Home Building: Your Best Chance At A Real Estate Niche?

Posted by JD Esajian

Could home building be your best option for finding a real estate niche?

One source suggests that home building could be one of the few industries left to dominate. Could that really be true? What are the pros and cons of building houses as a form of investment? Are there any other options that stand out?

Aspire to Become a Market Leader?

Simply looking for a viable way to make money in real estate? Or to create a business empire? Either way, it can help not to have to go head to head with one dominating force. If one conglomerate has the vast majority of market share, they can crush new challengers with ease. And they’ll be highly motivated to do so. So where are the gaps? They might surprise you!

Inc. poses that there are still five industries without a clear market leader in 2015. These are mature industries, with great growth projecting for the next few years.

1. Home builders
2. Heavy equipment rental
3. Mobile storage
4. POS software developers
5. Conference and trade show planning

All of these are related to real estate in some way. They can all make great side businesses for successful real estate entrepreneurs and firms. However, home building stands out for several reasons. Firstly; it is kind of shocking. Secondly: the figures. According to Inc. and IBISWorld, the industry generated $81.8 billion in 2014. It is expected to grow 11.3% by the end of this year. Industry revenue is forecasted to top $110.9 billion by 2019. Yet, there is reportedly no giant brand dominating the industry. That means there is room for one. And perhaps more space for smaller new entries.

The Need for a Real Estate Niche

A niche is important whether you are launching a business, or simply investing to boost personal finances. A niche empowers business owners and investors to get more for their money, and gain more traction. A niche provides focus. It allows for better results from resources invested. A niche can minimizes competition. Real estate agents know this all too well. This is why we see “waterfront specialists,” ‘luxury home experts,’ ‘Condo Kings,’ and more. Instead of being just another individual in a giant pool of unrecognizable badges, agents with a niche stand out. With a niche, they become masters of a domain overnight. Who do home buyers and sellers turn to when they want waterfront properties? ‘The Waterfront Specialist.’ They might have just passed the real estate licensing exam yesterday. All of the listings on their real estate website might be borrowed from others, but that’s the power of a niche.

How Do You Choose a Niche?

There are many real estate niches to choose from. So how do real estate agents, investors, and entrepreneurs choose one? It’s really about find the best fit for you. There can be limitations, or at least better options depending on the current competition in the marketplace. For example; if the equivalent of Zillow was trying to dominate high end waterfront condos in your neighborhood, you might want to choose something else – especially if you are on a budget. Volume of competition isn’t as significant as their brand recognition and market share. Remember, 20%, maybe even 10% or less, are really doing any significant amount of business. So ask yourself:

1. Where is there a space to fill in the market?
2. What strengths do I have to fill those gaps?
3. What am I passionate about?

There’s no point in choosing a niche you hate, just because the numbers work. And there’s no point in choosing a niche you love, if the numbers don’t work.

Niche Options

There are dozens of real estate niches. When they are combined, there can be hundreds of them. A few of the potential options include:

• Affordable housing
• Green housing
• Luxury homes
• High end condos
• Commercial property
• Beachfront homes
• New homes
• Distressed property
• Golf property
• Pet friendly housing
• Specific buildings and neighborhoods

Home Building as a Niche

Some aspire to get into home construction from the get-go. For others, it is the last thing on their minds. So what is the attraction, and turn-offs to home building as a niche?

Pros of building include:

• Prestige
• High profit margins
• Flexing your creativity
• Influence on housing trends and impact on the community

Cons of building include:

• Cost and cash flow needs
• High risk with many variable expenses
• Low profit margins
• Time to realize returns

Building houses can be highly profitable. It can also result in huge losses. Sometimes you don’t know what demand will be, where prices will be, and other factors until it is built. That’s risky. Building your own home to live in is one thing. Building houses and condos as a business or investment strategy can be a totally different venture altogether. It’s worth noting that some of the nation’s largest home builders have turned to building rental homes instead of properties to sell.

A Hybrid Solution

Fixing and flipping existing houses is a hybrid solution. It provides many of the benefits of building homes. While also minimizing the risks. Many would say it is far more valuable and needed than adding more housing stock to a pool of tens of billions of dollars that still needs to be sold. It’s easier to use financial leverage. It’s faster. And in many cases it can be more profitable too. Positioned well real estate professionals can still build a great brand, and dominate their market.

What’s your niche?

How Much Money Can You Make Fix and Flipping Homes?

Article by: InvestFourMore

I have fix and flipped over 100 homes in the last ten years and although it is not easy to flip houses, it is a lot of fun. You can make a lot of money once you have developed a system and learned the business. Fix and flipping is only part of my real estate business; I also have 11 long-term rentals and I am a Realtor. I talk about how much money you can make on rental properties here and how much real estate agents make here, but how much money can you make fix and flipping houses?

How much money can you make on a single fix and flip?

How much money you make on a fix and flip varies with each deal and how much the house is worth. I have lost $10,000 on a flip and made up to $100,000 on a fix and flip. My goal on each fix and flip is to make at least $25,000 in profit. I have hit some home runs and had some huge mishaps when fix and flipping. There is a lot of risk involved when you fix and flip a home and if I don’t have at least $25,000 in profit potential, I usually will not make the deal. The more expensive a house is the more money I hope to make, because the risks and costs increase.

Here is an article that describes how to make more money fix and flipping homes.

The more expensive a fix and flip, the more money you should make

When fixing and flipping more expensive houses, you should make more money than the less expensive flips. The more expensive a house, the more interest, more repairs, more holding costs and more commissions you pay. For the increased risk on a more expensive house, you need to be rewarded with a bigger profit.

It also takes more capital to buy and repair a more expensive house. If I were to have a profit potential of $25,000 on a $100,000 fix and flip, I would want a profit potential of $50,000 on a $200,000 fix and flip. Because I am buying a more expensive house at $200,000, I won’t be able to buy as many properties since I am using more cash for down payments and repairs. Here is a great article with information on financing fix and flips.

Here is a review I did on the Rehab Valuator; a great tool for figuring the costs and profits on flips.

How much money have I made fix and flipping houses?

I sold ten fix and flips in 2013 and the total profits were well over $300,000. For part of last year I was partnering with my father and part of the year I was on my own, because I took over the business from him in September. We averaged over $30,000 profit for each fix and flip we did and so far this year I am on that same pace. I will have a few fix and flips profit $20,000 to $30,000 and I will have a few profit around $50,000. In the ten years I have been fix and flipping I have had a profit of $100,000 twice. The big money in fix and flipping for me is volume, not one extremely profitable property.

How is it possible to average $30,000 profit on a fix and flip?

Our market is increasing like much of the country and it has become tougher to find deals. I am still finding deals, in fact I have eight fix and flips being repaired or for sale right now. I am a real estate agent, which gives me a huge advantage when it comes to finding deals. I buy primarily off of the MLS and being an agent lets me save commissions and write offers quickly.

Here’s an excellent article on using others people’s money to flip.

You have to fix and flip a lot of homes to make money

I would love to make $100,000 on each fix and flip, but that’s not possible for me. I don’t always know which homes will work out great as flips and which will not. I have had unforeseen circumstances that caused me to hold a property for a year before it could be sold. That killed my profits and was one of the homes I lost money on. I have accepted that some flips will be great and others will not. If I continue to buy great deals the averages will be in my favor. My strategy is to buy as many fix and flips as I can that meet my criteria and continue to average about $30,000 in profit on each property. If you are looking for that one house that will make $100,000, you may have to look for a long time.

For more information on how to fix and flips homes including how to find properties, how to finance them, how to repair them and how to make the most money fix and flipping, check out my new book Fix and Flip Your Way to Financial Freedom. The book is $5.99 and available at Amazon as a 171 page eBook here. You can also buy a PDF version of the book in the Invest Four More store here.

How to get financing on fix and flips

One of the hardest parts about flipping homes is finding the money to buy the property. Most lenders do not like to lend on flips, because the loan will be very short and the lender will not make much money on it. To get a short-term loan you will have to use hard money, a portfolio lender or private money in most cases. Hard money will be very expensive with rates from 8 to 16 percent and origination fees from 2 to 5 percent. Portfolio lenders will have much cheaper money, but you will have to have an established relationship with them (I use portfolio lenders). Private money is a great option if you have a rich uncle or friend.

Here is a great site with more information on how to find private money lenders and structure deals with them.

How to avoid losing money on a fix and flip

Here are a few tips on how to avoid losing money on flips:

• Be very careful at foreclosure auctions. I use to buy 90% of my deals at the foreclosure auction. You have to buy homes for cash, without a title policy and sometimes you can’t see the interior of the home. If you buy at the foreclosure sale make sure you have a lot of room for repairs, title issues and possibly evictions.
• Always estimate more for repairs then you think. Repairs always cost more and more repairs always show up when fixing a house. I always assume there will be $5,000 more in costs than I calculate on each deal.
• Always account for financing and selling costs. When you sell a fix and flip you have to pay a real estate commission, title insurance, interest on your financing, insurance, taxes, utilities and more when you flip a property. Check out my case study on this fix and flip to see my costs.
• Be conservative on your values when you estimate value and price the home right!  Here is an article on how to value a home and how to sell a home. Some of the biggest losses for fix and flippers are due to overpricing homes and not lowering the price quickly to get them sold.

Conclusion

Fix and flipping is not easy, it takes patience to find properties, money to fix them up and market knowledge to sell them. If you can master fix and flipping it can create an awesome income and be a lot of fun as well. Becoming a successful fix and flipper will not happen overnight. To see exactly how I flip a house, here is an article that describes a case study I did on a recent fix and flip that made me over $50,000.