All Forum Posts by: Eric Fernwood

Hello @Carl Trube

Thanks for the kind words.

Regarding your questions concerning an investment team. In this post, I will explain:

• Why you need to work with an investment team
• Residential vs investment realtor
• How do you find an investment realtor

Why You Need to Work With an Investment Team

Everything you learn from books, seminars, podcasts, and websites is general information. You will buy a specific property in a specific location subject to local rules and regulations. The only source of the hyperlocal knowledge you need is a local investment team. Plus, a local investment team has years of investment real estate experience dealing with everything you need to find, validate, close, renovate, and manage investment properties. A local investment team is your shortest, safest, and least expensive path to real estate success. Working with an experienced investment team is also the only way to learn real-world investing. Lastly, working with a team doesn't cost you any more than working with any other realtor.

Residential vs Investment Realtor

How do you find a good team? Begin by finding an investment realtor. Note that an investment realtor is not the same as an "investor-friendly" realtor.

Residential or "investor-friendly" realtors facilitate the buying and selling of homes. Homebuyers select properties, and the realtor provides MLS data sheets and access to the property. Once a property is chosen, the realtor helps with the offer and closing process. While some residential realtors may sell real estate that will become rental properties, they typically provide little beyond MLS data sheets and property access. MLS data sheets provide little value for investors.

Below is a table comparing an MLS data sheet with the information an investor needs to find an income-producing asset.

Instead of selling homes, investment realtors sell income-producing assets. Also, investment realtors are always part of a team. Only a team of experts can provide the end-to-end processes, skills, and knowledge necessary to bring a property to market. See below for a diagram of the process we follow.

While the process illustrated above is our process, all investment teams will have a similar process.

In summary, residential and "investor-friendly" realtors sell homes. Investment realtors sell passive income assets. As an investor, you will buy an income-producing asset.

How Do You Find an Investment Realtor

There are usually thousands of residential realtors in a metro area, but only one or two investment realtors. How do you find one? Start by compiling a list of candidates. Get names from

• Real estate investing websites (such as Biggerpockets.com)
• Property managers
• Local investors
• Talk to real estate brokers
• Google searches
• Local meetups

After creating a pool of candidates, evaluate each one using the following interview questions. The primary purpose of these questions is to determine the individual's character and capabilities.

Before starting the candidate interviews, create a list of 10 or fewer questions. You will not have time for more. Ask the same questions of each candidate and note their responses. Below are sample questions, along with acceptable answers. It is unlikely to find a candidate with the "right" answer to every question, but they must provide reasonable responses.

• Tell me about your investment team. - You're looking for a response like, “I've worked with X property manager for years. We've completed X properties. "I work with several renovation companies..."
• Do you or have you owned investment properties? - If they have not personally owned investment properties, reject the candidate.
• How many investment properties did you close in the last 12 months? - Some realtors only sell two or three properties per year. Even if all were investment properties, it's not enough repetition to have the needed processes, experience, and resources. I believe a minimum of 12 investment properties per year is necessary to be proficient.
• Did you or your client select the properties? This is an important question. Residential and investment-friendly realtors do not pick properties. They send MLS data sheets for the properties the client selected. The client evaluates the properties and selects one or more to make an offer. The realtor adds almost no value if you do all the work. Reject the candidate if the client selected the property.
• What were your primary selection criteria? - It could be the initial return, appreciation, tenant pool, or something else. You're looking for a plausible answer based on analytics, not opinion or “feelings.”
• How did you estimate rent and time to rent? - A good response to the question "How do you evaluate investment properties?" would be to describe a process, such as "I examine recently rented comparable rentals." Another viable answer is that the individual works with a property manager who supplies this information. However, if the person's response involves citing websites such as Zillow, Redfin, or Rentometer, they do not know how to evaluate investment properties. Such online real estate sites do not provide reliable estimates of rent or the time it takes to rent a property, which is critical information when seeking investment properties.
• Tell me about your renovation process. - You are seeking a response similar to: "I collaborate with the property manager to identify a list of renovation items. Then, I partnered with XXX company to obtain a quote. After the escrow closes, the renovation company completes the work, and the property manager provides final approval.”

If the candidate answered all questions satisfactorily, you can reasonably assume they know what they are doing and can provide the skills and resources you need.

Summary

An investment team possesses knowledge, processes, resources, and experience that cannot be replicated no matter how many podcasts you listen to.

Another important consideration is that if you have a local investment team, the location of your investment doesn't matter. Whether you invest locally or across the country, your investment team will handle all the legwork. In our case, out of the more than 180 clients we've worked with, only 8 to 10 were local. All other clients lived in other states or countries. With a repeat business rate of over 90%, we know remote investing works.

Live where you like but invest where you can make money.

Hello @Lucas Anderson

You listed some potential locations Omaha, Columbus, Milwaukee, and Cleveland. I recommend starting with your financial objective and selecting a location that supports your financial goals.

Purchase Price vs. Long-Term Rent Growth

There is always a trade-off between the purchase price and the long-term performance of a property. Real estate prices and rents are a function of supply and demand. Where there is little demand, prices will be low. However, unless there is high demand, rents will not increase. If your rents do not keep pace with inflation, sooner or later, you will find yourself back on the daily worker treadmill.

Population Growth

The primary driver of demand is population growth. Below is a table showing population growth for the cities you listed.

Static or declining populations is why prices are low and there will be little increase in prices or rents.

Crime

Another factor is crime. People who can afford to leave a high crime location, will. As higher-income individuals leave, city revenues fall, and they are forced to cut back on services. The result is increasing crime and more people fleeing the city. This is a financial death spiral from which few cities have ever recovered. So, how are the cities doing on crime? The following information is from Neighborhood Scout’s list of the 100 most dangerous US cities.

Omaha and Columbus are not on the list, which is good. Milwaukee and Cleveland are high on the list, therefore they are not good investment locations.

Income Persistence

Your ability to remain financially independent is tied to the long-term economic growth of the location where your investments are located. Take a hard look at any location you are considering and decide whether over the next 20 years the population will double or triple in size causing prices and rents to increase rapidly.

Summary

Real estate is a long-term investment. Carefully consider the economic future of the investment location. Your ability to avoid the daily grind of working for a living depends on the long-term economic growth of your investment location.

Hello @Amy Healy

Many of our clients used cash-out refinance in the past for the down payment on their next investment property. A few used HELOCs on their residences too.

What makes cash-out refi's and HELOCs difficult now are the high-interest rates.

You mentioned the possibility of selling your property and buying another property through a 1031 exchange. Here's is when I would choose a 1031 or a cash-out refi::

• 1031 Exchange - You no longer wish to own the property and you believe that a replacement property will bring you more benefits.
• Cash Out Refinance - The property is currently performing well and is expected to continue to do so in the future. If you want to keep the property but reinvest the accumulated equity, that could be a wise choice.

Ultimately, the decision to use a 1031 exchange or refinance and take out equity depends on your individual circumstances and investment goals.

1031 Exchange 45-Day Identification Period Consideration

The identification period for the replacement property is 45 days. Many people believe that they only need to identify (up to) three properties. However, this is a high-risk approach. For example, what happens if you identify a property and then cannot close on it due to inspection issues or other related problems? In such cases, you would lose your tax exemption.

To avoid risks, we coordinate the purchase of the replacement property with the sale of the relinquished property. Our goal is to close on the replacement property within two weeks of the exchange property's closing. This approach allows us to have time to get another property under contract if we run into a problem and cannot complete the purchase, while still staying within the 45-day identification period.

Financing Considerations

The days of finding a lender, and closing with that lender, are pretty much over. The process we are now following is illustrated below.

Immediately after we get a property under contract, We reach out to multiple lenders and request their interest rates and buy-down options. We then select the best option and close with that lender. Using this approach enables our clients to get a positive cash flow. Interest rate buy-downs are available for refinances and HELOCs.

Below is an example showing the benefit of the right interest rate buy down.

The challenge is that we cannot choose the final lender upfront because buy-down options vary almost daily. Therefore, we cannot explore buy-down options until we have the property under contract.

So, as soon as we have a property under contract, we reach out to multiple lenders. We then consolidate the many options and select the best five or ten options and put them on a spreadsheet. I then have a Zoom meeting with the client to go through the various option.

Amy, I apologize for not providing a simple answer. Unfortunately, there is no straightforward answer to your question. Here are some questions that I would consider:

• Is the current investment property performing well? Will it likely perform better in the future? Most importantly, will the rent keep pace with inflation?
• If you did a cash-out refinance using an interest-rate buy-down, what will be the cash flow situation with the current property?
• If you do not believe that rents will keep pace with inflation, then a 1031 exchange may make sense.
• If you choose to do a 1031 exchange, be aware that you cannot use the proceeds for renovating the replacement property. Some clients have chosen to pay taxes on a portion of the 1031 proceeds so that they can use it for renovation costs.
• Work with someone who has a lot of experience dealing with 1031 exchanges. Is easy to trip up and lose your tax deferment.

Amy, I hope this helped.

 Hello @Matt M.

You asked for observations from the field. To provide context for my response, we are engineers who operate a real estate investor services business in Las Vegas. We have been in business for over 15 years, and our services are based on data science and rigorous processes, and a team of experts.

We've targeted a narrow segment of tenants that has performed extremely well. This tenant segment defined the properties we target. So far, we have delivered over 480 properties.

A general description of the properties and locations we select for our clients is below.

• Single-family
• 3+ bedrooms
• 2+ car garage
• One or two stories
• 1200 to 2000 square feet
• Generally cost between $320,000 and $475,000 today

As to locations, see the map below showing where most of our client’s properties are located.

Below are statistics for the specific property segment we target.

Sales - Median $/SF by Month

Despite the high-interest rates, $/SF is steady. Prices are rebounding and have increased by 10% since January.

Sales - List to Contract Days by Month

Demand is still strong and the times properties are on the market are declining. 45 days is average under normal conditions. Today, it is about 12 days.

Sales - Closings by Month

The number of closings is still high, despite limited inventory.

Sales - Months of Supply

In my 15 years of experience in real estate in Las Vegas, I have never seen inventory levels this low. A balanced market is typically defined as having six months of inventory. However, for the property segment that we focus on, we are down to only about 0.75 months of inventory!

Rentals - Median $/SF by Month

Rental rates are back up to the peak rates of 2022.

Rentals - Months of Supply

The supply of rental properties continues to decline. The result will be rents continuing to increase.

Interest Rates

Changing our processes to achieve first-year positive cash flow has led to a new approach. Previously, you would select a lender and then close with that lender, as shown in the example below.

Once we have a property under contract, we contact multiple lenders and choose the one with the best buy-down rates. See the image below for reference.

This process has enabled us to achieve first-year positive cash flow.

Summary

• There are good deals available in Las Vegas, but they would be almost impossible to find by hand. We find them using the data mining software we developed. Today, there are 15 properties in Las Vegas that are worthy of consideration. And, because good properties only list on the market for a few days, time is of the essence.
• The traditional financing method no longer works. We had to change to a method where as soon as we get a property under contract, we look for the lender with the best buy-down rates.
• Based on what I am seeing, I believe that as soon as there is any decrease in interest rate, housing prices and rents will increase dramatically.

Matt, I hope this helps.

Hello @Hanaa Abou Ouf,

I will provide my opinion on your property later in this post. But before I do, I want to explain why this particular property is likely to always have serious tenant issues, regardless of the property manager you work with. To explain the problem, I need to first describe the relationship between a property and a specific segment of tenants.

Each Property Only Attracts a Single Tenant Segment

Each tenant segment has specific housing requirements and is unlikely to consider any property that does not meet all of its needs. Below is an example of one segment's housing requirements:

• Rent range: $1,500/Mo. to $1,850/Mo.
• Type: Single-family
• Configuration: 3+ bedrooms, 2+ baths, 2+ car garage, 1,200 SF to 2,100 SF
• Location: North of the river and east of Line Rd.

Below is a profile of a property that will attract people with the previous segment's housing requirement.

• Rent: $1,700/Mo.
• Type: Single-family
• Configuration: 3 bedrooms, 2 baths, 2 car garage, 1,500 SF
• Location: North of the river and east of Line Rd.

Each property only matches the housing requirements of a single-tenant segment. And, there is little you can do to change this. So, when you buy a property you are also getting a single tenant segment. This is why choosing the property first is almost always a bad idea. More on this later.

Las Vegas Tenant Segments

In 2005, when I moved to Las Vegas to establish my investor services business, I spent months studying tenant pool demographics. As an engineer, I conducted extensive analysis. The chart below provided me with the most valuable insight into the three tenant segments.

Almost all the multi-family in Las Vegas are, at best, C-Class. C Class and Many -B Class only attract lower-wage hourly workers and have an average tenant stay of one year. This equates to high vacancy costs.

Vacancy cost is a function of

• Length of tenant stay <<<This is the killer of profits
• Time to rent
• Monthly carrying costs
• The skill of the property manager to select good tenants (a rare skill)
• Construction materials used
• In between tenant renovation cost

Below is a chart including the estimated annual vacancy provision for the three major tenant segments in Las Vegas.

There is another significant issue with the tenant segments who occupy low-cost housing. Typically, low-income workers have easily replaceable skills and are the first to be laid off during times of economic uncertainty. They are also the last to be rehired. Therefore, if your property targets low-income workers, there is a high probability that your property will have extended vacancies during economic downturns.

I could continue but I think you can see where this is going.

Selecting a Property the Right Way

The only way you will have a reliable income is if your property is continuously occupied by what I call a reliable tenant. A reliable tenant is someone who stays many years, always pays the rent on schedule, and takes care of the property. Reliable tenants are the exception, not the norm. Also, you will hold a property for many years and during that time you will need multiple reliable tenants.

Getting and keeping a reliable tenant in your property is dependent on two things.

• A property that matches the housing requirements of a tenant segment with a high concentration of reliable tenants. You can determine this segment through multiple property manager interviews. Let me know if you would like more details on this topic.
• Working with a property manager who is skilled at selecting reliable tenets. I've been in the investment real estate business in Las Vegas for over 15 years. I’ve worked with many property managers. Of all the property managers I've worked with, I only know two who are skilled at selecting reliable tenants. One of the two is the property manager we work with.

So the process of selecting an investment property is to first identify a tenant segment with a high concentration of reliable tenants. Once you identify this segment, determine where and what they currently rent. Then, buy similar properties. It is really that easy.

This process works in any location and requires no guessing or luck. In one location, the tenant segment with a high concentration might be attracted to single-family homes, while in another location it might be multi-family properties or high-rise condos. The type of property doesn't matter; what matters is rental income reliability.

The Difference the Tenant Segment Makes

To illustrate the difference a tenant segment makes, below are the 15+ year performance characteristics for the tenant segment we target.

• We have delivered more than 480 investment properties, each targeting the same tenant segment. As a result, we have a lot of experience and knowledge of this particular segment.
• Our average tenant stays over five years.
• We've had six evictions in the last 15 years (over 1,000 tenants).

How does this segment perform in terms of income reliability?

• 2008 crash - Zero decline in rent and zero vacancies.
• COVID - Almost no impact
• Eviction moratorium - Almost no impact

My Recommendation for Your Situation

There is frequently a large gap between what you should do and what you can do. I do not know your financial situation so your options may be limited.

My recommendation, if you are financially able, sell this property and buy a property that attracts a reliable tenant segment. Whether you should sell or do a 1031 depends on your equity position.

Hanaa, reach out if you have questions.

Hello @Saad Hameed,

Instead of choosing a state based on opinions, I suggest selecting a city based on your financial objectives.

To permanently escape the daily grind of working for a living, you'll need a passive income that meets three requirements:

• Inflation compensation: Rental income increases at a faster rate than inflation, compensating for rising prices.
• Persistent income: Your income will last, ensuring that you and your spouse won't outlive it.
• Reliable income: Your income continues even during difficult economic times.

Inflation compensation and income persistence depend on the city, while income reliability is based on both the location and the tenant segment. This post will focus solely on selecting an investment city.

A Straightforward Process

There is a straightforward process for selecting an investment city that meets all three requirements. The city selection process consists of starting with an initial list of cities and then eliminating cities that do not meet additional criteria. To begin, I recommend considering metro areas with a population greater than 1 million (source). Small towns may rely too heavily on a single business or market segment.

The following filters are mandatory for every city. If a city fails any of these filters, it must be eliminated from further consideration.

• Both state and metro populations are increasing. Do not buy anywhere if the state or metro populations are static or decreasing. Wikipedia
• Low crime - High crime and long-term appreciation and rent growth are mutually exclusive. Do not invest in any city on Neighborhood Scouts’ list of the 100 most dangerous US cities.
• Inflation compensating - Every time you go to the store, the same basket of goods costs more and more. To have the additional dollars needed to pay inflated prices, rents must rise faster than inflation. If you choose a city where rents have not kept pace with inflation, your time off the treadmill will be short. Rents follow prices, so you can use the historical appreciation rate if you do not have historical rental data. Zillow Research
• Low operating cost - High operating costs can turn what appears to be a profitable property into a money pit. The three most apparent costs are income taxes, property taxes, and insurance. Insurance - ValuePenguin, Metro Property Taxes - LendingTree, State Property Tax Rates - Rocket Mortgage
• Low disaster risk - Natural disasters, such as tornadoes, can destroy entire communities, including jobs, shopping, and housing. If a tenant loses their home, they will immediately move to a new location with jobs and a place to live, instead of waiting one year or more for the property to be rebuilt. Even if your insurance covers the cost of rebuilding, it may be difficult to find new tenants because people have already moved away. Communities hit by natural disasters may take years or never fully recover. Meanwhile, your expenses, such as mortgage, taxes, insurance, and maintenance, will continue. To avoid this, choose a location with low-cost homeowners' insurance, which indicates a lower risk of natural disasters. Insurance - ValuePenguin
• 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 location with rent control.

Following the above process will result in a shortlist of cities.

One of the most important factors to consider when choosing between cities is the availability of a strong local investment team. No matter how much information you consume from podcasts, books, or seminars, you cannot replicate the years of experience that a team with hundreds of completed investment transactions can offer.

Hello @Jonathan Winkler,

I recommend the following:

1. Loan pre-approval - It's important to determine what you can afford before you begin the investing process.

2. Location - Live wherever you like, but invest where you can make money. The location is the most important investment decision because the city determines all 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

   If anyone would like a free guide on selecting an investment location, DM me.

3. Investment team - Find an experienced investment team in your chosen city. The information you learn in seminars, books, podcasts, and websites is general information. However, when it comes to real estate investment, you are not buying a generic property in a general location. You will be purchasing a specific property in a specific location that is subject to specific local rental regulations. You need detailed, local information and the only source for such information is a local investment team with years of experience working with investors. Also, you can not replicate years of experience by a team of experts. Furthermore, working with an investment team does not cost more than working with any other realtor.

4. Property selection - An investment property is no better than the tenant who occupies it. To permanently escape the daily grind, your property must be continuously occupied by reliable tenants. A reliable tenant is someone who stays for many years, always pays rent on time, and takes good care of the property. Reliable tenants are the exception, not the norm. To increase your chances of always having a reliable tenant, work with your investment team to select a tenant segment with a high concentration of reliable tenants. Once you've identified this segment, find out where and what they are currently renting, and buy similar properties. Following this process eliminates guesswork and opinions. We've successfully applied this approach to over 480 investment properties, and our results have been excellent.

5. Property evaluation - When evaluating a property, consider all recurring costs, but only include those that are known. For example, we know that the average annual maintenance cost for our properties is about $350, and we have an average tenant stay of over five years, so we know the annual vacancy cost is about $400. However, averages do not accurately represent the costs of individual properties. Therefore, we have not included depreciation or other tax savings, which are larger than the combined maintenance and vacancy costs. If anyone would like a free guide on how we calculate returns, DM me. Also, work with your investment team to estimate both renovation costs and renovation risk. Both should be factored into your property evaluation.

6. Get a property under contract - As soon as we get a property under contract, we solicit buy-down interest rates from multiple lenders. We then work with the client to select the best option for them. Without using interest rate buy-down, I don't believe any property will initially have a cash flow with a 7% or 8% interest rate. If anyone would like a free guide on increasing initial returns, DM me.

7. Decide on the best form of ownership for your situation. Of the 180+ clients we have worked with, some put their properties in an LLC, while others set up an umbrella policy. A large percentage did not take any additional action. This is a relatively safe option in Las Vegas because there is not a lot of frivolous litigation, unlike in other states. Additionally, you can greatly reduce your litigation risk by doing the right things during renovation. Note: I am not aware of any lenders who will finance a property with the LLC as the owner. Our clients typically close the loan in their name and then transfer ownership to the LLC afterward. Additionally, in Nevada, the state has a do-it-yourself site for setting up an LLC. To my knowledge, none of our clients used an attorney to set up an LLC. You need to evaluate the litigation situation and options in the city where you plan to invest.

8. Tax strategist - Investing in real estate has a significant advantage in terms of tax savings. However, simply using TurboTax on April 14th will not maximize your tax savings. Moreover, most CPAs can only input numbers into forms. To take full advantage of all the savings that real estate investing offers, you need to work with someone who knows how to structure your taxes.

Hope this helps.

✴️✴️✴️ This time the entire post! Sorry about that. ✴️✴️✴️

Hello @Meir Preis,

[Good comments @Arn Cenedella]

There are properties that generate cash flow, but it's unlikely to find them at a +7% interest rate with 25% down payment. In this post, I will explain how we provide cash flowing properties to our clients. Before I discuss the details, let's talk about cash flow.

Real Estate Investing is a Long Term Investment

Return calculations only predict how a property is likely to perform under ideal conditions on day one. They provide no insight into the future. Our clients plan to hold their properties for the rest of their lives and pass them on to their children. Therefore, short-term performance is less important than long-term performance. In the long run, everything hinges on rents keeping pace with inflation. If rents fail to keep up with inflation, your escape from the daily grind will be short-lived.

For example, suppose every week you buy the same basket of groceries and today’s cost is $100. If inflation averages 5%, below is a table showing how much less groceries you can afford in the future.

In 10 years, $100 will only buy 63% of what you can purchase today for $100. After 15 years, $100 will only buy 49% of what it can today. Only if rents keep pace with inflation will you have the additional dollars to pay inflated prices. It is important to have a long-term focus; do not evaluate properties based only on day one return.

All the above said, how are we consistently delivering multiple positive cash flow properties each month to clients? It is a combination of the property and the financing.

The Right Property

High-performing properties that will cash flow (with reasonable down payments and interest rate buy-downs) are available, but they are difficult to find. In Las Vegas, less than 0.4% of all available properties are even worth considering. What makes it even more difficult is that good properties go under contract in about 2 days. This means that we must evaluate thousands of properties to find a very small set of potential investment properties and make an offer within one or two days after the property comes on the market.

The only way we can do this is:

• We use data mining software to quickly find the 10 to 20 potential investment properties from the thousands available in just a few minutes.
• We have a team of people who evaluate each property. If any team member does not agree, the property is eliminated.

Using the above method, we can bid on properties within one day of coming on the market. This allows us to secure three to five high-quality properties for our clients each month.

The Right Financing

The way we do financing has changed. Below is a diagram showing how financing worked in the past. You got a pre-approval and closed with that loan.

Today, we still get a pre-approval because this is needed to make an offer. Where it changed is once we get a property under contact, we solicit buy-down rates from multiple lenders. We then move the loan to the lender with the best deal for the specific client. Below is an example of one interest rate buy-down option.

If you look at the acquisition cost line, you'll notice that by spending $4,046, you can lower the rate to 6.75%, which will increase the cash flow by $120 per month. The payback period for the buy-down is ($4,046/$120) = 34 months or 2.8 years. In my view, this is a viable option.

Another consideration is how long before interest rates fall. I have asked many clients and most guesses range between, “the next presidential election,” and three years from now. No one knows when rates will actually fall. But when they might fall makes difference on what buy-down makes sense.

For example, if you believe interest rates will fall to reasonable levels within five years, choosing an interest rate buy-down with a 15 year payback period makes no sense.

Summary

The days of easily buying positive cash flow properties with 20% or 25% down ended at about 4 1/2% interest rate. Today, it takes a combination of the right property, the right financing to have a positive cash flow. This can be confusing which is why we put together a multi column spreadsheet for each client so they can understand the various options.

Hello @Tim Alhanati,

Renting to a relative is not something to be taken lightly. Below are some considerations and recommendations.

• Only rent to a relative if that individual has consistently lived up to their commitments. If you have any doubts, I would not recommend renting to them.
• Sign a lease. It is important to have a comprehensive lease agreement, not the ones found in stationery stores. Below are a few of the items that should be in the lease.
  • What happens if the relative does not remain in the property for the full lease term?
  • What happens if the relative does not pay the rent on schedule?
  • How are repairs to be handled? Who pays for repairs?
  • What happens if they decide to move out?
  • Require that they have renter’s insurance.
  • No pets unless you agree in writing in advance
• Use a tenant screening service to obtain a profile for your sister.
• Collect a security deposit that is reasonable and customary in that location.
• Buy a profitable long-term rental property, not necessarily a property that your sister likes. Chances are, you will own the property much longer than your sister lives in it.

Hello @Meir Preis ,

[Good comments @Arn Cenedella]

There are cash flowing properties, but probably not at +7% interest rate with 25% down. In this post I will explain how we deliver cash flowing properties to our clients.

Our investor services business is located in Las Vegas. Therefore, the examples and comments provided in this document are specific to Las Vegas. However, they are likely to be applicable in other locations as well.

Before I talk about specifics, I want to explain the importance of cash flow.

All return calculations predict is how a property is likely to perform under ideal conditions on day one. Return calculations tell you nothing about the future. Our clients plan to hold their properties for the rest of their lives and then pass them to their children. So, what happens the first month or year is not as important as the long term performance. When it comes to long term performance, everything depends on rents keeping pace with inflation. If rents do not keep pace with inflation, your time off the daily worker treadmill will be limited.

For example, suppose every week you buy the same basket of groceries and today’s cost is $100. If inflation is 5%, below is a table showing how much less groceries you can afford in the future.

In 10 years, $100 will only buy 63% of the goods that you could buy today for $100. in 15 years, 49%, etc. You will only have financial security if rents keep pace with inflation. You need an longer focs than just day one cash flow.

All the above said, how are we consistently delivering multiple properties each month to clients with positive cash flow?

The Right Property

High-performing properties that will cash flow (with reasonable down payments and interest rate buy-downs) are available, but they are difficult to find. In Las Vegas, less than 0.4% of all available properties are even worth considering. What makes it even more difficult is that good properties go under contract in about 2 days. This means that we must evaluate a large number of properties to find a very small set of potential investment properties and make an offer within one or two days after the property comes on the market.

The only way we can consistently get some properties under contract include:

• We use data mining software to quickly find 10 to 20 potential properties from the thousands available in just a few minutes.
• We have a team of people who evaluate each property. If any team member does not agree, the property is eliminated.

Using the above method, we are able to bid on the few good properties within 1 day of it coming on the market. This enables