All Forum Posts by: Eric Fernwood

Please note that the following applies only to our target property segment, not the entire Las Vegas metro. Click here to see the property profile we target.

The market is heating up, evidenced by shrinking days on the market for both sales and rentals. See the graphs below. Notice the significant decrease of days on the market YoY, 15% for rentals and 47% for sales!

Sales - List to Contract Days by Month

The number of days on the market is decreasing rapidly in 2024, driven by limited inventory and strong demand.

Rentals - List to Contract Days by Month

The same trend is true for rentals. Rental trends tend to follow sales. When prices are high, more people are forced to rent, which results in increased demand and rising rents.

The above charts show data through March 2024. Our participation in the market in April tells us that April is hotter than March. Our clients currently hunting in the market know how fast good properties are selling and how competitive they are. Those who recently put their properties on the rental market were delighted with how quickly they rented out. So when next month’s stats are out, I expect to see a continuing decrease in the days on the market for both sales and rentals.

Inventory has been frustratingly low and is getting worse

Sales inventory had stayed low throughout 2023 and has plummeted in 2024.

Inventory in March dropped to only 0.5 months, less than half of that a year ago! The last time we saw a 0.5-month inventory was during the crazed COVID days.

Even the rental inventory is decreasing rapidly in 2024.

The rapidly shrinking inventory for both sales and rentals can only mean one thing—rising prices and rents. This is already showing in March data, and I expect to see more price and rent increases in next month’s stats.

Sales - $/SqFt by Month

Rentals - $/SqFt by Month

For landlords, this is wonderful - rising property values and increasing monthly cash flow. Good time to expand your portfolio. If you don’t own an investment property in Las Vegas yet and have been thinking about it, now would be a good time to act, as the longer you wait, the higher the prices you will need to pay. Las Vegas properties will remain excellent investments for the foreseeable future due to the sustained economic and population growth. Still, it is always better to acquire an asset at a lower price.

Where the market goes from here depends on two words:

Interest rates

If interest rates increase by 1% or more, I expect the market to cool down correspondingly. The number of homes available will likely remain stable, but the pool of buyers will shrink in line with the rise in interest rates. This could result in moderate to negligible increases in prices and rents, depending on the exact interest rate levels. However, given the recent announcement by the Fed to cut interest rates by a total of 0.75% in 2024 and the stable state of inflation, it seems unlikely that interest rates will see a significant increase for the remainder of 2024.

If interest rates drop by 1% or more, I KNOW the market will switch to hypergear. Although more homes may enter the market, even more buyers will emerge, driving up prices, similar to what we saw during the COVID frenzy. However, with inflation still exceeding the Fed's target and the GDP and unemployment rate showing positive signs, there's little incentive for the Fed to cut interest rates aggressively. Doing so could risk letting inflation spiral out of control again. Therefore, I believe the chance of a significant interest rate drop in 2024 is low.

The most likely scenario is that the interest rates will remain stable at their current levels throughout 2024, with minor fluctuations. In this scenario, I expect the current inventory level to be the main price and rent driver. At 0.5 months for sales and 0.8 months for rentals, I expect a strong, but not extreme, growth in prices and rents, which means a 10-15% increase in prices and a 6-8% rise in rents for the year, inline with our 2024 Investor Outlook.

The investment market in Las Vegas is experiencing strong growth and is expected to continue the trend as long as the interest rate does not increase significantly.

Market Trend

Below are charts from our latest trailing 13-month market report, which includes March data. Remember that this data is only for our target property profile, not the entire metro area. To see all the charts, please click here.

Rentals - Median $/SF by Month

$/SF jumped up in March, now at the highest level in the last 13 months. YoY is up 5.2%.

Sales - Median $/SF by Month

Despite persistently high interest rates, the $/SF continued to climb, up 10.3% Year over Year.

Rentals - Median Time to Rent by Month

Median time to rent continued to fall after the holiday season, now at 21 days, showing a heating up rental market. YoY is down 12.5%.

Sales - List to Contract Days by Month

Median days on the market continued to drop rapidly, showing a heating-up market. YoY is down more than 46.7%!

Rentals - Availability by Month

The number of homes for rent continued the downward trend. YoY is down 12.5%.

Sales - Availability by Month

This chart shows the average daily number of properties for sale in a particular month. YoY is down 45%!

Rentals - Months of Supply

Only about 0.8 months of supply for our target rental property profile. YoY is down 27%! Demand is greater than supply. This will pressure up the rents.

Sales - Months of Supply

There are just 0.5 months of supply for our target property profile. YoY is down 54.5%! A 6 months supply is considered a balanced market. This will continue to drive up the prices.

Any questions, please let me know. Thank you for reading my post.

Hello @Antonio Waller,

There are data sources for everything you need. However, most are not online. Also, before you start researching, first decide on your financial goal. For most people, the goal is financial freedom. Financial freedom is not just replacing your current income. Financial freedom requires maintaining your current lifestyle for the rest of your life. Financial freedom requires a passive income that meets three requirements:

• Your income outpaces inflation: Inflation continually erodes the purchasing power of a fixed amount of money. What you can purchase today for $100 will require $155 in 10 years if the inflation rate is 5%. The only way to sustain your current lifestyle is if rents rise faster than inflation. This is determined by the location.
• Persistent: You can not outlive your income. This requires continual and significant job creation. This is determined by the location.
• Reliable: You need to be able to rely on the rent coming in every month, regardless of the economic situation. This is determined by the location, the tenant segment you target and the companies they work for.

In the rest of this post, I will explain how to select the investment location, tenant segment, and property, as well as the information needed and the sources.

Selecting an Investment Location or City

The investment location is your most crucial investment decision, not the property itself. The location defines all long-term income characteristics, including whether your rents keep pace with inflation, the total capital required to acquire sufficient properties to maintain your standard of living, and how long your income will last.

There is a straightforward location selection process. Start with an initial list of candidate cities and eliminate all cities that fail additional requirements. The result will be a short list of potential investment locations for further consideration.

• Cities with a metro population >1M: Small towns may rely too much on a single business or market segment. Source: Wikipedia
• Sustained and significant population growth: Prices and rents are a function of supply and demand. Demand is driven by population growth. Where there is sustained and significant population growth, the current housing supply will not meet demand so prices rise until the number of sellers roughly matches the number of buyers. Where population growth is stagnant or falling, the current housing supply is sufficient so there is little increase in prices. Rents are driven by property prices. Where prices are low, more people can buy, so there is little demand for rentals, so there is limited or no rent growth. Where prices are higher, more people are forced to rent so rents increase. In the best locations, rent growth outpaces inflation. Never invest in any location with a static or declining population. Source: Wikipedia
• Low crime - A rental property is no better than the jobs around it. And, it is not just the current jobs. The average lifespan of a company is ten years, and an S&P 500 company only has an average lifespan of 18 years. Every job your tenants have today will disappear in the foreseeable future. Without new companies moving into the city and creating replacement jobs, the only jobs left will be low-paying service sector jobs. Companies wanting to set up new operations will not choose high-crime cities. Never invest in any city on this list: Mapped: The Most Dangerous Cities in the U.S.
• Rent control - Some states and metro areas have implemented various kinds of rent control. Rent control may prevent you from increasing the rent fast enough to keep pace with inflation. It may limit your ability to select the best tenant. It may make evictions of non-performing tenants difficult or impossible. Never invest in any city with rent control. Source: Google search.
• Low operating cost - It's not about how much you gross, it's about how much you net. Every dollar lost to operating costs means one less dollar for you to live on. The two most significant operating costs for investors are property taxes and insurance. Operating costs vary significantly by state; only invest in states with low operating costs. Source: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

Tenant Segment Selection

Properties do not generate income; it's the tenants that pay the rent. If you rely on this rental income, it needs to be reliable. Reliable income comes from tenants who stay for many years, pay rent even during economic downturns, and maintain the property well. However, such reliable tenants are the exception rather than the norm. How do you maximize the odds of always having a reliable tenant in your property?

Begin by identifying a tenant segment with a high concentration of reliable individuals. How do you identify such a segment? There is no database or online source of this information. You can only obtain this information through property manager interviews.

Simplistically, ask multiple property managers the same question. “What would you buy if you wanted tenants who stayed many years, always paid the rent on schedule, and take good care of the property?” This is what I did. In my case, seven or eight out of the ten property managers I asked described the same properties. Once I knew the property type, configuration, location and rent range, I developed what I call a property profile. A property profile is a physical description of the properties you want to buy. A property profile has at least the following factors.

• Property type: Single-family, multi-family, condo, townhouse, etc.
• Configuration: One bedroom, three bedroom, one story, two-story, lot size, age range, garage size, etc.
• Location: Where the tenant segment is renting today.
• Rent range: How much is this segment willing and able to pay.

Notice that I did not select any aspect of the property. I determined the property characteristics that attract the segment with the behaviors necessary for a reliable income. Then, I bought similar properties. If you follow dogma on websites about the “best” property to buy, you are unlikely to get reliable tenants because each location is different.

Once you know the property profile for the properties you want to buy for a reliable income, it is time to select the properties.

Property Selection

In addition to conforming to the property profile you created based on income reliability, there are additional considerations, as illustrated below.

The rent is the critical factor. Knowing the rent, you work backwards to a purchase price. Where can you get rent information? There are no reliable online sources for estimating rent for a specific property. For example, below is a photo of a boarded-up fire-damaged property in poor condition.

The popular site for a rental estimates I checked predicted the rent as $2,199/Mo. The reason the rent estimate makes no sense is that such sites estimate rents (and prices) based on area averages, not a specific property. However, you will not buy an “area average” property; you will buy a specific property in a specific condition. In summary, general information does not apply to specific properties. Online sites have little or no value due to gross inaccuracies.

An experienced local investment team is the only source for the *specific* property information you need. They possess all the resources necessary to provide the information you need to make an informed decision. And, rental information must come from a skilled property manager.

The problem is that many estimate rent based on recent similar rentals. This is not valid. When people look for a place to rent, they compare what is available at that time and choose what, in their opinion, is the best option for them. What a property rent for recently has no relevance to a potential renter. The choose from what is available today. Also, they do not just look at the property down the street from yours, they may be comparing your property with a property across town. See the illustration below. To someone works in a central job location, housing areas 1, 2, and 3 are the same.

Only an experienced property manager can provide the information you need; there is no database or online source.

Where Is the Data?

I consolidated the information sources below. Reach out if you have questions.

Location Selection:

• Cities with a population >1M. Source: Wikipedia
• Sustained and significant population growth. Source: Wikipedia
• Low crime. Source: Mapped: The Most Dangerous Cities in the U.S.
• Rent control. Source: Mapped: Source: Google search
• Low operating cost. Source: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

Tenant Segment Selection:

• Tenant segment with a high concentration of reliable people. Source: Interview multiple local property managers.

Property Selection:

All information must come experienced investment team members, there is no other source. Below are the primary sources for each information item.

• Property value and offer price: experienced agent
• Rent range and time to rent: property manager
• Renovation item list: property manager
• Renovation cost: renovation company the team works with

Antonio, reach out if you have questions.

Hello @Teejay Lobos,

There isn't a single "good" area; many areas have good properties. The map below shows the locations of most of our clients' properties.

Our methodology is likely different from most. We first selected a tenant segment with a high concentration of reliable tenants. A reliable tenant stays many years, always pays the rent on schedule, and takes good care of the property. Once we identified this segment, we determined what and where they currently rent. Then, we purchased similar properties. These properties are not located in a specific zip code or area. We select good properties based on whether our target tenant segment will rent the property. How has this worked for us?

• Our average tenant stay is > 5 years.
• We’ve had six evictions in 16+ years out of a tenant population > 1000.
• During the 2008 financial crash, our clients had zero decrease in rent and zero vacancies.

This blog post on Where to Buy Las Vegas Investment Properties might give you more detail.

The bottom line is that properties do not pay rent. The tenants who occupy the property pay the rent. So, choosing properties that attract reliable tenants is the critical success factor.

Great comments on this thread. My response to a few:

@Kevin S.

The rate of appreciation varies by location, price range, property type, property age, and other factors. Therefore, an "average" for a city, let alone a state, is not meaningful.

On the property tax and insurance, you are correct. Instead of looking at a specific city or area within a state, I used the state averages from the sources I listed. I was showing a general comparison, not a specific property/location comparison.

@Account Closed

I agree. At the current high interest rates, 30% down may not be enough to break even. How we are mitigating the high rates to some degree is that once we have a property under contract, we solicit interest rate buy down options from multiple lenders and go with the lowest rate. This is working reasonably well.

I would expand on your killer deal statement. Since rates exploded, I have not seen any killer first-year deals. However, if you purchase in a location where rents outpace inflation and there's rapid appreciation, even a marginal first-year deal can become a killer deal over time. If you buy where there is limited rent and price growth, the deal only gets worse over time as your buying power continuously declines.

@Daryl Correia

While 5% down investor loans may be available, the rates will be high as will the monthly payment, resulting in significant monthly losses.

Below is a (over simplified) table showing the down payment rate, debt service, taxes (0.55% of the purchase price), and insurance ($700 per year), assuming a monthly rent of $2,200, and a purchase price of $400,000. The source for the rates and point is here. These rates seem too low to me but that is what I found.

As you can see, while you might be able to purchase the property with a small down payment, there will be significant negative monthly cash flow. In the above scenario, you need to put 25% down to break even.

There is a lot of emphasis on day-one metrics (ROI, cash flow), etc. The goal of real estate investing is financial freedom.

Financial freedom requires a rental income that:

• Increases faster than inflation: Unless rents increase faster than inflation, your true (inflation-adjusted) income will continuously decline, and your time off the daily worker treadmill will be short. This is dependent on the city where you invest.
• Lifelong: Lifelong income is dependent upon the long-term economic growth of the city. This is evidenced by significant and sustained population growth. This is dependent on the investment city.
• Reliable: You have to be able to count on the income, no matter the economic situation. This is dependent on the tenant segment.

The above income requirements will not be met in low-cost properties. Properties are low cost because there is little demand and prices have not kept pace with inflation. The same is true for rents. Rents follow prices so where prices are low, rents increase slowly. The most common metric for such places is static or declining population. Only where there is significant and sustained population growth will prices and rents outpace inflation.

Another important consideration is overhead costs because it's not about how much you gross but how much you net.

When choosing an investment city, consider all significant recurring costs. Property taxes and insurance are typically the two biggest recurring costs.

Below is an overhead cost comparison of three states with no state income tax.

Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

To demonstrate the impact of taxes and insurance on net income, I compared the overhead costs of a $400,000 property in these three states. (These averages represent state-level data, and individual cities may levy additional taxes.)

To achieve the same level of cash flow as a property in Nevada, you would need to generate a higher cash flow in Texas and Florida to offset the higher operating costs.

• Texas: The property must generate $5,752 ($9,256 - $3,504) more cash flow annually to compensate for the higher operating costs.
• Florida: The property must generate $2,343 ($5,847 - $3,504) more cash annually to compensate for the higher operating costs.

Overhead costs can greatly affect cash flow. Therefore, consider these costs when choosing an investment city.

Summary

You need to have a long-term view of real estate investing. It is not just how the properties perform on day one, it is whether the properties will enable you to achieve financial freedom.

Hello Cillian Kelly

I'm sorry, but I do not have a good answer. The cost of buying down interest rates seems to change every day and is influenced by the credit score. Also, one day, lender X will have the best day, and the next day, it may be lender Y. 

Once we have a property under contract, we contact multiple lenders for their rates. We then take the best rate to the original lender to see if they can match it. If not, we go to the lender with the better rate.

It’s March, and it's time for another Las Vegas update. For a comprehensive view of the Las Vegas investment market, message me for my blog link. It contains more detailed information on investing insights, analytics, and, particularly, investing in Las Vegas.

Before proceeding, note that the charts only include properties that fit the following criteria unless stated otherwise.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF, one or two stories.
• 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).

Overall Las Vegas Real Estate Market Inventory

The chart below, provided by the MLS, includes all property types and price ranges.

The inventory level continued its downward trajectory, significantly lower YoY.

Rental Market Trends

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

Rentals - Median $/SF by Month

$/SF showed a slight drop MoM, which is surprising considering the decreasing rental inventory and time to rent. YoY is up 4.5%.

Rentals - Availability by Month

The number of homes for rent continued the downward trend. YoY is down 16.7%!

Rentals - Median Time to Rent

Median time to rent showed 24 days, continuing to fall after the holiday season, showing a heating up rental market. YoY is down 4%.

Rentals - Months of Supply

Only one month of supply for our target rental property profile. YoY is down 33%! Demand is greater than supply. This will pressure up the rents.

We saw a similar tight supply in sales as well. Now below one month of supply. This will continue to push up the prices.

Sales - Months of Supply

Sales - Median $/SF by Month

Despite persistently high interest rates, the $/SF continued to climb. It is up 7.1% YoY.

Why invest in Las Vegas?

In short, to achieve and maintain financial freedom. However, financial freedom isn't just about replacing your current income. Financial freedom requires maintaining your lifestyle for life. This requires an income that rises faster than inflation, or you will not have the additional dollars you will need to pay future inflated prices.

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 $320,000 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. Las Vegas's average annual population growth is between 2% and 3%. What draws people to Las Vegas? Jobs. Some recent examples of job growth in Las Vegas:

• The last job fair had over 20,000 open positions.
• $1.8B Sony movie studio backed by Mark Wahlberg approved for Summerlin - Projected to create thousands of new jobs.
• How North Las Vegas is becoming an industrial powerhouse
• Depending on which study you read, there is between $26B and $30B in new construction or under development. This will create thousands of future jobs. Each new job will increase the demand for housing.

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.

In any large metro area, there are usually thousands of realtors. Each one attempts to distinguish themselves by making claims such as:

• “We are the best.”
• “I’ve been in business for X years.”
• “I sold xxx homes in the last year”
• “I have multiple designations.”
• etc.

Do any of the above claims distinguish them from other realtors? No. Moreover, these claims do not qualify them as investment realtors because they fail to provide what investors need. Investors purchase income streams, not real estate.

What makes an investor agent? In short, someone who can provide investors with what they need to succeed.

What Does an Investor Need?

Buying an income property requires far more skills and services than buying a home. Investors are looking for a solution including property identification and validation, inspections, renovation and management. If you and your team can provide these services, you become invaluable to investors.

Alternatively, if an investor works with a residential realtor, they will have to supply all the services and resources that the realtor does not provide.

Even the information an investor needs is not available from the only resource a realtor can provide, which is an MLS data sheet. See the table below which compares what is on an MLS data sheet and what an investor needs to evaluate a property.

Below is a high-level summary of the tasks an investor needs to accomplish. Each requires a unique set of skills.

• Identify potential investment properties
• Accurately estimate probable rent and time to rent
• Estimate ROI and cash flow
• If the candidate property does not meet the return goal, look for another one. Repeat until you find a good property
• Onsite evaluation and estimation of the renovation cost
• Making offers and closing escrow
• Oversee the renovation
• Market the property
• Screen potential tenants
• Manage the property long-term

Investors are usually high income individuals who have money, but no time. So, faced with the realities of working with a residential realtor and having to do all the above themselves, they usually choose not to invest in real estate. When they find an investor realtor who can provide the full range of services they need, they are quick to share with their friends and colleagues.

What An Investor Agent Should Provide

Below is a diagram showing the major solution components an investor requires and who, in the investor’s team, is responsible for delivery. Note that just because you (the investor agent) are responsible for a service, does not mean you will do the work. You are the team leader and manage the client relationship and deliverables.

If you can provide investors a solution, they will seek you out because no other realtor can. Once you establish yourself as an investment realtor, repeat business will become a significant part of your business. We’ve delivered over 510 investment properties, and our average client buys 2.8 properties. We do no marketing other than blogging. And, referrals from existing clients are our primary source of new clients. Also, over 90% of our clients live in other states or countries; we’ve never met 60% of our clients.

Summary

Investors do not buy houses. They buy income streams.

If you want to be an investor agent and not just another “me too” realtor, give your clients the information and services needed to acquire and operate a profitable rental property business.

It’s February, and it's time for another Las Vegas update. For a comprehensive view of the Las Vegas investment market, message me for my blog link. It contains more detailed information on investing insights, analytics, and, particularly, investing in Las Vegas.

Before proceeding, note that the charts only include properties that fit the following criteria unless stated otherwise.

• Type: Single-family
• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ garages, minimum lot size is 3,000 SF, one or two stories.
• 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.

Overall Las Vegas Real Estate Market Inventory

The chart below, provided by the MLS, includes all property types and price ranges.

The inventory level continued its downward trajectory, significantly lower YoY.

Rental Market Trends

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

Rentals - Median $/SF by Month

Rents started to rise after the holiday season. YoY is up 5.4%.

Rentals - Availability by Month

The number of homes for rent continued the downward trend. YoY is down 12%.

Rentals - Median Time to Rent

Median time to rent was down significantly MoM, showing a heating up rental market. YoY is down more than 20%.

Rentals - Months of Supply

Only about 1.1 months of supply for our target rental property profile. Demand is greater than supply. This will pressure up the rents.

We saw a similar tight supply in sales as well. Now, just about one month of supply. This will continue to push up the prices.

Sales - Months of Supply

Sales - Median $/SF by Month

Despite increasing interest rates, $/SF climbed throughout 2023. The $/SF is almost unchanged MoM, but YoY is up 8.1%.

Why invest in Las Vegas?

In short, to achieve financial freedom. However, financial freedom is not simply replacing your current income; it requires maintaining your current lifestyle for life. To attain lifelong financial freedom, you need to invest in a city where rents and appreciation outpace inflation.

What causes rents (and prices) to increase?

Supply & Demand

Unlike financial markets, real estate prices and rents are driven by supply and demand. In this post, I will briefly discuss the unique supply and demand situation in Las Vegas.

Supply

Las Vegas is unique in that 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 $320,000 to $475,000, so the supply of housing we target remains almost the same regardless of how many new homes are built.

Demand

The driver for housing demand is population growth.

The average Las Vegas annual population growth is between 2% and 3%. What is bringing people to Las Vegas are jobs. At the 2023 spring job fair, there were over 20,000 open positions. The annual average wage was $65,000, which is our target tenant segment.

Las Vegas has $30 billion in new developments either under construction or planned. This will create thousands of additional jobs, bringing more people to the city and increasing housing demand.

In Conclusion

With a fixed supply of properties in the range of $320,000 to $475,000, a rapidly growing population, and a growing number of jobs, it is almost certain that rents and prices will increase in the foreseeable future.

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

Hello @Jack B.

You are facing a problem many other investors in Portland, Seattle, and California have faced. It is really hard to make money in a location with high overhead and where you cannot control your own property.

As to where you should invest, it should be determined by your financial goal. If you are like most, your goal is financial freedom. Financial freedom is more than just replacing your existing income. It's about maintaining your current lifestyle for as long as you live. To achieve this, you need passive income that meets three requirements:

• Rents outpace inflation: If rents do not outpace inflation, no matter how many properties you own, you cannot achieve financial freedom because inflation is continuously eroding purchasing power.
• Income persistence: Financial freedom requires that your income lasts throughout your life.
• Income reliability: The rental income must continue, even in bad economic times. Income dependability depends on the tenants who occupy your property.

Rent and price growth are driven by housing demand, which is dependent on population growth. Rents and prices only outpace inflation if the city has significant and sustained population growth.

Income persistence depends on current and future jobs. All private sector jobs are temporary. Unless new companies move into the area and create replacement jobs that pay similar wages and require similar skills, sooner or later, all that will be left are low-paying service sector jobs. As higher-paying jobs vanish, area incomes fall, and city services are cut back. This results in higher crime and lower-quality schools, which causes more people to leave.

What conditions attract new companies to relocate to a city?

• Economic stability. This requires a metro population >1M. Smaller cities tend to be dependent on a single company or market sector. Wikipedia
• Low operating costs: The three most apparent costs for investors are state income taxes, property taxes, and insurance. Tax Foundation, Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage
• Low crime rate: Companies depend on attracting talented workers. Talented workers will not move to a high-crime city. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.
• Low risk of a natural disaster: I frequently read of entire cities devastated by a natural disaster. When a natural disaster hits a city, it destroys jobs, businesses, and homes. This forces people to move to a different city to find work and start over. So, even if your insurance rebuilds your property, there might not be anyone to rent it. Meanwhile, you still have to pay your mortgage, taxes, insurance, and maintenance costs. To avoid this, choose a location with low-cost homeowners insurance, which indicates a lower risk of natural disasters. Insurance - ValuePenguin
• Pro-business environment: Google search
• No rent control of any kind. Rent control is a strong indicator of an intrusive government: Google search.

Income reliability is dependent on the behavioral characteristics and occupations of the tenant segment who occupy your property. To maximize income reliability, your property must be continuously occupied by what I refer to as a reliable tenant. A reliable tenant stays many years, always pays the rent, and takes good care of the property. However, reliable tenants are the exception, not the norm.

At least one tenant segment will have a high concentration of reliable people. You can determine this segment through property manager interviews. If you would like interview questions, let me know.

Once you've identified the segment you want to target for your property, determine where and what they are currently renting. Then, buy similar properties.

We have delivered over 500 investment properties, all selected based on what our target tenant segment is willing and able to rent. This approach maximizes your odds of always having a reliable tenant in your property.

Summary

The image below illustrates the three steps to choose properties that can generate the income needed for financial freedom.

Follow the numbers to achieve financial freedom, not the opinions of others.