Want a dependable rental income? Start with the location

[Eric Fernwood]

Most people start by finding a “deal.” “Deals” are usually low-cost properties.

Buying property based on price or initial return leaves a lot to chance. What do I mean by that?

Below is an illustration showing what you are also buying.

• Tenant pool demographics - Every property is only desirable to a narrow tenant pool segment. Not all tenant pool segments are the same. In Las Vegas, there are three major tenant pools. The annual vacancy cost for the three ranges between $400/Yr and $3,500/Yr. The same is likely true in any location.
• Economic Viability - The location determines the long-term characteristics of the rental income. If the location is in decline or stagnant, the rental income will not keep pace with inflation.
• Whether rents can keep up with inflation
• Maintenance Cost
• Rental restrictions
• Etc.

If you want a dependable rental income, do not leave anything to chance. Start with a good location (market), because your future depends on it. Then select a dependable tenant pool segment. Then after that is the property.

Let me know if you have a different opinion.

[Eric Fernwood]

Hello @Darius Ogloza,

There are three major tenant pool segments in Las Vegas (and I suspect the same in other locations). The image below summarizes segment characteristics. I chose the segment names based on the average length of stay.

Additional information on the segments.

• Transient - This tenant pool is primarily low-skilled hourly workers making little more than minimum wage. The average tenant stay is about one year. The average rent is $950/Mo. The average time to rent is eight weeks. Low-skilled workers are the first ones to be laid off in difficult economic times and the last to be rehired. They are cash-based, so leases, skips, and property damage have no future impact on their lives.
• Permanent - This tenant pool could be hourly or salaried, but they earn well above minimum wage. They are direct income producers for their employers, and their skills cannot be easily replaced. They are rarely laid off, no matter the economy (unless the company is going under). They are credit-based and rarely make late payments. They typically use credit cards and autopay bills. We target families in this segment. The average tenant stay is over five years. We’ve had five evictions in the last +15 years out of a population of over 470 properties.
• Transitional - This tenant pool is salaried and normally home buyers. They typically only rent if there is a significant adverse event in their lives. For example, a divorce, the death of a spouse, etc. Once they sort out the problem, they buy a home. The average stay is less than two years. Unless they are direct line management, they are subject to layoffs during economic downturns.

Let me if you have more questions.