The title is not clickbait; it is fact and easy to prove.
Think about it: Has there ever been a time in human history when property was used to pay rent? No, tenants pay rent, not the property they live in. So instead of just buying a property, focus on who will be paying the rent: the tenants.
About tenant segmentation
Many people think that people who rent are all homogeneous; they all behave the same way. This is not true. The rental population is made up of many segments, each with different housing requirements and behaviors.
For example, Las Vegas has three major tenant groups, as shown in the table.
| Tenant segment handle | Short-lived | Everlasting | transitional |
| average dwell time | 1 year | >5 years | 1 year |
| average monthly rent | $900 | $2,000 | $3,000 |
As you can see, average length of stay and rental rates vary across segments. Each segment also has different housing requirements and behaviors. Fortunately, there is a way to target a specific pool of tenants with the behavioral characteristics required for revenue reliability.
revenue reliability
In order to live on rental income, you must be able to rely on your monthly income. This requires that your property be occupied by reliable tenants.
A reliable tenant will stay for many years, always pay rent on time, and take good care of the property. Reliable tenants are the exception, not the rule.
How do you maximize your odds of always having reliable tenants? Buy a property that attracts people from a market segment with a high proportion of reliable individuals.
How to find market segments with a high proportion of reliable people? Through property manager interviews. Essentially, ask multiple property managers: “If you were to purchase a property with a tenant who had lived there for many years, always paid rent on time, and took good care of the property, what property would you purchase?”
I did this in 2005 when I started my investor services business. Most property managers gave the same answer:
- type: one-parent family
- Configuration: 3+ bedrooms, 2+ bathrooms, 2+ garages, 1,200 to 2,100 sq. ft., one or two stories, lot sizes 5,000 to 6,000 sq. ft.
- Place: The place they currently rent
Once you know the type and location of properties that are most likely to attract reliable people, the next step is to purchase similar properties. We’ve been doing this for over 16 years and the results have been outstanding.
Let me clarify: I did not select property type, configuration, location, or rental range. I identified the group of tenants I wanted to occupy my property and purchased similar properties. It’s really that simple.
final thoughts
When you target income reliability and make property decisions based on that goal, your odds of success are high because it’s specific to the location and tenant group.
The property type may be multi-family residential in one location, student housing or single-family residential in another location. You don’t care which property type you choose because your goal is income reliability.
The other option is to choose a property based on the opinions of others (probably across the country) and hope for the best, which is tantamount to gambling.
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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
