Let’s face it. There are thousands of duplexes, or single-family homes you could buy out there.
There are a ton of hard money lenders, bankers and private lenders out there that would give you the money to buy them.
So why haven’t you done it?
Well, some of you have, and maybe you have a thousand units. If not, then you’re like me.
Anybody can search the MLS and buy a rental. But you don’t want to be just an average real estate investor. You want to be above-average!
Anybody can get good returns…
you want GREAT returns!
This article will cover some unique competitive advantages (or niches) that every landlord could develop and profit from.
Let’s look at some of my favorite ways to create a competitive advantage as a landlord and investor.
1. Seek a Defined Type of Property, in a Defined Area
I almost exclusively go after small 2-5 unit multifamily properties, in the 37405 zip code. This is my niche. For anyone reading this, a similar niche would be a duplex to quadplex in a very nice and stable area.
In my city, the most expensive area code is also 37405. If you are thinking, “doesn’t that mean the cap-rate is probably low due to it being in a nice area“, you would be correct.
My business partner and I made a choice to avoid the war-zone, where you can get 30% cap-rates, but get your HVAC unit stolen, your copper pipes stolen and your house shot-up. We also made the intentional decision to avoid several areas where there are a lot of other duplexes and triplexes that have a 10-12% cap-rate.
Most people will tell you these parameters are too tight. When you hear this, you’re on to something.
The fact that I have these constraints force me to work hard and find great deals. This way I don’t settle for sub-par returns. It’s also nice being in a defined area for numerous logistical reasons.
Last year I bought three properties in three months. I could have bought a 4th property in the 4th month but I didn’t want to lower my standards. The numbers just didn’t work for me.
In all three cases, someone called me proactively, because they had a duplex or a triplex in my favorite zip code. They asked around their network, and everyone said, Jimmy Moncrief buys these properties exclusively in this area!
2. Leverage Quick Financing
Most people don’t think of financing as a type of niche. However, if you have a ton of cash (or access to a ton of cash) and you can close a deal within 24-hours. Very few investors can do this, and therefore, you can absolutely own this niche!
Please note, if you are a beginner please don’t automatically assume this is your niche – even if you do have a ton of cash.
The risk with this type of strategy is you can rush into a bad deal.
I recently heard a great quote on a podcast: “I would rather miss out on 5-6 good deals and not get a bad deal”
Most landlords struggle with the ability to grow because of capital constraints. This niche is a huge competitive advantage for getting good deals and growing your real estate company.
Related: How to Finance a Rental Property
3. Pick a Target Audience
This can cover such a wide spectrum so I will simply cover two use cases at both ends of the spectrum and some other niche rental ideas:
I’ve never rented to Section 8 but I know a lot of people who have. One key thing I’ve noticed is that the investors who focus on this market, absolutely love it.
They have developed processes to deal with the government paperwork required and they have developed extensive tenant screening requirements.
However, the landlords who have bad experiences with Section 8 usually are folks who only have one or two properties ,and never bothered to learn much about the program.
One of my friends who had 86 single-family homes recently converted all his properties to Section 8. He did this after extensive analysis and found that the missing and/or late rent he was getting from non-section 8 was costing him almost $30,000 a year. He therefore, did an expected maintenance cost analysis and found that even if maintenance costs increase due to government requirements and section 8 renters, he would still would make more money by converting them.
…NON-section 8 tenants were costing him almost $30,000 a year!
Today, he has over 100 rentals that are all Section 8. Every month he gets a direct deposit into his business checking account with no risk of a late-payment!
Most people don’t think about renting to businesses or organizations, but these leases can be structured in a very beneficial way to the landlord.
Not only is the business responsible for damages, but you usually won’t have a problem with late payments.
My friend Jeff has a deal worked out with a veterans organization. This organization is focused on helping disabled veterans re-enter civilian society. The veterans organization has committed to 50 doors for a year and as such he has given them a 10% discount to his usual rent-rate.
Another idea is to call some local non-profits and religious organizations in your area to see if they offer housing for anyone. Whoever you decide to rent to make sure you don’t violate any fair housing laws.
I was in the military and sadly didn’t implement this strategy. As I stood night-watch in San Diego I would stare at the mansions on a hill-side and dream of one day owning one.
In reality, I should have just figured out how to get a loan and get one as a rental. Heck, it was 1999 after-all. If I would have gotten a 20-year amortization financing deal (which is standard for investment rental properties) the property would be close to paid-off now!
My friend Jonathon did implement this strategy when he was stationed in Hawaii, now he has a condo that overlooks the ocean almost paid-off!
The biggest benefit to having rental property near a base is you have a consistent stream of people needing a rental property that make above average income. Additionally, most of the time the military provides a housing allowance.
If you do decide to rent to people in the military don’t be this guy.
4. Be Different, Be Fun
You can have fun with this idea of renting to certain people or certain kinds of houses. When doing research for this blog post I found one guy who only rents to owners with big dogs!
Al Williamson has set aside some of his units exclusively for traveling nurses via corporate contacts. In other units, he provides free access to bikes – thereby attracting vacationers and car-less renters.
Being a landlord is a very rewarding and profitable experience. If you can establish a competitive advantage for yourself, the experience can be even better!
Do you have any super-secret, or creative niche ideas? Let me know in the comments!