{"id":165158,"date":"2024-01-24T14:33:06","date_gmt":"2024-01-24T21:33:06","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=165158"},"modified":"2024-07-12T09:18:36","modified_gmt":"2024-07-12T15:18:36","slug":"the-secret-to-reliable-rental-income-is-good-tenants","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/the-secret-to-reliable-rental-income-is-good-tenants","title":{"rendered":"We\u2019ve Had Vacancy Rates Below 2% for Over 15 Years\u2014Here\u2019s How We\u2019ve Done It"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC8139807168\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Since 2006, my team and I have delivered almost 500 Las Vegas investment properties (&gt; $130 million). The properties had an annual appreciation of 15% and annual rent growth of 7% (2013 through December 2023), and our average&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/5-steps-to-lower-vacancy-rates-and-increase-renewal-rates\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">vacancy rate<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;stayed below 2%, including during two major economic turmoils:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><span data-preserver-spaces=\"true\">2008 housing crash:&nbsp;<\/span><\/strong><span data-preserver-spaces=\"true\">Zero decline in rent and zero vacancies.<\/span><\/li>\n\n\n\n<li><strong><span data-preserver-spaces=\"true\">COVID pandemic eviction moratorium:<\/span><\/strong><span data-preserver-spaces=\"true\">&nbsp;No impact.<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">So why did our clients\u2019 properties perform when most others did not?<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">The Key to Reliable Rental Income<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Income reliability is not a function of the property but of the&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/zillow-renter-survey-2023\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">tenant<\/span><\/a><span data-preserver-spaces=\"true\">&nbsp;who occupies it. To maximize your rental income, your property must be continuously occupied by a reliable tenant.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">A reliable tenant is someone who:<\/span><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><span data-preserver-spaces=\"true\">Pays all the rent on time.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Takes care of the property.<\/span><\/li>\n\n\n\n<li><span data-preserver-spaces=\"true\">Stays for many years.<\/span><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Before I talk about income reliability, I will talk about tenant segments.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Not All Tenant Segments Are the Same<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">People tend to think that the entire population of people who rent is homogeneous and that they all have similar behavioral characteristics. This is not true.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">For example, in Las Vegas, there are three major tenant segments. I listed some characteristics of the three segments in the table. The segment&#8217;s names reflect their overall characteristics.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"539\" height=\"259\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image2-4.jpeg\" alt=\"tenant characteristics\" class=\"wp-image-165166\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image2-4.jpeg 539w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image2-4-300x144.jpeg 300w\" sizes=\"auto, (max-width: 539px) 100vw, 539px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">As you can see, each segment\u2019s behaviors are different. And it is not just behaviors; every segment has specific housing requirements. People are unlikely to rent any property that does not meet all their housing requirements. The corollary is also true.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">When you select a property, all aspects, including the tenant segment, are set in stone. What if the segment the property attracts has a reliable tenant ratio of 1 reliable person in 50 people? The odds of ever having a reliable tenant are low. The result is that your actual rental income is likely to be much lower than your calculated income.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Every property matches the housing requirements of a single-tenant segment. And there is nothing you can do to alter the tenant segment the property attracts.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">So, what happens when you select a property? This chart explains it:&nbsp;<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"879\" height=\"652\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image3-3.jpeg\" alt=\"flowchart of what happens after you buy a property\" class=\"wp-image-165167\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image3-3.jpeg 879w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image3-3-300x223.jpeg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image3-3-768x570.jpeg 768w\" sizes=\"auto, (max-width: 879px) 100vw, 879px\" \/><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">If you want to have a reliable income, start by choosing a tenant segment with a high percentage of reliable people. Then, purchase properties that match this segment&#8217;s housing requirements, as illustrated in the chart. Once you select a property this way, it will likely be occupied by a reliable tenant.<\/span><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"890\" height=\"680\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image1-4.jpeg\" alt=\"flowchart of what happens after you buy a property with a reliable tenant\" class=\"wp-image-165165\" title=\"\" srcset=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image1-4.jpeg 890w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image1-4-300x229.jpeg 300w, https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2024\/01\/image1-4-768x587.jpeg 768w\" sizes=\"auto, (max-width: 890px) 100vw, 890px\" \/><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Interviewing for Income Reliability<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">How do you find a segment with a high percentage of reliable people?<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Property managers work with tenants every day, making them a rich source of knowledge. You can utilize their expertise by asking them questions in a manner they understand and within their field of knowledge. From their answers, you can derive the information you need.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Below are sample questions and the ideas behind them.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What types of properties would you buy if your goal was tenants who stay for many years?<\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The purpose of this question is to understand which properties attract tenants who stay many years. You are also looking for the property type and configuration.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Where are these properties located?<\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">You are searching for a geographical area to focus your search.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What is the rent range that attracts these tenants?<\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">Once you determine the rent range, you can estimate the gross monthly income range of the renters. Generally, people spend about one-third of their gross monthly income on rent.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">What kinds of jobs do they have, and where do they work?<\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">By combining the income range information with the industries in which the segment works, you can determine whether those companies are currently thriving and likely to continue to do so in the future.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">For example, during the fracking boom, people purchased rental properties near large fracking fields, only to find themselves with vacant properties when fracking died down. Similarly, if the majority of the segment works at an auto plant scheduled to close in five years, you should consider investing in a different city.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Please tell me about the typical tenant who occupies these properties.<\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">What you were looking for is the demographic. For example, we target young families with elementary school-aged children. This demographic has an average stay of over five years. This also drives the property type and configuration.&nbsp;<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">For example, in Las Vegas, this demographic almost exclusively rents single-family homes with a two-car garage, three bedrooms, and two or more baths.<\/span><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">As a group, how reliably have they paid the rent? How often do you have evictions with this group?<\/span><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">It is not how much money you make on paper. What matters is how much you actually receive.<\/span><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">This list of questions is not comprehensive, but it should provide a good starting point.<\/span><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span data-preserver-spaces=\"true\">Final Thoughts<\/span><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><span data-preserver-spaces=\"true\">The secret to a reliable rental income is buying properties that attract people from a tenant segment with a high concentration of reliable people. And if you work with a good&nbsp;<\/span><a class=\"editor-rtfLink\" href=\"https:\/\/www.biggerpockets.com\/blog\/how-to-find-a-property-manager\" target=\"_blank\" rel=\"noopener\"><span data-preserver-spaces=\"true\">property manager<\/span><\/a><span data-preserver-spaces=\"true\">, the odds are high that you will have a reliable income.<\/span><\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_27f8a334fccaf28f05a91406aab200ec\" class=\"visibility-group  hidden\">\n        \n\n<div id=\"hero-block_aa0bc3bc36fe7e44eac79e4c79b8dbe3\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-theme-gold-light-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-theme-gold-color has-text-color has-large-font-size wp-block-paragraph\" style=\"font-style:normal;font-weight:800\">Get the Best Loan Today<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color wp-block-paragraph\" style=\"font-size:16px\">Find trusted, <em><strong>investor-friendly<\/strong><\/em> lenders who specialize in your strategy. <\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<div id=button-custom-event-block_a1d0e4a89b30d49188c01bf421a6dbc0 class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/business\/finder\/lenders\"\n        x-on:click=\"window.analytics.track('Blog Block | B2C Marketplace Lender Finder', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/the-secret-to-reliable-rental-income-is-good-tenants',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-gold-background-color has-text-color has-white-color\" target=\"_blank\">Find a Lender<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\" first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2022\/08\/Marketplace-Blog-Blocks-Lender-v3.png\" alt=\"investor friendly lender, investor friendly real estate loans\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color wp-block-paragraph\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/the-secret-to-reliable-rental-income-is-good-tenants',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The secret to reliable rental income isn&#8217;t the property, the location, or the amount of money you put in. It&#8217;s this, and it&#8217;s a straightforward thing to get right. <\/p>\n","protected":false},"author":613715,"featured_media":165161,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7358,7119],"tags":[],"class_list":["post-165158","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-investing-stories","category-biggerpockets-daily"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/165158","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613715"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=165158"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/165158\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/165161"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=165158"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=165158"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=165158"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}