All Forum Posts by: Eric Fernwood

Hello @Jay Ochoa,

You brought up some good points, which I will try to answer.

Location, The Most Important Investment Decision

Live where you like, but invest where you can achieve lifelong financial independence.

The investment city is crucial since it determines your long-term income performance. To achieve lifelong financial independence, a location must meet several specific requirements.

• Rents must grow faster than inflation to ensure your income keeps up with rising costs.
• Financial independence depends on how the property will perform over your lifetime. ROI and cash flow merely estimate how a property might perform under ideal conditions on the first day of ownership. While 8-10% ROI on day-one is desirable, it's not feasible with today's high interest rates.
• Low operating costs. Every dollar lost to overhead means less money for you. Different locations have significantly different operating costs. Below I will compare Texas, Nevada and Florida.
• Low risk of natural disasters. Natural disasters can destroy communities, leaving you with a vacant property even after the insurance company rebuilds your property. People immediately move away from devastated areas and may never return because local jobs and infrastructure were also destroyed.
• Pro-landlord regulations. In many locations, evicting a non-paying tenant can take many months or even more than one year. While this scenario may seem unlikely, experiencing it can be financially devastating.
• Limited urban sprawl. Urban sprawl occurs when cities continuously expand into nearby countryside. New homes in these areas attract more buyers than older homes in established neighborhoods, resulting in existing home prices and rents increasing more slowly. Over time, this situation gets worse. You can see this in many big cities, where once-highly desirable neighborhoods have become run-down areas with high crime rates.

Operating Cost Comparison

As I mentioned, operating costs vary tremendously by state. Below is a comparison between Nevada, Texas, and Florida.

• State average property tax source.
• Texas and Nevada average insurance source.
• Florida's average insurance cost source

To put this in perspective, below is the estimated annual operating costs for a $400,000 property.

Compared to a property in Nevada, properties in other states require additional cash flow to compensate for their higher operating costs.

• Florida: +$11,311 ($14,636 - $3,325)
• Texas: +$5,712 ($9,037 - $3,325)

The takeaway is that operating costs can have a huge impact on financial independence.

Investment Team

Most investors don't live in a city that meets all the financial independence requirements, so remote investing is necessary. However, whether you invest where you live or across the country, you need to work with an experienced investment team.

The problem is that podcasts, books, seminars, and websites only provide general information. You won't be buying a general property in a general location. Instead, you'll be buying a specific property, in a specific location, in a specific condition that attracts a specific tenant segment. And, you will need a wide range of services and expertise. These are only available from a local investment team.

If you are interested, I can provide a process for finding and validating an investment team.

Summary

• Choose an investment city that meets all the requirements I listed.
• No matter where you invest, work with an experienced investment team. They will provide a master class in real-world investing.

Jay, I hope this helps.

Hello @Devin James,

The US will likely not face population decline in the next decades due to immigration and longer life spans, even if birth rates decline.

However, national averages have limited relevance to individual cities. Cleveland, Ohio, offers a stark example of population decline. From its peak of over 914,000 residents in 1950, the city's population fell to 750,000 by 1970 and plummeted to about 372,000 by 2020—a 50% decrease since 1970. This dramatic decline stemmed not from birth rates but from issues with city government, crime, and cost of living.

During the same period, the population of the Las Vegas metro area has grown dramatically since 1970. In 1970, the population was approximately 273,000. By 2020, it had surged to over 2.3 million, representing an increase of more than 740% over the same period. This also had little to do with national birth rates.

As investors, we should focus on city-level performance, not national averages. Focus on cities with both significant, sustained population growth and consistent appreciation of existing properties. These two factors serve as strong indicators of a city's long-term economic outlook.

Hello @Oren Dadon, (go Technion!)

Not all investment locations are equal. You need to consider many factors when selecting an investment city including operating cost and long term performance.

Operating Costs

Below is a comparison of insurance and property tax rates for three states without state income taxes.

• State average property tax source.
• Texas and Nevada average insurance source.
• Florida average insurance cost source

To put this in perspective, below is an estimate of annual operating costs for a $400,000 property.

Compared to a property in Nevada, properties in other states require additional cash flow to compensate for their higher operating costs.

• Florida: +$11,311 ($14,636 - $3,325)
• Texas: +$5,712 ($9,037 - $3,325)

The takeaway is that operating costs have a huge impact on your ability to achieve financial independence.

Long Term Performance

The goal of real estate investing is financial independence. Financial independence means more than just replacing your current income—it requires generating enough income to maintain your lifestyle throughout your life. This requires a rental income that rises faster than inflation. In cities with urban sprawl, rents won't increase rapidly enough to meet this requirement. Why?

Urban sprawl is the uncontrolled spread of cities into nearby rural areas. Below are links to Google Earth time lapses showing examples of urban sprawl.

• Fort Worth
• Phoenix
• Memphis
• Houston
• Orlando

Where there is urban sprawl, rent and price increases of existing homes are capped by newer homes. This is because people will usually choose newer homes, which limits price and rent growth of existing homes. Even if you buy a new home, your property will soon no longer be in the "new" area and appreciation and rent increase will stagnate. The buying power of your rental income will decrease due to inflation.

Where can you buy properties where prices and rents will outpace inflation? Only cities with physical barriers to expansion will see existing properties perform well over the long run. As an example, below is an annotated 2022 aerial of Las Vegas. There is little undeveloped land today in metro Las Vegas. Raw land in desirable areas starts at $1M per acre. The result is that rents and prices of existing properties continue to increase because there is no ability to expand.

Conclusion

Real estate investing is a long-term investment. When selecting an investment city, you need to consider long-term factors like rent growth, appreciation, and operating costs.

It's March, and it's time for another Las Vegas update. For a more comprehensive look at the Las Vegas investment market, please DM me for a link to our blog. There, you'll find detailed information on investing, both in general and specifically in Las Vegas.

Before I continue, note that unless otherwise stated, the charts only include properties that match the following profile.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF.
• Price range: $320,000 to $475,000
• Location: All zip codes marked in green below have one or more of our client’s investment properties (click to enlarge).

What we are seeing:

The chart below, from the MLS, includes ALL property types and price ranges.

Rental Market Trends

The charts below are only relevant to the property profile that we target.

Rentals - Median $/SF by Month

Rents increased MoM, in line with our expectations. YoY is up 3.5%.

Rentals - Availability by Month

The number of homes for rent had a significant decrease MoM, in line with our expectations.

Rentals - Median Time to Rent

The median time to rent continued to decrease rapidly in February, now around 27 days. This is in line with our expectations for this time of year.

Rentals - Months of Supply

Only about 1.2 months of supply for our target rental property profile. This low inventory will continue to pressure up rents.

Sales - Months of Supply

There are about 1.3 months of supply for our target property profile. A 6 months supply is considered a balanced market. This limited inventory will likely continue to drive up prices.

Sales - Median $/SF by Month

The $/SF had a marginal increase MoM. YoY is up 6.1%.

Why invest in Las Vegas?

The goal is to achieve and maintain financial freedom. Financial freedom goes beyond simply replacing your current income—it's about sustaining your lifestyle for life. To accomplish this, you need an income that outpaces inflation. Otherwise, you won't have the additional funds necessary to cover the rising costs of goods and services.

What causes rents (and prices) to increase?

Supply & Demand

Unlike financial markets, real estate prices and rents are driven by supply and demand. What is the supply and demand situation in Las Vegas?

Supply

Las Vegas is unique because it is a tiny island of privately owned land in an ocean of federal land. See the 2022 aerial view below.

Very little undeveloped private land is left in the Las Vegas Valley, and desirable areas cost more than $1 million per acre. Consequently, new homes in these locations start at $550,000. Homes that appeal to our target tenant segment range from $350,000 to $475,000, so the supply of housing we target remains almost the same regardless of how many new homes are built.

Demand

Population growth drives housing demand and price and rent increases. Las Vegas's average annual population increases by 40,000 to 50,000 per year. What attracts people to Las Vegas? Jobs. Ongoing construction projects valued between $26 billion and $30 billion fuel employment opportunities. The most recent job fair featured over 20,000 open positions.

In Conclusion

While nothing is guaranteed, the combination of population growth and limited land for expansion virtually assures that prices and rents will continue to increase.

Thanks for reading my post. Reach out if you have questions or would like to discuss investing in Las Vegas.

Hello @Derek Green,

If you plan to fix and flip houses, you can ignore this post. If you plan to fix and rent, please read on.

The goal of real estate investing is financial independence. Where you invest is therefore the most important decision. The city determines all long-term income characteristics, including:

• Whether rents of existing homes increase faster than inflation. This is crucial for maintaining financial independence—if you invest in a city where rents don't outpace inflation, your purchasing power will decline and you will have to go back to work to supplement your income.
• Operating costs. Every dollar you lose to operating costs is less for you to live on. Below, I compare the overhead expenses of three states with no state income tax.
• Whether you or the government controls your business, you need a pro-business and pro-landlord legislative environment.
• Crime - High crime levels and long-term economic growth do not go together.

Operating costs vary tremendously by state. Below is a comparison between Nevada, Texas, and Florida.

• State average property tax source.
• Texas and Nevada average insurance source.
• Florida's average insurance cost source

To put this in perspective, below is an estimate of annual operating costs for a $400,000 property.

Compared to a property in Nevada, properties in other states require additional cash flow to compensate for their higher operating costs.

• Florida: +$11,311 ($14,636 - $3,325)
• Texas: +$5,712 ($9,037 - $3,325)

The takeaway is that operating costs can have a huge impact on financial independence.

Remote Investing

Live where you like, but invest where you can achieve and sustain financial independence.

Most investors don't live in cities that meet all the requirements for financial independence. Therefore, the real question isn't whether to invest remotely—it's where and how to do it safely.

Once you've selected a city that meets the requirements, you'll need an experienced local investment team to minimize risk. While books, seminars, podcasts, and websites offer valuable general knowledge, ultimately you're investing in a specific property in a specific city. This requires deep local expertise. Only an experienced local team can provide the local market knowledge and resources essential for success.

Hello @Jake Andronico,

Whether new construction is a good option depends entirely on your target tenant segment. In investment real estate, everything depends on having reliable tenants occupy your property. Reliable tenants pay rent on schedule, stay for many years, and take care of the property. Reliable tenants are the exception, not the norm. However, there are tenant segments with a higher concentration of reliable people than others. Success depends on buying properties that attract this segment.

So, reverse the approach. Instead of focusing solely on the property and hoping it attracts reliable tenants. Start by identifying a tenant segment with a high concentration of trustworthy people. You identify this segment by interviewing property managers. Once you know what and where this segment rents today, buy similar properties. This approach dramatically reduces the dependence on luck and opinions.

This approach mirrors how national retail chains select stores and localized offerings. They don’t pick a store location and hope customers will come. Instead, they identify their target customers and open stores near them. They also adapt to local preferences. For instance, McDonald’s offers spam and poi in Hawaii and wine in France.

Does new construction make sense? It depends on the tenant segment you want to attract. We've focused on the same tenant segment in Las Vegas for over 17 years. New single-family homes in desirable areas start at $550,000, but our target tenants can only afford to rent properties priced between $350,000 and $475,000 today. While new construction might seem appealing with its lower maintenance costs and move-in-ready condition, these properties typically attract tenants who stay just one to two years. In contrast, our target tenant segment stays an average of over five years. So, new construction is not a viable option in Las Vegas.

Hello @Marcus Auerbach,

I agree that OOS investing is very difficult, unless you work with an experienced local investment team. So far, we have delivered over 550 properties to about 180 clients worldwide. Of the 180 clients we've worked with, only 9 or 10 were local. Our repeat business rate is over 90%, and our largest source of new business is existing clients.

My point is that OOS investing works, but only when you partner with an experienced investment team. It simply cannot succeed if you try to do everything yourself.

Investment City Requirements

The location is critical because it defines all long term income performance. If your goal is financial independence, the city where you invest must meet the following:

• Significant and sustained population growth.
• A metro population > 1M.
• Rapid and sustained existing home appreciation.
• Low operating costs.
• Low risk of natural disaster.
• Pro-business and pro-landlord legislative environment.

What are the odds that you happen to live in a location that meets all the city requirements listed above?

Live where you want, but invest where you can build an income stream that enables lifelong financial freedom.

Another Consideration

Everything you learn from books, podcasts, seminars, and websites is general information. You will buy a specific property in a specific location and will need multiple local resources. The only source for what you need is an experienced local investment team. This is true even if you invest locally.

Commenting on the specific issues you stated:

• Renovation: We have long standing relationships with a number of service providers. For example, our preferred renovation company has completed over 440 renovations. So far, their prices are usually $3,000 to $10,000 less than any others. Before we established relationships with specific service providers, it was difficult for me to get any contractor interested in renovations under $25,000. With the relationships we've established, they now know they must take all our deals (large and small) to receive any of our referral business.
• I completely agree with you on "deals in the hood." The fundamental problem is that no property ever paid rent—the tenant pays the rent. So, we focus on a highly reliable tenant segment. Our tenant's average stay is over 5 years, with only 7 evictions in 17+ years out of a tenant population exceeding 1,000. We experienced no vacancies or rent decreases during the 2008 financial crash. We achieved this by identifying the right tenant segment and buying properties similar to what they were renting.

In summary, out-of-state investing is necessary to achieve financial independence, unless you happen to live in a city that meets all the requirements I listed above.

Hello @Michael Fluder,

Whether a location makes sense depends on your goals. If your goal is to buy a property, almost any place will do. If your goal is financial independence, there are specific investment city requirements.

Before I continue, understand that no property ever paid rent. The tenant who occupies the property pays the rent. The property is simply a vessel that a tenant pays to occupy. Therefore, you need to focus on the entity that pays the rent and the long-term income requirements. There are three income requirements to achieve and maintain financial independence, which are determined by the city where you buy.

• (Historic) Rents must rise faster than inflation. If you doubt the importance of rents outpacing inflation, just try buying the same basket of groceries today that you bought a year ago—at last year's prices.
• The income must last throughout your lifetime. Income persistence depends on your tenants' employment, meaning new companies must continuously establish operations in the city and create replacement jobs. This is essential because the average lifespan of a company is ten to eighteen years. Every non-government job your tenants have will disappear in the foreseeable future. So, job creation is critical. A good indicator is rapid and sustained population growth.
• You must be able to acquire multiple properties with minimal total capital. This requires a city where existing properties appreciate rapidly.

If the city where you choose to invest meets all the above (financial independence) requirements, you're ready to proceed. If not, I recommend searching for a location that does.

The other city selection consideration is an experienced investment team. Everything you learn from books, podcasts, seminars, and websites provides only general information. You won't buy a general property—you'll buy a specific property in a specific location, and you'll need specific local resources. The only source for what you need is an experienced local investment team.

Michael, how you feel about a city or property doesn't matter. What matters is how the city/property performs over the rest of your life.

Hello @Mohamed Youssef,

Most people focus on property types—single-family homes, condos, commercial buildings, etc.—and hope for the best. I took a different approach: I focus on reliable tenants and buy what they are willing and able to rent.

To give you an idea of how effective this approach is, here are my 17+ year results:

• Delivered over 550 residential rental properties.
• Maintained a vacancy rate of less than 2%.
• Average tenant stays over five years.
• Zero decline in rent or vacancies during the 2008 crash.
• Almost no impact from COVID and the eviction moratorium.

Properties don't pay rent; tenants do. A property is simply a container that people pay to occupy. To have a reliable income, you need properties that attract reliable tenants. A reliable tenant:

• Stays many years.
• Pays rent on time.
• Has stable employment, even during economic downturns (e.g., government or business-critical jobs).

Instead of picking a property and hoping it attracts good tenants, I reversed the process. I started by identifying a target tenant segment, then researched what and where they are renting. From this, I created a property profile with four key elements:

1. Location: Where does the target tenant segment already rent?
2. Property type: What type of properties do they prefer (e.g., condos, single-family homes, etc.)?
3. Rent range: What can they afford?
4. Configuration: What are their specific housing requirements (e.g., number of bedrooms, garage size, yard, etc.)?

For example, in Las Vegas, I found that tenants earning $60,000–$85,000 with elementary school children are the best performers. They have secure jobs, are unlikely to buy homes due to high property prices, and tend to be long-term renters.

While some investors prefer commercial properties, I find them less reliable. Here’s why:

• Easy to duplicate: For example, when I moved to my current home about 11 years ago, there were two self-storage facilities within about 5 miles. Today there are over 18. The population has not increased 9 times, so I assume these 18 storage facilities are essentially splitting the same amount of business that the two were splitting 11 years ago. This explains all their signs offering "X months free" promotions.
• Economic sensitivity: Mobile home parks often cater to lower-income tenants, who are the most likely to be laid off during economic downturns.
• Declining demand: Offices of any kind can be problematic. Nationwide, office buildings are suffering from low occupancy rates and declining rents.

Residential properties offer several advantages over commercial properties:

1. Demand-driven pricing: Residential property values and rents are driven by supply and demand. In cities with significant and sustained population growth, prices and rents rise rapidly.
2. Better financing: Residential loans typically offer 30-year fixed rates, while commercial loans require refinancing every 3–7 years, exposing you to interest rate risk and additional expenses.
3. Faster depreciation: Residential properties depreciate over 27.5 years, compared to 39 years for commercial properties, offering better tax benefits.

That said, not all residential properties perform equally. In Las Vegas, only a narrow segment of properties meets my performance criteria.

Don't just choose a type of property and hope it performs during the next economic downturn. Instead, focus on properties that attract reliable tenants.

Hello @Allen Zhu,

You asked excellent questions, and I agree with Kevin that they call for long answers. I will do my best to be helpful and keep my post reasonable in length.

Selecting a good investment city and property is straightforward. I will explain the process below. Reach out if you have questions.

Let me first share my key assumptions:

• Tenants, not properties, pay rent. A reliable tenant is invaluable—they stay many years, pay the rent on schedule, and care for the property.
• Renters are diverse. Each tenant segment has specific housing requirements and will not rent properties that don't meet those requirements.
• Real estate investing is about long-term financial freedom. Your rental income must outpace inflation, last your lifetime, replace your current income, and continue even when the economy dips.

If we agree on that, here’s how I approach location and property selection:

Location is King

Where you invest dictates your long-term income potential. Look for cities with:

• Strong, consistent population growth: More people needing housing drive up rental demand.
• Rapid property appreciation of existing properties: This lets you acquire more properties with less cash.
• Job growth: Your tenants need jobs to pay rent. Focus on cities that attract new companies. When companies choose a location, they consider:
  • Metro population over 1 million: A large, skilled workforce and robust infrastructure. Wikipedia's Metropolitan Statistical Area page
  • Low Crime Rates: High crime deters businesses and residents. Do not invest in any city on this list.
  • Low Operating Costs: Companies seek locations that allow them to remain competitive, avoiding areas with high taxes and regulations. Property taxes are a good indicator of overall operating costs. LendingTree
  • Low Risk of Natural Disasters: Companies are wary of areas prone to natural disasters. The best indicator of natural disaster risk is homeowners insurance costs. Do not invest in cities with high insurance rates.

Property Selection: Target Your Tenant

Instead of buying a property and hoping for reliable tenants, flip the script: identify a tenant segment with a high concentration of reliable people. Talk to local property managers to determine the right segment (reach out if you want specific questions to ask). Once you've identified your target segment, observe what and where they're renting. Then, buy similar properties. The key is meeting the housing requirements of the people you want as tenants, not guessing. Depending on the city and the tenant group, this approach is adaptable—it could be condos, single-family homes, or townhouses. And the principle applies universally to in-state or out-of-state investments.

I hope this helps.