In the first ARTICLE, I laid out the seven steps to achieving success in real estate. I expanded upon the first two steps, and my goal here is to dive into the next three steps: Niche, Network and Analysis. Let me recap the Seven Steps (actually, I included an extra one).
What does it mean to choose a niche in real estate? Most newbie investors, myself included, become overwhelmed with the choices and strategies available in real estate. I often compare it to being in line at a buffet, with countless tempting choices in front of us. But, as we all know, some choices are far superior than others. I am not here to tell you which choice is better. I am only here to tell you to pick one, focus all of your energies on that choice, master that niche, and then begin to invest exclusively in that niche.
Some investors may have no capital to begin their investing. Wholesaling may be their best option to jump into real estate. My recommendation would be to master the wholesaling platform, crush it, and then and only then, consider another strategy.
My reason for this stern recommendation is simple. It is easier to hit a target that you are focused upon, one that has all of your energy and attention. When you first begin a new venture, it is vital that you master all of the basics. Does anyone expect a new driver to jump into a Porsche and begin driving 100 miles per hour? The end result is not going to be pretty.
Choose a niche that relates to your personal situation. For instance, my goal in real estate was to create passive income and generate wealth. I knew that buy and hold, specifically multifamily properties, would propel me to success. I never considered fix and flip, or purchasing single-family homes because these strategies were not consistent with my goal. Once I chose my niche, I searched for a mentor who was teaching multifamily investing, and I dedicated myself to learning everything in the space.
Is it no wonder that some of the richest investors in the world adhere to this principle. Take Warren Buffet as an example. His advice is not to diversify, not to put all of your eggs into different baskets. Mr. Buffet is a value investor, and has created an amazing company maintaining this discipline. Once you become a master, the deals start coming to you.
Real estate, like so many other businesses, is all about the relationships you develop. It has become easier to network in this day and age due to the Internet and social media platforms. Sites, such as LinkedIn, allow you to seek out the decision maker of a company in a matter of minutes. But what do you do once you make the connection?
I recorded a podcast with Alex Franks on the subject of networking and his insight is invaluable. Click HERE! to listen to the podcast. Some keys to networking are:
Don’t be afraid to tell people what you do for a living. I have memorized a short elevator speech that gives a concise description of what I can offer potential prospects and how I can add value to their lives.
Finally, try to enjoy networking and don’t view it as a job. People can sense if you’re faking it, or if you’re in it for your own personal intentions. Choose events that you will enjoy. My favorite is taking people out to lunch, where I feel the setting is more intimate yet casual.
It took me a long time to learn this particular step, and once I did, my investing career took off. Real estate is all about the numbers. If the numbers don’t work, move onto the next deal. Early on, I would fall in love with a property, and convince myself that I could make the numbers work. Avoid this huge mistake by approaching real estate as a business.
In multifamily investing, I focus on three specific benchmarks: Cash on Cash, Debt Coverage and Cap Rate. Once the property can be acquired by satisfying these benchmarks, I further analyze the property to see if there are any value adds to the asset, such as raising rents or lowering expenses. I only purchase a property based on actual numbers, specifically the last twelve months of performance, and expect a 10% Cash on Cash, a 1.2 Debt Coverage Ratio or higher and an 8 Cap.
It is no different in other niches in real estate. When a fix and flipper is buying a home, he has to perform an after repair market value of the property to estimate his profit. A wholesaler needs to know current market values before putting a deal under contract. Not knowing market value will lead to failure in real estate.
Current market conditions are making it more difficult to locate these deals, but I have learned to be disciplined in the buying process. All savvy investors understand that you make money when you buy in real estate. When analyzing multifamily real estate, there are other amazing benefits that are often overlooked. I wrote an article on Bigger Pockets highlighting these benefits. Click Benefits! to read.
Decide what you want real estate to provide for you. Choose a niche based on your needs and goals. Seek a mentor or coach to assist in your education. Next, get out there and start networking with individuals in your niche. Finally, begin to analyze deals based on actual numbers and remain disciplined throughout the buying process.
Let me know if you have chosen multifamily investing as your niche and why!