Discover the 3 best rental real estate niches for you to invest in. These 3 niches have not only proven to be pandemic proof, recession proof and provide rental income stability, but also to thrive while many others have fallen apart. If you have any interest in owning rental property, you should focus your efforts on these.
3 Best Rental Real Estate Niches
Rental Real Estate Niche #1: Apartment Investing
When investing in apartments, I recommend you stick with five to fifty units because at that size you’re not competing against the large companies and keeps you under the radar from them. Second, you need to focus on B and C class properties.
Why Invest in Apartments?
Supply and Demand: Did you know that in the United States today, we have a housing shortage of about 5.2 million homes? Developers won’t be able to add to that supply very quickly and with all the supply chain issues it will take even longer. So, we will have huge demand and a small supply for years to come. Plus, apartments are one of the 3 great real estate niches to have because everyone needs a place to live so there will always be demand for them.
Pandemic Proof: We have properties across the country and during the pandemic, our occupancy stayed stable. The news said it plummeted and that rents went down. Don’t watch the news! It isn’t true! Not only was occupancy stable but during the worst times of restrictions we were collecting between 80% to 95% of our rents. What’s more, our rents went up significantly as a result of the pandemic and they are at an all time high right now.
Volatile Markets: What about the housing bubble? Some people are saying, “Don’t buy real estate now, the housing bubble about to pop!” The housing bubble they are referring to is for single-family homes and eventually it will pop. But when it pops, guess what will happen? The demand for apartments will go up because people will stop buying homes and downsize, and you will rent out your apartments until the dust clears. In moments of volatility in the housing market, apartment demand goes up. I’ve been through this market volatility three times and have benefited each time.
How to Invest in Apartments
Value-Add Properties: When searching for your B and C class properties, you need look for a value-add properties. This is the business model we practice at Commercial Property Advisors. We help students in our Protégé Program find a property that’s been mismanaged or neglected, and we purchase it. We do some renovations and increase the rents. Over time we get the NOI much higher, forcing the appreciation. Value-add properties provide the fastest path to financial freedom.
Start Small: I’m often asked if it’s okay to start small in commercial real estate, with a group of duplexes or fourplexes all together perhaps. The answer is yes, it’s okay to start small. In fact, I recommend it.
When to Invest in Apartments?
Now’s the time. Don’t wait! The market isn’t going to completely collapse and the longer you wait, the more you will pay.
More teaching on Apartment Investing from Commercial Property Advisors:
How to Buy Your First Multi-Family Apartment Building
How to Upgrade from Houses to Commercial Real Estate
Beginner Buys $5M 66-Unit Apartment Deal
Rental Real Estate Niche #2: Storage Facilities
When investing in this commercial real estate niche, you need to focus on mom and pop sized storage facilities. Don’t mess with the big guys who want the big, beautiful facilities because they can pay all cash and you can’t compete with them. So, go after the smaller storage facilities.
Why Invest in Self Storage?
Recession Proof: The reason why self storage is a great real estate niche for today, is because they are in demand in this volatile market. When the economy is in decline, people downsize and they need to store their stuff in one of our storage facilities. On the other hand, when the economy goes up, people buy more things such as boats, outdoor equipment and such and they need to a place to store those earthly treasures. Nothing is totally recession proof, but self storage has weathered the storm quite well.
People Have More to Store: Never has it been so easy to buy stuff and get it in the next day through retail providers like Amazon. And then we get all this stuff and need someplace to store it. So, Amazon is one of the causes of why the self storage industry is exploding.
Demand in Younger Generations: Millennials are waiting longer to move from their apartments to single-family homes, partly due to the affordability of homes. In the meantime, they need extra storage space and are throwing their gear into self storage facilities.
How to Invest in Self-Storage
Use SBA Lending: Small Business Administration lending will allow you to put down 10%.
Buy Properties with Expansion Potential: Go after facilities where you can expand; properties that have a piece of land with level dirt where you can add more buildings or more pavement. Most times SBA will even finance the potential, sometimes with no money down.
When to Invest in Self-Storage?
Right Now!
For more on Investing in Self-Storage watch these videos:
Self-Storage Investing for Beginners
How to Invest in RV Storage
Rental Real Estate Niche #3: Mobile Home Parks and RV Parks
Why Invest in Mobile Home Parks?
Limited Competition: I like mobile home parks because most cities won’t allow you to build new mobile home parks. Which means once you buy it, you won’t have anymore competition. There won’t be brand-new mobile home parks competing against you.
Stable Demographic: There will always be a demographic that can’t afford rent for an apartment or to purchase a home. And right now, that’s a large demographic in America. So, there will be a continual demand for this type of housing.
Recession Proof: There will always be the need for affordable housing. Where I live in California, they won’t allow you to tear down a mobile home park to build up an A class building. We tried it. The city said no because the city wants affordable housing and mobile home parks are affordable housing.
Why Invest in RV Parks?
COVID Proof: There is a company called Outdoorsy. They are the Airbnb of RV parks and since Spring 2020 they have had $1 billion in RV sales. The demand is huge now because people want to go on vacation but they want to socially distance. An RV is the perfect solution. You can camp out, you don’t have to go to a restaurant and have a nice, beautiful family vacation. So, RV parks are in huge demand because the RV sales are through the roof.
How to Invest in Mobile Home Parks and RV Parks
When searching out properties in these two commercial real estate niches, look for family-owned mobile home parks and RV parks. Don’t pursue the big ones owned by companies that are nice and beautiful. You want the “Average Joe” parks and you need to deal directly with the family.
When to Invest in RV and Mobile Home Parks?
You got it – Now is the time!
Further teaching from Commercial Property Advisors on Mobile Home Park Investing:
3 No-No’s of Mobile Home Park Investing
Mobile Home Park Investing for Beginners
What NOT to Invest In: Single-Family Homes
5 Reasons Why Long-term Residential Real Estate Doesn’t Pave the Way to Financial Freedom:
- I personally don’t know anyone who has successfully retired comfortably investing in single-family long-term rentals.
- Buying one home at a time takes far too long as opposed to buying an apartment building.
- If you have a single-family home and you have one vacancy you are 100% vacant, which means no income coming in, but you still have the same expenses.
- They are inefficient compared to an apartment building. Ten single family homes mean you’re maintaining ten roofs, as opposed to a tenured apartment building with one roof to take care of. Or perhaps 30 to 40 bills in a single month compared to one set of bills every month.
- With a single-family home, you can’t force the appreciation. You can’t take your single-family home and raise the rents and raise the value. However, in commercial we can, and forcing the appreciation by raising rents has been a source of many of our student’s retirement and enabled them to achieve financial freedom. Raising the NOI and raising their property value allows them to do cash out refinance and 1031 exchanges into much larger properties. So, it gives you many options when you have this potential.
Thanks for the info on these three CF investments. Will look for those B and C class properties in this commercial area with thought of obtaining SBA loans @ 10 % down. Understand the bank may loan 50%, CDC investors 40%.
Great words of wisdom investing these days
Peter you are a great teacher…apparently you have a great experience in these. Fields…..
I am going to follow with you
Fantastic advice and apparently Peter has a long experience in these fields.
Peter you are a great teacher and I am going to follow with you
I really appreciate and like 👍the advice and insight of this mentoring program, thanks 😊for the guidance. Jonathan Griffin!!!
I am very keen to start with you Peter Thanks
My sentiments precisely..!
This is the best way to save for retirement
It is really helpful to distinguish between single family home versus Multy-family appartements. But the down payment is high. If I can found first and second Mortgage that will be interesting 🧐.