Discover 2 niches that will bring you real estate riches (as well as what to watch out for) in 2022.
Niches for Riches #1: Creative Real Estate Investing
In creative real estate investing you are connecting directly with the seller and very few people, if not just you, know the property is for sale. Working directly with sellers requires a lot more skills and we at Freedom Mentor have mastered this over the last two decades. Negotiations, contracts and structuring the deal is a lot more complicated because you don't have an agent or auction company handling it for you. You are doing it all yourself, but the rewards are a lot bigger.
Why Does Creative Real Estate Investing Make Sense in 2022?
Low Inventory Levels and Heightened Competition: There are a limited number of listed properties available on the market right now, either on the MLS or for auction. This lack of inventory has moved a lot of traditional real estate investors over to working directly with sellers. So now you have a lot of traditional investors infiltrating a market that for many years me and my apprentices and a few others dominated. And they brought their one-trick-pony move of all cash. The problem is, as there’s more competition, it pushes the prices up. Suddenly we lose some of our margins. Or do we? And that's where creative real estate investing gets so exciting for 2022. Despite lower inventory levels and heightened competition.
Creative Financing: When you have the skill to roll out different techniques for creative real estate investing, you can turn a thin deal into one that makes a whole lot of money. Creative real estate investing is so powerful in 2022 because it's the best way to keep profit margins on deals when you have a heightened competition. I can offer a seller more money than a traditional investor and keep my margins because I work out creative financing.
Creative Techniques: There are deals with complications. Those complications could include a loan forbearance expiring, or something involving a probate, bankruptcy or an eviction. We have a lot of deals right now that have baggage. And that's been one of the ways we've made so much money all these years. I like complications because that edges out the competitors who don’t want to get into the weeds. Others want it to be simple; to just write a check and close quick.
But traditional investing almost doesn't even exist anymore. And the traditional folks that are going direct to sellers, they don't have the skills to handle the complicated matters. As creative real estate investors, we see opportunity in complicated deals because we have the skills to execute and structure the deal. And that’s where we're going to make more money than others. This has always been a niche that's worked incredibly well, but as COVID has continued, it has become critical.
Niches for Riches #2: Mobile Home Conversions
Not only are inventory levels at all-time lows, but when you get into the more affordable price point homes, there is basically no inventory. We have an affordable housing crisis in America. For many people, owning a home might be just a dream for a very long time. House prices have gone up so much over the last two years that buying a home is no longer attainable for many people, even with low interest rates. So where are potential homeowners turning to fulfill their dream of owning a home? They're buying a manufactured home.
Now to purchase a manufactured home they still need to get a conventional loan, FHA loan, USDA rural loan or VA financing, with as low of a down payment as possible. The challenge is there's not that many manufactured homes available. However, there are a lot of mobile homes. This is where the opportunity lies for investors.
The Difference Between Mobile and Manufactured Homes:
Mobile homes have their own title, the way a car and an RV has a title. They are typically on their own land or renting space in a mobile home park. However, it is not eligible for FHA, conventional, VA financing or USDA rural financing because it's technically not real property. It's not manufactured, it's mobile. To qualify for traditional financing, they need to be converted into a manufactured home. I have a terrific video that goes through the whole process of converting a mobile home into a manufactured home. Please watch that video if you haven't. I take you inside a mobile home and give you all the details of the deal and show you what I did.
Challenges to Mobile Home Conversion:
Mobile home conversions differ from creative real estate investing in that you can buy properties using traditional methods, as I have done the last two years. During COVID, I purchased mobile home properties off the MLS that I knew I could convert. Now, the problem is, unlike creative real estate investing, you do have to have the cash. It very difficult to find a hard money lender willing to fund a mobile home conversion. You can also generate off market leads. However, the challenge is it's difficult to target those.
Mobile home conversion is an absolute home run because of the affordable housing crisis. When you bring an affordable home into a position where someone can get an FHA loan on it, it's going to be a multiple offer situation. It requires expertise in knowing how to do a mobile home conversion, but again, I have a terrific video on mobile home conversions that addresses these challenges. I roll out the exact formula.
Warning for 2022
Those of you who got started in real estate investing in 2021, you've been spoiled rotten. A lot of bad habits have developed for those who just got started or those who for the last year and a half have been punched drunk if you will, on the ease with which you can sell a property. You don't understand that real estate doesn't always sell instantly and for more than asking price. Those days are over.
We are now back to where you need to be strategic. It's still a seller's market. However, now we are seeing properties sitting on the market if they are listed too high. Buyers are being more conservative and intelligent in their buying processes. So, you must think clearly about what a property could sell for once you put it back on the market.
Determining what a house is going to sell for when you put it on the market is one of the most important skills an investor can have. In my video Predicting Final Sales Price, I give the formula for estimating what you think it's going to sell for once you put it on the market. Whether you put it on the market as is or fully renovated, you need to use your intelligence to estimate what is going to happen. It’s time to go back to the fundamentals. Make sure you list these properties at a low enough price to create multiple offer situations.
What about Land in 2022?
Flipping land was one of the niches I was excited about for 2021. What about 2022? It’s still always going to be a great minor niche. However, the hysteria for land in the country that was fueled by COVID is beginning to slow down. There are still plenty of people who dream of moving into the country. But those who decided they wanted to move to the country during COVID have done that and now it’s back to normal levels. There's still plenty of land buyers. But one of the challenges now is land prices have skyrocketed and often sellers are completely irrational on what they want for their land. So, will you always be able to make money flipping land? Absolutely. It's just a lot tougher right now because that mass exodus that we saw in 2020 and 2021 has started to subside.
Vacation Rentals in 2022
Another niche that I was excited about in 2021 was vacation rental investing. During 2021 people wanted to get out of their house and they went and stayed in the Airbnb or VRBO. I just got my statistics back from my bookkeeper. One unit in particular did an 80% increase in gross revenue in 2021. Here’s the problem:
While the income went up by 80%, the prices of the properties in that region went up 400%. I paid $275,000 for that particular property four years ago. It will now sell for $1.2 million. That looks great for me on paper, but how does that help you? How can you pay $1.2 million for a property? Even though rates and bookings have gone way up, with these market increases the ability to cash flow with vacation rentals in many areas has become much more challenging in 2022.
I will always recommend you have at least one vacation rental that you use as your vacation home and a rental. You can get a lot of tax deductions. It's a great move. But to scale that is a lot more difficult right now.
A Possible Alternative: With this huge jump in prices for vacation rentals, you may want to focus on the affordability crisis. You could look into multifamily or mobile home parks and RV parks. These are commercial real estate niches and the channel I recommend to learn more about that is Commercial Property Advisors. My good friend Peter Harris and his team, they're brilliant. One of the drawbacks to commercial real estate is you need a bigger down payment and more money. But I can see it being easier for more people to get into multifamily and other commercial niches right now than to find a vacation rental that cash flows.