All Forum Posts by: Eric Fernwood

Hello @Carl Reza,

There is a lot of confusing information on different real estate websites. However, there is a straightforward process that does not require any secrets or gurus, which is illustrated below (click to enlarge).

I will summarize each step below.

Goals

Setting written goals is the foundation of any successful venture. Writing them down turns your ideas into tangible objectives you can work toward. Your goals don’t need to be overly complicated. Start with these three key points:

1. Current Situation

   Assess your current or expected capital and credit within a realistic timeframe. If you’re not paying cash for properties, get pre-approved for an investor loan to understand your available credit.

2. Time Frame

   The shorter your timeline to achieve your goal, the more upfront capital and credit you’ll need.

3. End Goal

   Most investing goals focus on replacing their current income, like $5,000/Mo. However, financial freedom isn’t a one-time event; it’s about sustaining your desired lifestyle for the rest of your life.

Once you have your goals, the next decision is where to invest.

Investment Market/City

The investment city determines all long-term income characteristics, including whether rents rise fast enough to outpace inflation and how long your income will last.

Understanding inflation: It takes more dollars to buy the same goods every time you go to the store. For example, if $100 buys a basket of goods today, in 10 years, with a 5% average inflation rate, you'll need $162 to buy the same items. If your rental income increases faster than inflation, you will have the additional dollars you need to pay inflated prices. If not, you must return to work to make up the difference between your rental income and inflation-driven prices.

What determines rent growth?

Property prices determine rental rates, which are determined by population change. Here’s how it works:

• Population Decline or Stagnation: If the population is static or shrinking, the current housing supply meets demand, and property prices decline (in inflation-adjusted dollars). Low prices enable more people to buy, limiting demand for rental properties so rents decline (in inflation-adjusted dollars).
• Population Growth: In areas with growing populations, demand outpaces supply, driving up property prices. High property prices mean fewer people can afford to buy, so more people rent. This added demand for rentals drives up rents.

You must invest in a city with significant and sustained population growth to have rents outpace inflation. Otherwise, you can never attain financial freedom because rents will not outpace inflation.

How long your rental income lasts depends on job growth in the investment city.

Non-government jobs are inherently temporary. The average company only survives for ten years, while even large companies typically last just 18 years. This means your tenants' private-sector jobs will eventually end. Without new companies creating similar-paying replacement jobs, workers may have to settle for lower-paying service sector positions. When this happens, inflation-adjusted rents tend to decrease. Therefore, your financial freedom hinges on new companies continuously moving into the city, creating replacement jobs.

Companies have many options when selecting a location to set up operations. While different industries may have additional location requirements, there are four basic requirements.

• Low crime: Companies are unlikely to establish new operations in high-crime cities. Never invest in any city on this list of the 50 most dangerous US cities.
• Low operating costs: High operating costs are one of the driving factors for many companies, leaving states with high taxes, regulations, and other costs. Why would companies choose to set up new operations in a high operating cost city?
• Sufficient infrastructure: Companies select locations with major airports, highways, and a large population of potential workers. These are primarily found in cities with a population >1M.
• Pro-business environment: Many cities treat employers as adversaries through restrictive policies. Rent control measures, burdensome employment regulations, and excessive administrative requirements exemplify this. Companies know where they will be treated well and where they are not wanted. “Money goes where money is treated best.”

Your future ability to attain and maintain financial freedom depends on the city where you invest.

Investment Team

An essential location selection criterion is an experienced local investment team. While podcasts, books, seminars, and websites offer general knowledge, you'll buy a specific property in a specific location, subject to local rules and regulations. Only an investment team can provide the crucial local knowledge you need.

Moreover, you'll need various resources to find, validate, inspect, renovate, and manage a property. You have two options: attempt to gather these resources or collaborate with an existing team. Consider a different investment location if you can't find an experienced team with all the necessary resources.

To build a local investment team, start by finding an experienced investment realtor. Feel free to ask for information on finding one.

Tenant Segment

No property ever paid rent. The tenant who occupies the property pays the rent. And you need your property occupied by a reliable tenant. A reliable tenant stays for many years, pays the rent on schedule, and takes good care of the property.

Reliable tenants are the exception, not the norm. Every tenant segment has some reliable tenants. However, there will be a segment with a high percentage of reliable people. By interviewing your investment team, you can identify this segment and the properties they are currently renting.

Buy Properties

Once you identified the tenant segment, you want to occupy your property, and what they currently rent, all you have to do now is buy similar properties. This is the same process a retail store uses to determine what to stock. For example, in Hawaii, McDonalds sells poi and spam. In France, they sell wine.

They identified their customers (in your case, reliable tenants) and delivered what they wanted to buy (rent).

Summary

A proverb has helped me: "Yard by yard, life is hard. Inch by inch, life is a cinch." If you take it step-by-step, you do not need any secrets or gurus.

Has this process proven successful? Absolutely. We've successfully delivered over 550 investment properties to over 200 clients worldwide, and over 90% of clients have invested with us repeatedly, showing they are happy with their investments.

It's December, 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 noted, 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.

What we are seeing:

The chart below, from the MLS, includes ALL property types and price ranges. The overall inventory is higher due to the season. However, sellers currently on the market are more likely to accept lower offers, giving us some room for negotiation.

Rental Market Trends

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

Rentals - Median $/SF by Month

Rents held steady from October to November, bucking the seasonal trend. YoY is up 3.5%.

Rentals - Availability by Month

The number of homes for rent decreased MoM, also bucking the seasonal trend.

Rentals - Median Time to Rent

Median time to rent increased in November to 30 days. This is expected for the time of the year.

Rentals - Months of Supply

About 1.6 months of supply for our target rental property profile. This low inventory will continue to pressure up rents.

The sales market is (finally) showing a seasonal slowdown.

Sales - Months of Supply

There are about 1.8 months of supply for our target property profile. A six-month supply is typically considered a balanced market. This limited inventory will likely continue to drive prices upward.

Sales - Median $/SF by Month

The $/SF decreased slightly MoM, conforming to the seasonal trend. YoY is up 7.6%.

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 extra funds necessary to cover the rising costs of goods and services in the future.

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 2020 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 @Catherine Javier,

This is a common question, Whether to keep, refinance, 1031, or sell. I created the following decision tree diagram to illustrate the decision process (click to enlarge).

The above decision process is based on the property’s performance record, with the goal of achieving financial freedom in mind.

Financial freedom is not just replacing your current income. It's about having an income that will enable you to maintain your current standard of living for life. This requires a rental income that meets the following requirements (click to enlarge):

Where to buy? The markets that can help you achieve financial freedom (see the Dependencies above).

Hello @Kyle Luman,

In the first few years, tax deductions like depreciation typically offset cash flow, depending on the rate of rent growth.

I also want to comment on your statement: “Buy in appreciating areas. Obvious, but maybe the least reliable as it is somewhat by chance.“

I do not agree that appreciation is a function of chance.

Appreciation is driven by the imbalance of demand and supply. In cities with static or declining populations, the existing housing supply typically meets housing demand. Such cities tend to have lower prices that rise slowly due to limited demand. If you buy in such a city, you are almost guaranteed to have limited appreciation and rent growth.

If a city has significant and sustained population growth, then the current housing supply will be insufficient and prices will rise until the demand (the number of people willing and able to buy) roughly equals supply.

Rental rates are closely tied to property prices. As home prices or interest rates increase, fewer people can afford to purchase homes, forcing them to rent. This higher rental demand drives up rental rates. Conversely, when property prices are low, rental demand decreases, causing rental rates to remain relatively flat or fall.

How can you identify cities that are likely to have significant and sustained appreciation and rent growth? Start with a list of cities with a metro population greater than 1M, and evaluate each city against all the additional criteria. If a city fails to meet any of the additional criteria, remove it from the list.

• Sufficient population: cities with a metro population greater than 1M. Small towns may rely too much on a single business or market segment. Wikipedia
• Significant and sustained population growth: Never invest in any location with a static or declining population. Wikipedia
• Low crime rate: Never invest in any city on this list: The most dangerous cities in America, ranked
• Low operating costs: Good indicators of a pro-business climate include:
  • Property taxes: State Property Tax Rates - Rocket Mortgage.
  • State average insurance cost: Insurance - ValuePenguin
  • State income taxes: Tax Foundation
• Low risk of a natural disaster: Natural disasters can devastate your property and the surrounding community, leading to job losses and the closure of shops and businesses. This forces people to relocate. While insurance might cover the reconstruction of your property, the community's recovery could take years or, in some cases, never occur. Meanwhile, your expenses, like debt service, taxes, insurance, and maintenance, continue. The cost of homeowners insurance is the best indicator of the likelihood of a natural disaster in an area. Choose a location with low-cost homeowners insurance because they have the lowest risk of natural disasters: Insurance - ValuePenguin

If you follow the above process, you will now have a short list of potential cities that are very likely to appreciate much faster than others due to their strong fundamentals.

Hello,

Good comments on this thread. Below are my 2¢’s on a couple of topics.

Section 8

So far, we’ve had 6 or 8 clients try Section 8 in Las Vegas. All had serious problems. Some examples:

• Section 8 typically covers 80% of the rent (depending on tenant income), with tenants responsible for the remaining 20%. One client who owned four fourplexes with Section 8 tenants rarely received the tenant's 20% portion. Also, the amount of damage was so expensive to repair that he simply could not afford to fix the more damaged units. So, they just stayed vacant.
• Income reliability is another major issue. During the 2008 financial crash, low paid, low skilled workers were laid off in droves. The result is that many of the multi-family properties that targeted Section 8 were vacant and went into foreclosure. Low skilled workers are the first to be laid off and the last to be rehired. I know that in the future we will have some sort of market downturns and you could lose all that you acquired with properties that target low paid workers.
• Behavioral issues are a significant concern. A single investor purchased a building in an upscale condo complex and leased all units to Section 8 tenants. These residents caused so much damage and disruption to the entire complex that many non-Section 8 residents moved out. The key lesson is that if you rent to Section 8 tenants, their negative behaviors may result in non-Section 8 tenants to leave.
• Rent increases are more likely tied to the minimum wage. Few low skilled workers make much more than the minimum wage. So, you may not have have the ability to increase rents because Section 8 limits how much you can charge, which may not keep up with inflation.

Not everyone has Section 8 issues as my clients had, but you will more likely to have more problems than with non-Section 8 tenants.

Multi-Family vs. Single-Family

The supposed advantage of multi-family properties is that income from occupied units can mitigate vacant units. While appealing in theory, the reality is different.

More units do not result in increased income reliability. Consider Charles Lindbergh’s 1927 solo flight from New York to Paris. Initially, a two-engine plane was considered for increased safety. However, planes of that era couldn’t stay aloft on one engine for long, doubling the risk of crashing into the Atlantic Ocean without any added benefit. Hence, the decision was to make the flight using a single-engine plane.

The same logic applies to multi-family properties: a fourplex has four times the vacancy risk of a single-family. And, when there is a vacancy, can the remaining units provide enough cash flow to cover all costs? Also, with four units, what if you have one or more vacant units most months?

Maintenance is another issue. A fourplex means four times the appliances, plumbing, HVAC, water heater, and other repairs, driving up maintenance expenses compared to a single family.

In Las Vegas, multi-family properties attract transient tenants, like singles or couples without children, who typically stay 1 to 2 years. In contrast, our target demographic, families with children, stays on average over five years, reducing turnover and vacancy costs. See this BP blog for a numbers comparison - More Units Doesn’t Mean More Money—Why a Single-Family Home Can Beat a Fourplex.

Stay focused on your goal, financial freedom; not following popular dogma.

Hello @Daniel Reed,

The supposed advantage of multi-family properties over single-family homes is misleading when you look at financial performance. Here’s a comparison:

Income reliability and net cash flow: In Las Vegas, a fourplex in reasonable condition costs about the same as two single-family homes, but they attract very different tenants. Multi-family properties typically draw transient tenants, singles or couples without children, who stay only 1–2 years and cause moderate to serious damages. In contrast, single-family homes attract families with children, who stay an average of five years and take care of the property. Longer tenancies mean lower turnover and vacancy costs, so two single-family homes usually generate more reliable income and higher net cash flow than a fourplex.

Vacancy risk: A fourplex has four times the vacancy risk of a single-family home. If one or more units are vacant, the remaining units often don’t provide enough cash flow to cover expenses, making it harder to meet operating costs.

Maintenance costs: A fourplex comes with four times the appliances, plumbing, HVAC systems, and other components to maintain, leading to significantly higher repair and maintenance expenses than single-family homes.

If you want to see the detailed calculation, read this BP blog - More Units Doesn’t Mean More Money—Why a Single-Family Home Can Beat a Fourplex.

Resale value: Multi-family properties have a limited buyer pool—mainly investors—who base their offers on CAP rates. Without major rent increases, multi-family property values tend to stay flat. Single-family homes, however, appeal to investors and homebuyers, giving them broader market demand and more potential for appreciation.

The bottom line: When deciding between multi-family and single-family properties, focus on actual net cash flow, not dogma.

Hello @Patricia Via,

Our investment business in Las Vegas has delivered over 530 investment properties to clients worldwide. Property management is one of our core services, and we've worked with numerous property managers over the years. In this post, I'll share my thoughts on the value of a good property manager and how to select one. I hope this will help.

Should You Self-Manage or Hire a Property Manager?

Based on years of experience with over 530 investment properties in Las Vegas, here are some thoughts to help you evaluate the value of property managers and how to find a good one.

The Value of a Good Property Manager

Many people believe that a property manager's only value is collecting the rent. While important, it is not the only value.

• Selecting reliable tenants is the most valuable service a property manager provides. Avoiding problematic tenants from the start is the best way to prevent problems like non-payment, eviction, and property damage. This specialized skill is rare—after working with many property managers in Las Vegas over the years, I found only two I would trust to place tenants in my properties.
• Contracts and processes must comply with all city, state, and federal regulations. Property managers typically belong to state or national organizations that continuously update their contracts and processes to maintain compliance. Unless you monitor regulations full-time, staying compliant is nearly impossible—and a single mistake can cost more than years of property management fees.
• Properties don't pay rent—tenants do. Deep knowledge of tenant segments and their behaviors is essential, and this expertise comes only through a good property manager. A good property manager can guide you in selecting properties that will attract a tenant segment with a high concentration of reliable people.
• Access to cost-effective resources for renovation and repairs.
• Lease terms enforcement. Proactively managing tenants greatly reduces evictions and other problems.

Finding a Good Property Manager

Good property managers are rare, so finding one requires a structured process:

1. Define Your Needs List required services based on property type and location. For example, if you’re investing in residential properties on the southwest side of town, eliminate property managers focused on commercial properties or other areas.
2. Research Candidates
   • Search Engines: Be cautious—Google rankings often reflect marketing, not quality.
   • Yelp Reviews: Read reviews critically; tenants, not property owners, typically write them. A negative review from a tenant could be a positive review for an owner.
   • Networking: Use forums like BiggerPockets for recommendations, but conduct thorough research yourself.
3. Initial Screening Narrow your list to 5-10 candidates by reviewing their websites and scheduling Zoom interviews. Prepare a list of 10 key questions, such as:
   • How long have you been managing properties?
   • How many properties do you manage, where, and what types?
   • What are your fees?
   • Do you have an in-house repair staff? (Avoid managers who profit from repairs.)
   • How do you screen prospective tenants?
   • What advice would you give a new investor buying their first property?
4. In-Depth Evaluation For shortlisted candidates, schedule follow-up interviews. Ask key questions like: "What's the average tenant stay length?" and "What's your typical time to rent a property?" Request sample documents, including management agreements and monthly statements. Visit their office (or request a virtual tour) to assess professionalism. If the office is disorganized, their processes likely are, too.

Other Considerations

• Experience: Choose medium-sized firms—they balance resources and personal attention better than large or small firms.
• Fees: you cannot afford a discount property manager. However, higher fees do not necessarily indicate skills.

Final Thoughts

A skilled property manager can save you time, minimize risks, and boost profitability. Choose a manager whose approach aligns with your investment goals, and remember—value matters more than cost.

@Devin Conley,

At the current high interest rates (~7%), you will likely need to put 30% down to have a neutral cash flow. You could also put 25% down and buy down the interest rate to achieve the same. Another alternative is to have a negative cash flow by putting down less. I believe that within three years, rates will be much lower, and you can refinance.

Another consideration is that once you get a property under contract, you should immediately shop around for better rates. Many of our clients have done this and secured much better terms.

...Eric

This spreadsheet decision is based on what you can afford and when you expect interest rates to fall.

It's November, 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 noted, 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.

What we are seeing:

The chart below, from the MLS, includes all property types and price ranges. The overall inventory is higher due to the season. However, sellers currently on the market are more likely to accept lower offers, giving us some room for negotiation.

Rental Market Trends

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

Rentals - Median $/SF by Month

Rents held steady from September to October, bucking the seasonal trend. YoY is up marginally.

Rentals - Availability by Month

The number of homes for rent increased slightly MoM, conforming to the seasonal trend.

Rentals - Median Time to Rent

Median time to rent increased slightly MoM, (28 days vs 27 days in September), conforming to the seasonal trend.

Rentals - Months of Supply

About 1.8 months of supply for our target rental property profile. This low inventory will continue to pressure up rents.

The sales market remains hot.

Sales - Months of Supply

There are about 1.5 months of supply for our target property profile. A six-month supply is typically considered a balanced market. This limited inventory will likely continue to drive prices upward.

Sales - Median $/SF by Month

The $/SF increased slightly MoM, bucking the seasonal trend. YoY is up 8.6%.

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 extra funds necessary to cover the rising costs of goods and services in the future.

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 2020 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.

Welcome to our first Las Vegas REI Group virtual meetup. These meetups are intended to facilitate connections and brainstorming among investors. There will be no sales pitches. But each attendee will be expected to participate.

The topic of this first meetup is: Journey to financial freedom - What’s your strategy and why? Your successes and lessons learned.

If you are interested in attending, please register here.