All Forum Posts by: Eric Fernwood

Hello @Hwan Kim,

Waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, leading to a significant decrease in your acquisition cost and debt service.

The two major factors are interest rates and prices.

Interest Rates

I have asked many of our clients for their thoughts on the future of interest rates. One opinion that I found more credible than most concerns politicians.

“Politicians only care about getting elected or reelected. Whether their policies hurt or help the people they claim to care about, is not relevant. However, we can count on politicians to act in their own self-interest. And, unless interest rates fall before the presidential elections, voters will vote with their

In my opinion, interest rates are likely to reach 5% within three years. However, like everyone else, I have no basis for this assumption.

What do I expect to happen to interest rates in the short term?

The Fed last increased the interest rate by 0.25%. And, according to what I read, there may be another interest rate increase in the near future.

So, waiting for interest rates to fall does not seem to be a viable option.

Prices

Property prices are driven by supply and demand. What drives demand is the change in population. If you are invested in a city with significant and sustained population growth, prices will rise in the future. If the population is declining or static, prices will rise little or even fall.

As mentioned in the thread, part of the problem is lack of inventory. Part of the cause is people unwilling to give up a 3% mortgage for an 8% mortgage. As interest rates start to fall, more sellers will enter the market and more people will be able to buy, resulting in rapidly rising prices.

So, whether prices will rise significantly in the future, depends on the city’s population growth rate.

What We Are Doing Today

We have changed our purchasing process for our clients. Now, once we get a property under contract, we obtain interest-rate buy-downs from multiple lenders, as illustrated below.

We then select the best option and move the loan to that lender. This method converted negative cash flows to positive cash flow or, at worst, break even cash flow. It is unlikely to have a positive cash flow at a 7% or 8% interest rate.

In Summary

As I mentioned, waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, resulting in a significant reduction in your acquisition cost and debt service.

I expect interest rates to rise in the short term, so waiting for them to fall is not a viable option.

How much property prices will change in the future depends on population growth where you invest.

• If the populations is static or falling, I do expect property prices will increase significantly.
• If there is sustained and significant population growth, I expect prices to rise significantly, so waiting is not a viable option.

Hwan, I hope this helps.

Hello,

I regularly read that various real estate markets are collapsing. My recommendation is to ignore the “experts” and look at the actual data for a market.

For example, I regularly read where Las Vegas is crashing, inventories rising, and that there are a lot of distressed properties. Below is a chart from the MLS (08/01/2023) which includes all property types and all price ranges. Six months of inventory is considered a balanced market. Currently, inventory is around 2.1 months and falling.

What about single-family home distressed properties:

• Bank owned: 16, which is about 0.0029% of all single-family homes
• Short sale: 7, which is about 0.0013%
• Foreclosure stated: 7, which is about 0.0013%

So, ignore the “experts” with click-bait titles and look at the actual data for the city you are considering.

All the above said, short-term rentals are dependent upon tourism. In most cases, if the economy declines, people will not take as many vacations and you will have more vacancies and lower prices for both hotel rooms and Airbnb's. Also, there are seasonality issues and high operating costs associated with short-term rentals. For these and other reasons, we are implementing a one-stop service for mid-term rentals.

Advantages of Mid-Term Rentals

Short-term rentals are primarily occupied by vacationers. Mid-term rentals are primarily occupied by people for business reasons. For example, traveling nurses have to have a place to live. So mid-term rentals are a rental of necessity. There are also other advantages:

• More consistent income: Mid-term rentals provide a more stable and predictable income stream. By securing rental income for several months at a time, you reduce the risk of vacancies and income fluctuations that are common with short-term rentals.
• Lower operational costs: Short-term rentals often require landlords to cover additional expenses such as cleaning services, frequent maintenance, and utility costs associated with frequent turnovers. In contrast, mid-term rentals have fewer turnovers, resulting in lower operational costs.
• Less legal and regulatory complexity: Some cities have strict regulations regarding short-term rentals, which may necessitate permits, taxes, and compliance with specific rules. Mid-term rentals, on the other hand, encounter fewer legal and regulatory complexities.
• Better quality tenants: With short-term rentals, you get people on holiday and wanting to party. They will only be there for a short time, so they are less concerned about taking care of the property. Most mid-term rental tenants tend to take better care of the property because they will be there for an extended time and have a larger security deposit. Also with mid-term rentals, you can do a full screening and not rent to people with a track record of issues.
• Cost effect management: Several people have described buying a short-term rental property as equivalent to buying a second job with no boundaries on work hours. In contrast, with our team and processes, mid-term rental properties require little time investment. This enables clients to focus on their primary jobs and do what they do best.

Our Methodology

“The only constant in life is change.”

Our approach to mid-term rentals is to select properties that will be excellent long-term rentals and then use them as mid-term rentals. That way, if the mid-term rental market changes, you have the option to convert it to a long-term rental.

If a property will be a mid-term rental, it changes some of our long-term rental processes. For example, renovations. With long-term rentals, we often install commercial-grade nylon carpets in the bedrooms. However, a mid-term rental will have more frequent tenant turnovers, and it's important to keep turnover costs and time to a minimum. Therefore, we would install LVP throughout the property because it is very durable.

Mid-term rentals may also impact location selection. For example, if the plan is to target traveling nurses, we stay within a 5-mile radius (if possible) of trauma level 1 and 2 hospitals. Below is a map of Las Vegas hospitals with 5-mile travel boundaries.

Summary

Today, mid-term rentals are an excellent investment option due to their more reliable cash flow and higher returns compared to long-term rentals. In my view, mid-term rentals offer the advantages of both short-term rentals and long-term rentals.

Hello @Nicholas Foy,

Waiting to buy a property only makes sense if interest rates and/or property prices decrease significantly, leading to a significant decrease in your acquisition cost and debt service.

The Fed last increased the interest rate by 0.25%. And, according to what I read, there may be another interest rate increase in the near future. Out of curiosity, I calculated how much a 0.25% increase in interest rate increases the monthly debt service on a $350,000 property. See the screenshot below.

In this example, each .25% increase in interest rate increases your debt service by about $46/Mo. So, waiting for interest rates to fall does not seem to be a good option.

I know nothing about the Seguin real estate market. So, you will have to determine if and how rapidly property properties are increasing. If prices are rising, waiting will cost you more.

Once we get a property under contract, we obtain interest rate buy-down options from multiple lenders. We then move the loan to the lender with the best buy-down option. This, combined with other strategies, enables our clients to achieve a positive initial cash flow. Also, Nevada's low operating costs makes a huge difference.

Overhead costs can have a large impact on profitability. For example, below is a comparison of state average property taxes and insurance for Texas, Florida, and Nevada.

Sources: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.To show the impact of taxes and insurance, I compared overhead costs on a $400,000 property in the three states.

Below is how much additional cash flow a property must generate in Texas and Florida to have the same net cash flow as a property in Nevada. 

A Texas property must generate $5,700 ($9,194 - $3,494) higher cash flow annually to compensate for the higher operating costs.

A Florida property must generate $2,123 ($5,617 - $3,494) more cash annually flow to compensate for the higher operating costs.

Overhead costs can have a large impact on cash flow.

Hello @Zlata Ishk,

Before starting your location selection process, you need to define your goal. For most people, the goal is financial freedom. Financial freedom requires a passive income that meets three requirements:

• Your income keeps pace with inflation: Financial freedom is more than just replacing your current income; it's about maintaining your current lifestyle for life. 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 keep up with inflation. If rents don't keep up with inflation, your financial independence will be short-lived.
• Persistent: You will not outlive your income.
• Reliable: You need to be able to rely on the rent coming in every month, regardless of the economic situation.

Choosing an Investment Location

The location is the most crucial investment decision you will make, not the property itself. I recommend using the process I followed when selecting a city to start my investor service business. The process begins with a list of potential cities and then eliminates any city that does not meet additional requirements. The steps are as follows:

• Cities with a population >1M: Start with cities with a metro population greater than 1M**.** Small towns may rely too much on a single business or market segment. 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 keeps pace with inflation. Never invest in any locat 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 Neighborhood Scout’s 100 most dangerous cities list.
• 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 property manager's 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. Use 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 are property taxes and insurance. Operating costs vary significantly by state, so keep this in mind. Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

At this point, you will have a small number of potential investment cities for further consideration. If I were you, the next requirement would be an experienced local investment team.

Everything you learned from podcasts, books, seminars, and websites is general knowledge. You will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is an investment team.

Working with an investment team usually does not cost more. For example, out of the 480+ properties we have delivered, we have charged our clients a fee on only four or five properties due to exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.

Working with an investment team can save you time, money, and reduce risk. Additionally, you can receive real-world investment training at no cost to you.

Zlata, I hope this helps.

…Eric

Hello @Alex Lee,

There is a unwritten rule in research that you never presume the answer, you let the data provide the answer. Fortunately, there is excellent location information available. I will provide these resources in this post.

Before starting your selection process, you need to define your goal. For most people, the goal is financial freedom. Financial freedom requires a passive income that meets three requirements:

• Your income keeps pace with inflation: Financial freedom is more than just replacing your current income; it's about maintaining your current lifestyle for life. 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 keep up with inflation. If rents don't keep up with inflation, your financial independence will be short-lived.
• Persistent: You will not outlive your income.
• Reliable: You need to be able to rely on the rent coming in every month, regardless of the economic situation.

Choosing an Investment Location

The location is the most important investment decision you will make, not the property itself. The question is, "Which city?”

There are too many cities to evaluate al of them so I suggest using the process I followed when I selected a city to start my investor service business. The process begins with a list of potential cities and then eliminates any city that does not meet additional requirements. The steps are as follows:

• Cities with a population >1M: Start with cities with a metro population greater than 1M**.** Small towns may rely too much on a single business or market segment. 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 keeps pace with inflation. Never invest in any locat 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 Neighborhood Scout’s 100 most dangerous cities list.
• 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 property manager's 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. Use 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 are property taxes and insurance. Operating costs vary significantly by state, so keep this in mind. Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

At this point, you will have a small number of potential investment cities for further consideration. If I were you, the next requirement would be an experienced local investment team.

Everything you learn from books, podcasts, seminars, and websites is general information. You will buy a specific property, in a specific location, subject to specific local regulations. The only source for local information is an experienced investment team.

If you would like information on how to find and qualify an investment team, let me know.

Alex, I hope this helps.

Hello @Bruce Woodruff,

There is no general answer to your question because real estate local and broad statements do not apply. While national level events like interest rates can impact local markets, some markets will perform better than others.

Even within a city, property sectors perform differently. For example, sales of homes priced > $1M may be dead while homes priced between $300,000 and $400,000 might be selling in days.

The only information I can provide pertains to the specific property segment we target in Las Vegas. Hopefully, others can provide similar information on property segments in other cities.

The Overall Las Vegas Market

Overall inventory is falling in Las Vegas. The chart below is from the MLS and includes all property types and price ranges.

The Property Segment We Target

The following information pertains specifically to the property segment that we are targeting:

• Type: Single-family

• Configuration: 1,000 SF to 3,000 SF, 2+ bedrooms, 2+ baths, 2+ car garage, minimum lot size is 3,000 SF.

• Price range: $320,000 to $475,000

• Below is a map showing where many of our client’s properties are located.

I prefer using charts instead of lengthy text to convey information. We generate these charts every month, include them in our monthly market update, and post them on my blog. If you're interested, you can find the link to my blog on my profile page.

The Charts

Rentals - Median $/SF by Month

June rents were unchanged from May. YoY is flat. However, rents follow prices and prices are rising.

Rentals - Availability by Month

The number of homes for rent continued to drop.

Rentals - Median Time to Rent

The median time to rent is 20 days, unchanged from May. 45 days is typical for this time of the year.

Rentals - Months of Supply

There is only about 0.7 months' worth of supply.

Sales - Months of Supply

The inventory is only about 0.6 months of supply, whereas a balanced market is considered to have a 6-month supply. This shortage in supply will drive up prices.

Sales - Median $/SF by Month

Despite increasing interest rates, $/SF is climbing month after month in 2023. June $/SqFt is 7% higher than January.

What Is Driving Prices and Rents

Prices and rents are driven by supply and demand. Below is the supply and demand situation for 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.

There is very little undeveloped private land remaining, and any available land in desirable areas costs more than $1 million per acre. Due to the high cost of land, new homes in our targeted locations start at $550,000. The homes that appeal to our target tenant segment are priced between $320,000 and $475,000. Therefore, no matter how many new homes are built, the housing stock we target remains almost constant. Most metropolitan areas have unlimited expansion room so new homes limit the growth of rent and prices of existing properties. A good example of this is Phoenix.

Demand

The driver for housing demand is population growth. Where there is sustained and significant population growth, demand for housing causes prices to rise.

The average Las Vegas annual population growth is between 2% and 3%. However, according to Yahoo Finance, Las Vegas is now the top city to which people are moving so the growth rate may be increasing.

What attracts people to Las Vegas (and other metropolitan areas) are jobs. In the last job fair, there were over 20,000 open positions. Moreover, the number of jobs will increase in the future. Currently, there are approximately $30B worth of new projects either under construction or planned. As these projects come online, they will create thousands of additional jobs, attracting more people to Las Vegas and further increasing housing demand.

A significant portion of those who move to Las Vegas fit the tenant segment we've targeted since 2005. Therefore, the demand for properties priced between $320,000 and $475,000 will continue to increase over time.

My Conclusion

The fixed supply of homes in our target price range, coupled with increasing demand due to population growth, almost guarantees that prices and rents will continue to rise for the foreseeable future.

Hello @Gordon Cai,

You are not alone in investing outside of California. We’ve worked with over 180 clients and most live in California. So, “Live where you like but invest where you can make money.”

Selecting an Investment Location

The location is the most important investment decision because it determines all the long-term income characteristics including:

• Whether rents will keep pace with inflation
• How long your income stream will last
• How reliable your income stream will be
• How much of your rental income is lost to overhead
• Whether you or the government control your property

I suggest using the process I followed when I selected a city for my investor service business. The process starts with a list of potential cities and then eliminates any that do not meet additional requirements. The steps are as follows:

• Cities with a population >1M: Start with cities with a metro population greater than 1M**.** Small towns may rely too much on a single business or market segment. 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 keeps pace with inflation. Never invest in any locat 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 Neighborhood Scout’s 100 most dangerous cities list.
• 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 property manager's 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.
• 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 are property taxes and insurance. Operating costs vary significantly by state, so keep this in mind. Sources for insurance and property taxes: Insurance - ValuePenguin, State Property Tax Rates - Rocket Mortgage.

At this point, you will have a small number of potential investment cities. The next step is to determine whether an experienced investment team is available in the city you are considering.

Work With an Investment Team

Everything you learned from podcasts, books, seminars, and websites is general knowledge. You will buy a specific property, in a specific location, subject to local rules and regulations. The only source for the local knowledge you need is an investment team.

Working with an investment team usually does not cost more. For example, out of the 480+ properties we have delivered, we have charged our clients a fee for only four or five properties due to exceptional circumstances. In all other cases, the fees were paid by the listing agent of the seller, not by our client.

By working with an investment team, you get real world investment training at no cost to you.

Additional Location Considerations

• If possible, choose an investment city where you would like to visit. This will give you the opportunity to inspect (vacation) your properties and have at least a portion of your travel and lodging costs be tax deductible.
• The rental property you purchase today could potentially be your retirement home in the future. This is what several of our clients plan on doing.

Gordon, I hope this helps.

Hello Jordan,

I have not considered Mesquite. In 2005, I selected a tenant segment based on a high concentration of people with the desired behavioral characteristics. At that time, I found no indication that a statistically significant portion of these people lived in Mesquite, Pahrump, or Boulder City.

I searched the MLS and in the last 120 days, there were 15 sales of single-family homes in Mesquite. Out of these, 6 were new construction.

The price of vacant land in Mesquite appears to be between $150,000/Acre to $250,000/Acre, compared to Las Vegas valley where vacant land in the areas we target is >$1M/Acre. So, while there may be short term scarcity in Mesquite, there is a significant amount of inexpensive undeveloped land so new construction will limit price and rent growth of existing homes. I see no reason why prices in Mesquite will significantly increase in the future, as it will happen in Las Vegas.

If I did not answer your question, let me know.

...Eric

Hello @Michael Wallimann,

Thank you for the kind words, When I first started investing many years ago, people were very kind to me. My way of repaying their kindness is to help others on their journey.

Hello @Barri Griffiths,

Rents follow prices, whether they are increasing or decreasing. However, there is always a lag of 2 to 5 years between price changes and corresponding changes in rent. Rents have increased rapidly since 2008 until the interest rates exploded.

On finding good investment properties, they are out there. We find 10 to 15 good properties each month. However, the only way we can find them is using our data mining software and acting quickly. Good properties only stay on the market for 2 or 3 days before they go under contract.

Also, if you get a 7% to 8% pre-approval and close with that rate, there is almost no way to have a positive initial cash flow. What we do is once we get a property under contract, we solicit interest rate buy-down options from multiple lenders. We then move the loan to the lender with best rates. Also, most of our clients put 30% down. The combination of buying down the rates and a 30% down payment consistently works for us and out clients.

Barri, your planned process of buying a property, living in it for a while, and then converting it into a rental has been successful for several of our clients. Most of them stay for 2 to 3 years and then purchase another property. Therefore, the property's performance on day one is not the main issue. What matters is how it will perform in two or three years when you rent the property. The bigger concern is that you select a property that attracts what I call a reliable , your main concern should be buying a property that attracts reliable tenants. A reliable tenant is someone who stays for many years, always pays the rent on time, and takes good care of the property..

For many years, we have focused on a tenant segment with a high concentration of reliable tenants, and our results have been excellent. Out of approximately 500 investment properties we have delivered:

• Our average tenant stay is >5 years.
• Their rental income has been reliable. During the 2008 financial crash, our clients experienced no decrease in rents and had no vacancies.
• Six evictions in the last 15 years with a tenant population of over 1,000.
• Inflation compensating - From 2013 through the first quarter of 2022, the average annual appreciation has been over 15%, and the average annual rent growth has been over 8%. Our client's rental income growth has exceeded inflation, allowing them to maintain or improve their standard of living. Although rent increases and appreciation have slowed since the second quarter of 2022, the conditions that drove rapid appreciation and rent growth remain unchanged.
• We receive multiple contacts from wholesalers every month. However, they have only offered us properties that are either extremely damaged or located in high-crime, distressed areas. The tenant segment we've targeted will not rent in distressed, high-crime areas. The only tenants such properties attract will be low skilled hourly workers that will likely only stay one year. Before considering an off-market property, visit the area on a Friday or Saturday night and walk around with your family. Ask yourself if you would feel safe living there. Check out the schools, too.

Barri, there are good properties available, although they are not cheap nor are there any steals. However, there are good deals to be found.

Hello @Brian Elston

Good observations/comments.

We have delivered over 500 investment properties, but I could not find a good property on any of the real estate sites. The days of cruising real estate sites and finding good deals ended when interest rates crossed about 5%.

Your comment on A Class properties. I do not agree. We only deal in A Class and a few B+ Class. These properties cost between $320,000 and $475,000. Our average tenant stay is over 5 years and our vacancy rate is less than 1.5%. Are they easy to find? No. But we do find 10 to 15 each month. A challenge is the such properties only remain on the market 2 to 3 days so speed of of the essence.

It you go much above $475,000, the average length or tenant stay drops to <2 years and the time to rent increases from weeks to months. This is not my opinion, I am engineer who has studied Las Vegas tenant demographics for over 15 years.

On foreclosures, there are very few. This is not 2008. Below are the bank owned properties as of 08/22/2023:

• Condo: 8
• Single family: 24
• Townhouse: 1
• Multi-family: 0

Properties appreciate so rapidly in Las Vegas that if someone gets into trouble with their mortgage, they sell the property for a significant profit, and rent for a few years.

Also, REO properties are not necessarily good investments. I've sold over 100 REO properties and, while a few were good buys, in many cases the properties are in such poor condition that the cost to restore them can be significant. And, renovations require much more cash than a higher price. For example, suppose you have two properties. Once costs $300,000 and requires $15,000 renovation. The other costs $250,000 and requires a $50,000 renovation. Your cash out for both properties at 25% down:

• $300,000 property: $300,000 x 25% + $15,000 = $90,000
• $250,000 property: $250,000 x 25% + $40,000 = $102,500

Plus, you lose more rental income due to the increased time for larger renovations. You have to look at cash out and time to market and then decide if an REO property makes sense.

On Section 8, a few of our clients tried this for one year. Some observations from these clients:

• With many Section 8 tenants in Las Vegas, you only receive the government paid portion, you do not necessarily receive the tenant paid portion. Why don’t landlords kick these people out? Because if they do they will have a vacant unit, possibly for months, and the next Section 8 tenant will likely be no better.
• A client bragged to me that he was getting $50/Mo higher with Section 8 than he could with a regular tenant. At the end of the year, he removed the Section 8 tenant. and it cost more than $15,000 to repair the damage.
• Section 8 rent is neither “guaranteed” and the damage is likely to be extensive. There are no shortcuts or guarantees.

House hacking, we have several clients who did (are doing) this and most properties are within HOAs. Not all HOAs allow this but many do not have any specific rule preventing this as long as the owner lives in the property.

On STRs, I do not see why you would want to consider C or B class properties. C Class properties are typically in distressed, high crime, areas. You might rent it a few times but the negative reviews will kill future rentals. On B+ Class properties, this might work depending on the area where the properties are located and how safe the areas "feel." We are working with a client with significant STR experience and he is only considering A Class. Most of our clients are now looking for MTRs. MTRs offer the best of STRs and LTRs, and generally do not face the licensing issues.

“Newbies” - Out of the nearly 200 clients we have worked with, only 4 or 5 had any prior real estate experience, yet all of them have done extremely well. One reason for their success is our onboarding process, which includes teaching them how to invest. Typically, we can teach someone with no prior real estate experience to be a savvy investor in just 2 to 3 hours. All of our processes are based on how things are done in the commercial real estate world. There are no secrets or gurus, only processes and metrics. Processes and metrics are easy to learn.

Brian, feel free to post more questions or observations and I will try to respond.