Buying Property in high Unemployment area/low population growth

[Hung T Nguyen]

I've read in numerous places not to buy/invest into a high unemployment area or low population growth area. 

But does that strategy actually apply to a well-known tourist attraction city? (For ex: Las Vegas)

There are always going to be tourists in this area and it's just a matter of time before it bounces back (imo).

So isn't this a great time to buy into that city? Isn't this buying into the dip? (Yes, I realize it could dip more, especially as this recession

is growing, but I'm happy with the housing prices now in that area, and I am paying cash and can weather out the storm. I am also going

to STR it out for cash flow).

Thoughts?

[Eric Fernwood]

Hello @Hung T Nguyen,

If your goal is dependable passive income, location is your most important investment decision. The most important criteria is that pre-COVID rent growth exceeded the inflation rate. Unless the rent growth exceeds the inflation rate, you will not have the necessary additional dollars to continue buying the same goods and services you did in the past due to the effects of inflation. There are a few locations that meet this criteria. For example, since 2013, Las Vegas rent growth has far exceeded the inflation rate.

Location is only the first step in achieving dependable passive income. After location, the second most important investment decision is the tenant pool segment. Each tenant pool segment has different characteristics. For example, there are three major tenant pools in Las Vegas. They have an average length of stay of 1 year, >5 years, and 2 years. So selecting a tenant pool segment that stays long is important to have a reliable income and low vacancy cost.

Once you select a tenant pool, you buy properties that your target tenant pool is willing and able to rent. Thus, the tenant pool defines the characteristics (type, configuration, location, and rent range) of properties you buy. We’ve targeted a narrow tenant pool segment for the last 15 years. Below are our 15-year results from >450 properties:

• Average rent growth of 8% since 2013.
• Average appreciation of over 15% since 2013
• The average tenant stay is over 5 years.
• Only 5 evictions in 15 years
• 2008 crash - Zero decline in rent and zero vacancies.
• COVID - Almost no impact
• Eviction moratorium - No impact
• 2022 YoY rent growth 18%, appreciation 32%

We achieved these results through the combination of the right location, tenant pool, and property selection. And, even though the major employers in Las Vegas are tourism related, the tenant pool we target is not affected by a tourism slowdown. Low-paid, low-skilled workers primarily occupy the lower-cost properties in Las Vegas. Whenever there is a tourism slowdown, low-skilled workers are the first to be laid off and the last to be rehired.

If you follow the process steps below, your probability of acquiring dependable passive income properties is high.

Hung, I hope this helps.