Looking to buy my first rental property! please help me think clearly.

Dallas, Texas
Starting Out
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Looking to buy my first rental property! please help me think clearly.

Muhammad Akhtar S.
Member since 2023 · 8 posts · 6 votes

Some background:

- I bought my primary residence in Frisco, TX in 2019 and then I moved to CA last year and rented out this property. So now I live in CA and manage my rental remotely.

My goal:

- I have 120K cash that I want to invest in real estate in DFW and looking for a good return in 5/10 years. I don't want to commit to add more money to the property on monthly basis that's why I am looking a positive (or a break even) cash flow. 

- I am looking into invest into a property that doesn't require much repair/rehab before renting it out and Ideally looking to buy in a neghbiourhood with good schools and commutable to Dallas downtown.


The Problem:

I primarily looked properties in Frisco/McKinney/Celina/Anna/Mellisa/Princeton areas and so far based on my research, I couldn't find any property that matches with my criteria that can also generate positive cash flow with 20% of down payment. Is my expectation to find positive cash flow in Dallas area in today's market is unrealistic? if no, please help me what I am doing wrong and where/how to look?

Thank you!

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Corin Prendiville
Real Estate Agent · Dallas, TX · Member since 2018 · 63 posts · 43 votes
3y

The market has definitely gotten to the point where you will have a hard time getting a cash-flowing property with 20% down in an area with good school district and commute in North Dallas.

My recommendation is one of the following:

1 ) Broaden your search to include areas that may not have as good of school districts, focus on communities that are seeing an influx from out of staters or upward growth in population due to displacement and have higher or increasing home-ownership rates.
2 ) Consider increasing your cash investment to reach a positive cashflow if that is mandatory for your investment.
3 ) Consider investing in a REIT or REMT instead of a property, or reconsider investing that money in stocks as this isn't a bad time to be buying stocks.
4 ) Consider partnering with another investor who wants the same kind of deal as you and can pool finances to get the return & cashflow you desire. Make sure you consult a lawyer if you decide to go this route.

DFW has become a much more desirable and expensive area since covid and getting cashflow on a turnkey property is not easy in this market. If none of the options above work you could also consider scouting for a better location for your investing needs. 

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  • Abdul Jabbar Khan
    New to Real Estate · Houston, TX · Member since 2020 · 21 posts · 3 votes
    3y

    bump

    0Reply
  • Bruce Lynn
    Real Estate Broker · Coppell, TX · Member since 2011 · 5k+ posts · 4k+ votes
    3y

    I would say for breakeven or cash flow with turnkey property you probably need to put down 30-40% these days.  So that gives you a purchase price of $300-350K probably.  That's a good spot to be in as that captures a fair share of the rental market.  Actually it would be nice to be more around $250K , but turnkey in decent area and that's going to be tough today.

    So I don't think you can do that price range in any of the cities you mention except for perhaps Princeton.   One thing I don't like about Princeton right now is you also have a lot of people with the same idea.  Seems like there are a lot of rental properties there.  Too many.   You might have to go further north, like Sherman, Howe, Gunter, Van Alstyne.   Possible perhaps you could find something in Little Elm or Krum.   I like Krum better.

    2Reply
  • Muhammad Akhtar S.
    OP
    Member since 2023 · 8 posts · 6 votes
    3y
    Quote from @Bruce Lynn:

    I would say for breakeven or cash flow with turnkey property you probably need to put down 30-40% these days.  So that gives you a purchase price of $300-350K probably.  That's a good spot to be in as that captures a fair share of the rental market.  Actually it would be nice to be more around $250K , but turnkey in decent area and that's going to be tough today.

    So I don't think you can do that price range in any of the cities you mention except for perhaps Princeton.   One thing I don't like about Princeton right now is you also have a lot of people with the same idea.  Seems like there are a lot of rental properties there.  Too many.   You might have to go further north, like Sherman, Howe, Gunter, Van Alstyne.   Possible perhaps you could find something in Little Elm or Krum.   I like Krum better.


     Thank you Bruce! It helps! I will start looking into the areas you mentioned! 

    0Reply
  • Benjamin AakerPro Member
    Rental Property Investor · Brandon, SD · Member since 2015 · 1k+ posts · 1k+ votes
    3y

    Single family prices are still overvalued in a lot of areas. You'll have to increase the down payment to get cash flow unless you find a significant value-add property. You probably don't want those as you are managing out of state. Have you looked into taking out a credit line on your current rental? This might help you to increase the equity in the new property. Just make sure that the cash flow of the new property pays back the line of credit on the first property. Otherwise, you'll need to look in other areas.

    2Reply
  • Corin Prendiville
    Real Estate Agent · Dallas, TX · Member since 2018 · 63 posts · 43 votes
    3y

    The market has definitely gotten to the point where you will have a hard time getting a cash-flowing property with 20% down in an area with good school district and commute in North Dallas.

    My recommendation is one of the following:

    1 ) Broaden your search to include areas that may not have as good of school districts, focus on communities that are seeing an influx from out of staters or upward growth in population due to displacement and have higher or increasing home-ownership rates.
    2 ) Consider increasing your cash investment to reach a positive cashflow if that is mandatory for your investment.
    3 ) Consider investing in a REIT or REMT instead of a property, or reconsider investing that money in stocks as this isn't a bad time to be buying stocks.
    4 ) Consider partnering with another investor who wants the same kind of deal as you and can pool finances to get the return & cashflow you desire. Make sure you consult a lawyer if you decide to go this route.

    DFW has become a much more desirable and expensive area since covid and getting cashflow on a turnkey property is not easy in this market. If none of the options above work you could also consider scouting for a better location for your investing needs. 

    3Reply
  • Muhammad Akhtar S.
    OP
    Member since 2023 · 8 posts · 6 votes
    3y
    Quote from @Corin Prendiville:

    The market has definitely gotten to the point where you will have a hard time getting a cash-flowing property with 20% down in an area with good school district and commute in North Dallas.

    My recommendation is one of the following:

    1 ) Broaden your search to include areas that may not have as good of school districts, focus on communities that are seeing an influx from out of staters or upward growth in population due to displacement and have higher or increasing home-ownership rates.
    2 ) Consider increasing your cash investment to reach a positive cashflow if that is mandatory for your investment.
    3 ) Consider investing in a REIT or REMT instead of a property, or reconsider investing that money in stocks as this isn't a bad time to be buying stocks.
    4 ) Consider partnering with another investor who wants the same kind of deal as you and can pool finances to get the return & cashflow you desire. Make sure you consult a lawyer if you decide to go this route.

    DFW has become a much more desirable and expensive area since covid and getting cashflow on a turnkey property is not easy in this market. If none of the options above work you could also consider scouting for a better location for your investing needs. 

    Thank you Corin! This is helpful! For 1, Any suggestions for areas to look for?
    0Reply
  • Abbey Humphreys
    Member since 2023 · 303 posts · 324 votes
    3y

    Hey Muhammad. Is there any specific reason that you're looking to invest in DFW? If you're in CA and you're familiar with investing OOS, does it have to be the greater Dallas area? I understand that you already have a property in Frisco but there are other cities in TX that are a bit more investor friendly. With 120K to invest you should have a leg up either way. 

    0Reply
  • Muhammad Akhtar S.
    OP
    Member since 2023 · 8 posts · 6 votes
    3y
    Quote from @Abbey Humphreys:

    Hey Muhammad. Is there any specific reason that you're looking to invest in DFW? If you're in CA and you're familiar with investing OOS, does it have to be the greater Dallas area? I understand that you already have a property in Frisco but there are other cities in TX that are a bit more investor friendly. With 120K to invest you should have a leg up either way. 


    Hi Abbey! Good question! I was primarily looking for DFW as I am familiar with the area. I am open to invest in other areas if there is an opportunity for +ve cashflow and good appreciation for next 5/10 years. Do you have any recommendation?

    0Reply
  • Vernon Watts
    New to Real Estate · Dallas, TX · Member since 2020 · 94 posts · 20 votes
    3y

    Shalom 

    Shalom Muhammad, There's other areas to consider, south of Downtown Dallas. If you choose to stay at your present criteria and eighter buy at around $150k- $170k with very little upkeep and near 15% in the Lancaster, Wilmer, Kaufman Seagoville areas. Let's talk if you need help.

    0Reply
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