Discover 4 niches that can bring you real estate riches in 2021. If you do one or more of these techniques, you could have your best year in real estate investing ever. For these 4 strategies, it's truly never been in a better time in history to do them.
Niche #1: Creative Real Estate Investing
How does creative investing differ from traditional investing? It's all centered on how you get to the deal. In creative real estate investing you work directly with the sellers. You're connecting directly with the property owner as opposed to with an agent and a listed property. In traditional investing everyone already knows about the property because it's on the market. Even if it's an auction property, a foreclosure auction, or a tax deed sale auction; any property that the general public knows is for sale is considered traditional.
In contrast, creative real estate is when very few, if not just you, know the property's for sale. This allows you to roll out a series of different creative techniques such as:
- Getting the property under contract, then putting it back on the market and selling because you have no cash, with no credit involved in the deal.
- Doing more creative financing structures - taking it over owner financing, subject to.
To get more understanding on creative financing check out my book How to Be A Real Estate Investor. It will explain a lot about creative real estate investing. When you get that book, you also get access to a free course with over 20 hours of teaching this subject.
Why Creative Real Estate in 2021?
Ever since COVID, we have been making an absolute fortune. In fact, when I put a video together about COVID in March of last year, I received a lot of criticism about how little I knew. As it turned out almost everything in that video was spot on. There are a couple key factors as to why creative real estate is so effective right now in 2021.
Historically low inventory: One reason creative real estate investing is so powerful right now is because we have historically low inventory. What's inventory? It's the available properties on the market. A traditional home buyer will buy a home that is listed. Right now, they have less properties to choose from than ever before in history. What that does is create multiple offer situations any time you put a property on the market. We're making so much money now because of this. Properties that should make maybe 20 or $30,000 in profit are making 40 to $60,000. It's incredible.
Now the low inventory also stems from the fact that during COVID a lot of people decided not to move. So they didn’t put their property up for sale, yet there's still people that are in need of homes. Life is still going on. What that means is there's always a demand for house buying. With inventories plummeting, if you can get to the inventory before it ever hits the market, which is the definition I have of creative real estate investing, it's like printing money.
Low Interest Rates: One of the things that is fueling this low inventory is low interest rates. We are still at historic lows, and although we can’t predict the future, it appears that's going to persist for quite some time. That means that someone can buy more of a home with lower monthly payment than before when the interest rates were higher. The result is increased demand which in turns drives up the prices. People want to buy because the cost to borrow money is so cheap.
This niche of creative real estate is what my apprentices and I do and we are making an absolute fortune. Even if you apply this one technique and don't do to any of the other three, you'll have the best year of real estate in your entire life.
Niche #2: Mobile Home Conversions
Inventory levels are at all-time lows, but inventory levels of affordable price point homes are even lower. Options for first time home buyers on a tight budget are extremely limited. As a result, mobile home sales have boomed, but here's the problem with mobile homes for real estate investors. Mobile homes are not real estate. Instead, they have a title just like a car or a boat. This poses a problem because you can't get traditional loan options on mobile homes. The interest rates for mobile home lenders are low too, but it's quite a bit higher than a tradition loan, and it has more stringent guidelines.
The brilliance of converting a mobile home into real property is that it opens all these new lending options:
- Fannie Mae and Freddie Mac
- USDA Rural (has zero down payment)
- VA FHA
As an investor, you can sell the property for a lot more simply because of the new loan options that are available to buyers because it's now a real property. Just to be clear, I’m not suggesting you do a major renovation on the mobile home. In my recent video, The Renovation Delusion, I warn against that. I'm talking about taking the property from mobile home plus land status, to a manufactured home on a permanent foundation.
How to Convert a Mobile Home to a Manufactured Home
1. You must own the land.
The mobile home has to be on it’s own land. It can't be in a mobile home park and the land needs to be owned by the person that you're negotiating with. You may be wondering why the landowner didn’t just go through this conversion process already if they own the land. I don’t really know, but a lot of these people own the land and the mobile home free and clear. Because don't have any loans on it, they never saw a need to convert it. And that's where the opportunity comes in for you as an investor.
2. Retire the title of the mobile home.
This works a little different in every area, but typically to retire the title you will need to file specific forms with the recorder's office and the property appraiser's office. You may be required to pay a couple small filing fees. And now, voila! You've retired the title and the mobile home is now part of the land. The assessors love these conversions because they can jack up the tax rate on you.
3. You may have to do something to make it a lender worthy.
This is not a requirement in every state, but it is in some and an example would be Florida. Florida requires you to do something we call STRAPS. It requires you to have a permanent foundation as well as this addition of STRAPS, which require a permit. Once the STRAPS are put on with the permit and it's approved, then it's officially real property. At that point all those different lending options roll out. Now, not every state requires this third step, but for those that do it could require pulling a permit. So, if you were going to do any fix up, do the fix up before you pull the STRAP permit.
Drawbacks to Mobile Home Conversion
You Need Real Money: In most of the opportunities that involve mobile home conversions, the seller doesn't have a loan which means these sellers are not that motivated. Yes, you can try to negotiate creative financing and hopefully get on title with the seller being your lender, but that's pretty difficult. These sellers will sell the property all cash or they won't sell at all. That means in a lot of these opportunities, you're going to have to have real money.
Hard Money Lenders Don't Like Lending on These Deals: Now I as a hard money lender for my apprentices, I fund these deals, but I don't know of any other hard money lenders that do. I do these deals, so I understand this process.
There is a Time Delay: It could take some time to go through this title retiring process. And then if you are selling to first time home buyers, if they're getting an FHA loan, you have to be on the title for 90 days before you can resell it. So, there is a time delay as well on this technique.
Niche #3: Flipping Land
The demand for land is enormous right now and it’s coming from two places:
- Retail Buyers who want to get out of the clutter and congestion of the suburb or city they were in. The land that is in demand is one acre to ten-acre parcels. They want land. In Florida, they call them ranchettes when it's 10 acres parcels.
- Developers who see that we are at historically low inventory levels and are trying to build. So there's also demand for even bigger lots of land.
Complications with Flipping Land
It might seem simple because it doesn't involve a structure. How hard can it be? I have a great video, 10 Tips for Buying Land. If you have any interest in buying land, make sure you watch that video because there are some complications that can arise. If you don’t follow the rules you could really get squashed.
Now, you can't really get in trouble if all you do is get it under contract and then put it on the market and see if someone's willing to buy it. The complications arise when you close on it and then subdivide it. But that's where the real money in flipping land comes in. There's an old saying, “Two great businesses; to buy whiskey by the barrel, sell it by the shot, and buy land by the acre and sell it by the lot.”
That said, it’s best to avoid diving into the world of development at the level where you have to get subdivision or planning approval from your municipality because that could take years or longer. Instead, where it gets exciting is when you can break up the land into the maximum amount of lots without having to get those approvals. In Florida, for example, it's five acres in most counties. So, if you buy a 50-acre parcel, so long as it has county-maintained road frontage, you can break it up into five-acre parcels and sell those without any county approval. And when you do that, you can make an absolute fortune. So, flipping land is always a great niche, but right now, more than ever it's absolutely fantastic.
Niche #4: Vacation Rentals
This niche is a long-term technique that will make a lot of money this year. Even with the lockdowns, I made more money on my vacation rentals in 2020 than in any other year. It was incredible.
I want to share with you why I moved into vacation rental investing so you can see why it’s significant. If we go back, maybe seven years, I was so tired of any sort of traditional single family home rental. By that time, I had been doing rent to owns for a long time and I was also looking for some other angles. I saw that with investing in vacation rentals, I could mitigate so many different risks across the various problems I've had as a property owner. I dove in and was loving it.
When I went into vacation rentals, I thought I was late to the party. As it turned out, I wasn't. However, I kept asking myself, "When's the other shoe going to drop? Where's the problem I'm missing?" And it just didn't come.
Then COVID hit. And I thought, this is it. I've been loving this niche for five years, but let's see what happens now. To my surprise, as soon as things started to open back up, bookings went through the roof. Suddenly, the times of year that are usually dead for some of my properties were full of bookings. It turns out I ended the year better than any other year and I'm starting this year on fire. I have properties that are usually a dead zone during January and February, and I'm booked every single week.
Why is it so good?
- There's a fundamental shift in where people want to stay. Nobody wants to stay in a hotel right now because of social distancing. And this may never come back. The hotel industry may never come back the way it has been.
- People want to get out. They want to travel near oceans, mountains, and lakes. Vacation rentals did not do well near Disney. They had a hard year. So, your rental needs to be in areas where people have multiple things they can do.
- More people are traveling because their kids can do school from home. This gives families more flexibility to travel and have a little vacation.
The demand for vacation rentals has never been stronger, and it appears it's going to continue that way through 2021.
Challenges to Vacation Rental Investing
Low Inventory: The challenge with Niche #1: Creative Real Estate is finding a property before it goes on the market due to low inventory levels. Well, it turns out that the inventory levels in second home locations are even lower. In fact, I have properties in areas where the prices have doubled in two years. I've never seen it in my entire real estate investing life. I have never bought real estate on the speculation that it's going to go up in value. I've always invested based on the here and now, what it can produce for me. Suddenly I'm looking at my values and see that they have doubled in two years. (Of course, I'm doing cash out refinances and investing in more)
Rising Prices: The prices of real estate have skyrocketed in the very areas where the best vacation rental investing exists. And I don't know how they're going to go back down. It doesn't appear to be something related to a bubble. It looks like that demand is just so strong for understandable reasons. Due to the increase in price and demand you need to buy strategically. You must be extremely careful or you’ll barely break even.
Restrictions on Vacation Rentals: Another challenge is finding the locations where counties or municipalities haven’t used their power to shut down vacation rentals. There are areas that are becoming more difficult to do vacation rental investing simply because the laws won't allow it. But when you can find those little pockets, this niche is a home run.