All Forum Posts by: Eric Fernwood

Hello,

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

Section 8

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

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

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

Multi-Family vs. Single-Family

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

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

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

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

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

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

Hello @Daniel Reed,

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

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

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

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

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

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

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

Hello @Patricia Via,

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

Should You Self-Manage or Hire a Property Manager?

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

The Value of a Good Property Manager

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

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

Finding a Good Property Manager

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

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

Other Considerations

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

Final Thoughts

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

@Devin Conley,

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

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

...Eric

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

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

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

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

What we are seeing:

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

Rental Market Trends

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

Rentals - Median $/SF by Month

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

Rentals - Availability by Month

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

Rentals - Median Time to Rent

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

Rentals - Months of Supply

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

The sales market remains hot.

Sales - Months of Supply

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

Sales - Median $/SF by Month

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

Why invest in Las Vegas?

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

What causes rents (and prices) to increase?

Supply & Demand

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

Supply

Las Vegas is unique because it is a tiny island of privately owned land in an ocean of federal land. See the 2020 aerial view below.

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

Demand

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

In Conclusion

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

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

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

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

If you are interested in attending, please register here.

Hello @Alyssa Dinson,

The adage, "Live where you like, but invest where you can make money," is true and remote investing works, if you have an experienced investment team.

We’ve run an investor services business in Las Vegas for over 17 years. Out of 180+ clients, only 8 or 9 were local. All the rest live in other states or countries. Does remote investing work? Our repeat business rate is >90%, so our clients are satisfied with our services.

The goal of real estate investing is financial freedom. This requires an income that allows you to maintain your standard of living throughout your life. The city where you invest determines all long-term income characteristics. To create rental income that enables financial freedom, you need a location that meets specific criteria.

• Rents increase faster than inflation: Prices and rents are driven by the imbalance between demand and supply. Significant and sustained population growth leads to demand exceeding current supply, causing prices to rise until there's a rough balance between sellers and buyers. As prices increase, fewer people can afford to buy homes, forcing them to rent. This increased demand for rental properties drives rents up. Only invest in cities with significant and sustained population growth.
• Lasts throughout your lifetime: For your rental income to last, your tenants must remain employed at similar wages. The challenge is that non-government jobs are often short-lived. Companies typically last only ten years on average. Even giant corporations like those on the S&P 500 only last about 18 years on average. This means that every non-government job your tenants have will likely end in the foreseeable future. Unless new companies create replacement jobs in the city requiring similar skills and pay comparable wages, your tenants may be forced to take lower-paying service sector jobs. The result could be limited, no rent growth or even rent decreases. Therefore, your long-term income depends on the city's ability to attract new companies. Companies have considerable flexibility in choosing where to set up new operations. So, only invest in cities that meet the following requirements:
  • Low crime: Companies are unlikely to choose high-crime cities. Never buy properties in any city on this list of the 50 most dangerous cities.
  • Low operating costs: Companies are less likely to choose cities or states with high operating expenses for new operations. This is why so many companies are leaving states like California.
  • Pro-business environment: Companies want to focus on their core business, not fight anti-business policies.
  • Significant infrastructure: Companies favor cities with substantial airports, freeway systems connecting to other cities, and more. This level of infrastructure typically exists only in cities with metro populations over 1M.

Summary

The odds of living in a city that meets all the requirements for financial freedom are low. Don't limit your future financial freedom to just where you live today.

Hello @Liam Alvarez,

You don't need any apps to select an investment city. The data is readily available, and I will provide the data source and its relevance.

To ensure we're on the same page, the goal of real estate investing is financial freedom. This isn't merely about replacing your current income—it's about creating an income stream that sustains your lifestyle indefinitely. To achieve this, the rental income must meet three requirements.

Rents Must Outpace Inflation

Inflation steadily erodes the purchasing power of a fixed amount of money. For example, if the inflation rate is 5%, what costs $100 today will cost $155 in 10 years. If rents don't keep pace with inflation, you won't have enough funds to cover these inflated prices.

Rents and prices are driven by supply and demand. Demand is a function of population change. In cities with significant and sustained population growth, rents and prices will rise faster than inflation, enabling financial freedom.

Conversely, rents and prices rise slowly in cities with static or declining populations because the current housing inventory is sufficient. Low property prices evidence this. No matter how many properties you own in such a city, you can't achieve financial freedom because inflation continuously erodes your purchasing power. Eventually, you'll have no choice but to get a job to maintain your standard of living.

Best source for population growth: Wikipedia

Last Throughout Your Lifetime

You cannot sustain financial freedom if your income doesn't persist throughout your life. However, your rental income depends on your tenants remaining employed at similar wages. The problem is that non-government jobs aren't permanent. On average, U.S. companies last only ten years. Large companies, like those on the S&P 500, last on average for 18 years. So, every non-government job your tenants have will end in the foreseeable future unless new companies move into the city and create replacement jobs that pay similar wages and require similar skills; Otherwise, soon all that will be left are lower-paying service sector jobs. Below are the key factors companies consider when choosing a city for investment:

• Low operating costs: Companies are unlikely to choose a location where state income taxes, property taxes, and insurance consume a significant portion of their potential profit. Sources for insurance and property taxes: Insurance—ValuePenguin, State Property Tax Rates—Rocket Mortgage. State income taxes: Here's a map showing state income tax rates.
• Low crime: Companies are unlikely to choose high-crime cities. Avoid investing in any city listed here: The Most Dangerous Cities in America, Ranked.
• Cities with a metro population >1M: Companies need significant infrastructure, which is only available in metropolitan areas with a population > 1 M. Wikipedia
• Pro-business environment: Companies are reluctant to set up operations in cities with burdensome regulations that hinder profitable operations. Google search.

Ability to buy multiple properties with minimal capital

You'll need multiple properties to replace your income. Let's consider an example. Say your monthly income requirement is $5,000/Mo, and each property generates $300/Mo. If each property costs $250,000 and the only acquisition cost is a 25% down payment, how much savings would you need?

• ($5,000/$300) x $250,000 x 25% = $1,062,500

For most people, this is an unattainable amount of after-tax savings.

If you buy in a city with a high appreciation rate, you can grow your portfolio through appreciation and cash-out refinancing. For example, if the first property costs $400,000 and your acquisition cost is a 25% down payment, you need:

• $400,000 x 25%. = $100,000

If the appreciation rate is 8%/Yr, how long will you need to hold the property before a 75% cash-out refinance to yield enough to have $100,000?

• After one year: $400,000 × (1 + 8%)^1 × 75% - $300,000 ≈ $24,000. For simplicity, I've assumed no principal paydown on the original $300,000 mortgage.
• After two years: $400,000 × (1 + 8%)^2 × 75% - $300,000 ≈ $49,920
• After three years: $400,000 × (1 + 8%)^3 × 75% - $300,000 ≈ $77,914
• After four years: $400,000 × (1 + 8%)^4 × 75% - $300,000 ≈ $108,147

While the above example is oversimplified, the concept is valid. Many of my clients and I have grown our portfolios through appreciation and cash-out refinancing with minimal additional capital.

Zillow Data is one of the most reliable sources for analyzing appreciation rates at the zip code level.

Summary

No special apps are necessary. A process is far more important. The information required to select an investment location that enables financial freedom is readily available and straightforward. To choose an optimal investment location, follow these steps:

1. Select a city with a metro population >1M and sustained and significant population growth. Wikipedia
2. Choose a state with low operating costs. Every dollar spent on operating expenses reduces your potential income. Insurance—ValuePenguin, State Property Tax Rates—Rocket Mortgage. State income taxes: Here's a map showing state income tax rates.
3. Low crime: Avoid investing in any city listed here: The Most Dangerous Cities in America, Ranked.

I will add one more location consideration

1. Never buy in a city with any form of rent control. Google search.

Liam, I hope this helps.

I learned the hard way that properties don’t pay rent—tenants do. My first property, a C-Class multi-family in Houston, seemed like a great investment, but it turned out to be a money pit. I underestimated tenant behavior, facing issues like property damage, lease violations, and evictions.

Once I realized the importance of focusing on the right tenant segment rather than properties, everything changed. I targeted renters who pay on time, stay long-term, and care for the property. I researched this segment to discover what types of properties they preferred and where they lived. Understanding my customer, I bought similar properties to what they were currently renting.

This strategy is similar to how national retail chains operate: identify your target customers and provide what they want. For example, McDonald's sells poi in Hawaii and wine in France, adapting to local preferences.

In my approach:

• I chose property types based on what my target segment was renting. I did not choose.
• I selected configurations similar to what they were renting—for example, 3-bed, 2-bath, yard space, etc.
• I focused on locations where they were currently living.
• I set rent prices within their budget.

Summary

I became successful at real estate investing once I understood that what matters is the tenant segment who occupies the property. Properties do not pay rent; people do.

Hello @Van K Tran,

Real estate markets are not homogeneous. There can be a surplus of $1M homes simultaneously with an acute shortage of $400,000 homes. The numbers you find in the news are usually for all properties combined, which tells you very little value.

In 2005, we selected a specific tenant segment that has proved to be a highly reliable source of income for our clients. Below is a general description of the properties they are willing and able to rent:

• Type: Single-family
• Configuration: 3+ bedrooms, 2+ baths, 2+ car garages, 1,100 to 2,500 SF, one or two stories, lot size 3,000 SF to 7,000 SF.
• Rent range: $1,900/Mo to $2,400/Mo
• Location: See the map below for the general areas

Today, these properties cost between $350,000 and $475,000. Because real estate information from other sources is often too broad, we generate our own statistics. Below is the months of supply for our target segment.

Sales - Months of Supply

Six months of supply is considered "balanced," where the number of sellers roughly equals the number of buyers. Today, there are about 1.5 months of inventory for our target property segment.

There is a typical seasonal increase in inventory, but it remains a strong seller's market. Correctly priced, desirable properties stay on the market for only 3-5 days before going under contract. Consequently, there's no "bargain hunting" for good properties. Las Vegas's population growth is robust and is likely to continue into the foreseeable future. The increasing demand for housing absorbs everything that comes on the market in our segment.

So, don't believe everything you hear on the news. You need to focus on the situation for the properties that attract your target tenant segment.