themselves across multiple niches. Others are adamant fans of just one type of property and strategy.
Here are some of the pros and cons of each, so you can decide for yourself…
Single-family housing is one of the most popular ways to invest in real estate today. It is easier to acquire and sometimes it is easier to purchase without the need for financing. It used to be primarily the domain of small individual investors but has grown to be a top choice for some of the largest funds too.
- Largest amount of inventory
- Largest number of resale buyers
- Easiest for individual investors to tackle by themselves
- Most understood type of property
- Large amounts of competition
- Vacancy can hit hard if you only own a couple of units
- Property management
- High cost of improvements per unit
Multifamily housing includes quads and any type of property that includes more than one unit. There can be a wide divide in size and cost. It can range from a small 15 unit single apartment building to a 1000 unit apartment complex and everything in between.
- Large demand for rental housing
- Efficiency in property management
- Lower cost per unit
- Higher ROI on improvements made
- Competition from capital-rich investors
- Requires daily property management
- May require more money or financing to buy and manage
- Smaller resale market than single-family homes
Commercial Real Estate
Commercial real estate encompasses a variety of sub-sectors and niches including; office, retail, medical, hospitality, industrial, and mixed-use.
- Control over asset value through repositioning
- Ability to obtain non-recourse financing
- Prestige and pride of ownership
- Benefits for personal use for your own business
- Limited resale market
- High level of professional management required
- Least understood by most investors
- Most likely to be impacted by economic changes and industry disruption
When you stack up and compare real estate investment niches like this, each has its pros and cons. Each also has a variety of deeper niches possible. In single-family, you can focus on individual homes or condos, and in specific areas. Multifamily real estate can range from local rentals to specialized lofts or apartments for vacation rentals or hi-tech professionals. Commercial property could include warehouses, local strip malls, or boutique hotels.
What is important is that investors understand the differences. By selecting the optimal type based on your current circumstances and goals, you have a greater opportunity for success. Later you can add in other niches and diversify. Finally, recognize that there are various strategies for engaging in each of these niches too. You could go it alone, find a partner, be a private lender, flip them, or hold them for long-term cash flow and capital gains.