Hello @Allan Tualla,
Rather than focusing on property type, I recommend prioritizing your financial objective, which I assume is achieving financial independence. To become and remain financially independent, it's essential that your property is always occupied by what I refer to as a reliable tenant. Such a tenant will stay for many years, always pay rent on schedule, and take good care of the property. However, reliable tenants are the exception, not the norm, and since you're planning to hold the property for many years, you will need to have multiple reliable tenants over the holding period.
The only way I know to maximize your odds of always having a reliable tenant is:
- Select a tenant segment with a high concentration of reliable tenants.
- Work with a property that is skilled at selecting reliable tenants. This is a rare skill. I only know of two property managers in Las Vegas who have this skill.
To find a segment with a high concentration of reliable tenants, start by interviewing multiple property managers. Once you identify a segment that will provide the reliable income you need, determine what and where they currently rent. Then, buy similar properties.
I did not create this process; this is simply how the commercial world operates. When a business wants to select a location, they do not base the decision on someone's opinion and hope that things will work out. Instead, they first identify their target demographic and choose a location that best matches it. Selecting the location or property type first is unlikely to yield the best results.
To target a specific tenant segment, you need to choose the appropriate property in the right location.
How Tenants Select a Place to Live
When someone is searching for a rental property, they typically begin by browsing one of the many real estate websites. They then proceed to eliminate unsuitable options, usually in the following order:
- Rent Range - If the person can afford $1,800 per month, they will eliminate properties with an asking rent that exceeds this amount.
- Property type - If a person has a wife and two children, they are unlikely to consider one-bedroom properties.
- Configuration
- Location
Even if there are hundreds of available properties, after applying the above housing requirement filters, only a few properties will remain. Below is an example of a segment’s housing requirements.
- Rent range: $1,600/Mo. to $1,800/Mo.
- Property Type: Single-Family
- Location: Northwest, within 5 to 10 miles of the central business district.
- Configuration: Three bedrooms, two car garage, one story or two stories, built after 1990, with a lot size between 4000 ft.² and 8000 ft.²
It's unlikely for people to rent properties that do not meet all of their housing requirements. You can leverage this fact to choose properties that appeal to a specific tenant segment.
Each property has specific characteristics. The characteristics of an example property are below.
- Rent: $1,750/Mo.
- Property Type: Single-Family
- Location: Southeast, 12 miles from the central business district.
- Configuration: Three bedrooms, two car garage, one story, built 2000, with a lot size of 5000 ft.²
This property aligns with the housing requirements of the tenant pool segment that I previously mentioned, so most applicants will come from that segment. However, if a property does not meet all the requirements of a certain tenant segment, that segment will be excluded from your potential tenant pool.
Does buying a property to attract a specific tenant segment work? We have successfully delivered over 480 investment properties targeting a single-tenant segment in Las Vegas. Our results have been excellent due to the tenant segment we target and the property manager we work with.
Alan, be cautious of general advice. Real estate is a local market, so you should make investment decisions based on the specific area where you want to invest, and not based on other locations.