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Riches in Niches: A Guide To Greater Rental Property Cash-flow!

Peter Giardini
4 min read

In today’s world it seems that the more specialized a person is, the greater their earning power — and the same holds true for investors and their cash-flow.

You only have to look at the health care industry for real life examples of how specialization has enhanced the earning power of doctors.  For example, a family practitioner who is a generalist could never expect to have the earning power of a “specialist” like a neurologist.  

Continuing with this example, if you accept the premise that being a doctor is the category and within each level of speciality (a niche) the earning power of a doctor increases, you can then relate to the notion that there are “riches in niches”.

So, how does this notion of “riches in niches” apply to real estate investors?

First the good news: the quest for those riches does not require that you commit years of your life and $100,000’s in school loans to obtain.  In fact, it doesn’t take a lot of thought and with just a few phone calls and you can be on your way to niching your business into significantly increased monthly cash-flow.  

How?

As property owners, one of our biggest priorities should be to obtain the highest rents possible.  There should be no exception to this rule!  And yet many investors, while agreeing in concept, are not able to do what it takes to maximize those rents — often times because they don’t know where to find tenants willing to pay the highest rents.

Here is where the concept of “niching” comes into play.

Just like with the health industry and the doctor example above, our tenants follow a similar stratification.

Different Levels of Niche Tenants

First are the market rate tenants.  These are the tenants that pay their rents from their earnings.  In many locations market rate tenants create the basis for local rental rates and from the perspective of many investors, these tenants offer the fewest risks for the rents received.  In essence, market tenants are similar to the doctor who is the generalist — providing good solid income — just not the highest that they could be obtained.

At the next level is the category I refer to as “government assisted rents“.  The big player in this category of course is the Section 8 program.  In many locations Section 8 tenants represent a great way for investors to obtain rents that are at least as high as those obtained for market rents and often times more.  Of course for more then a handful of investors the perceived risks of having a Section 8 tenant outweighs the benefits of the higher rents.  Yet, for those that have learned to “specialize” in this niche their rental income is often higher then comparable market based income.

In just the two examples listed above, it is becoming evident that the path to specialization regarding tenants can lead to higher monthly rents.

An important note —  I realize that for some investors the notion of having a Section 8 tenant is the last thing they want to explore, but hang in there as I continue down the path of “niching” into higher rents.

In many communities (mostly larger urban areas) there are a variety of programs who themselves specialize in assisting individuals who have unique housing needs.  Finding these programs is a great way to further “niche” into the tenant world and continue to increase your monthly rents.  Examples of these programs could include “Housing is Healthcare” a program focused on getting the homeless off the streets,  various drug rehabilitation programs, or individuals with disabilities (a really big and profitable niche). e.g. Tulsa Cares for HIV/AIDS patients 

Now don’t have a heart attack with the types of programs I mentioned above.  In many cases due to the unique circumstances of the individuals in these programs, it is the agency or program that enters into the lease with the investor and the agency then places and provides oversight to that tenant, thereby drastically reducing tenant management issues for the investor. All this, while the investor is receiving higher rents for supporting a unique “niche” their market.  What’s not to like?

I can tell you from personal experience that if you can tap into one or more of these special government assisted programs your monthly rental income will increase dramatically and your management headaches will most likely decrease.

But there are more examples of these “riches in niches”.

A very popular niche for investors in college towns is of course renting to college students.  While this “niche” can be as challenging as government assisted rents, it is nonetheless a very lucrative approach to maximizing monthly rental income.

Similar to renting to students is finding organizations or corporations who require housing for their employees, or perhaps visiting guests, or in the case of hospitals – have requirements to house professionals and patients or their families on an ongoing basis.  Often times you can arrange to lease your property out to these organizations, who in turn would be responsible for placing the tenants.  And because they need the flexibility and convenience, higher rents are the norm. 

I am sure there are other examples of “niches” that provide higher than normal rents and I hope that as an investor you are doing everything you can be to ensure that your portfolio is generating the highest possible monthly income. 

And if you are find yourself challenged by the very topic of this article, perhaps you are a bit too COMFORTABLE and your cash-flow is suffering… You decide!

Best of luck!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.