Too late in DFW?

32 Replies

I'm currently looking for my first rental purchase in DFW (Plano, Allen, Wylie).

My realtor is telling me that what I'm looking for does not exist. It seems houses are selling very fast in this area, therefore no one is really willing to sell at prices near where I need to pay. I was wondering if anyone else is in the same boat in the same market?

Also, I'm wondering if I am off target with what I'm looking for. I'm think I need to find:

- 2-3 bedroom single family

- under 15 years old (looking for a long term hold)

- Around $130k

- Assuming a modest $1300 in rent

- Plano, Allen, or Wylie

- HOA fees under $200 month

I plan to use a property management company, so that has to be factored in. Running these numbers puts me near $100 in cash flow, which I think is too low. Am I being unreasonable to think better deals exist in this market? I fear over paying and being stuck in a few years if I need to offload it.


As a realtor and investor I can tell you many realtors do not know what they are talking about. There are deals to be had in any market you just have to look beyond the MLS when the market heats up to find the really good deals. I am sure someone local will speak up on this as well.

Hi Rick,

I think your Realtor is a little off. I am living in the DFW area now (McKinney) and I have been browsing homes in the McKinney/Allen area for some time now. A simple search on zillow shows a number of homes in the McKinney area that are 3/2, approx 1400 sq ft, built around 2007, and would likely rent for between $1300-$1500. I think your Realtor should probably just do a little more research.

-Josh

I agree, go off market, that is where you will find what you are looking for. It will take longer on the MLS, especially with a Realtor that is negative about what you are looking for, whether it exists or not.

I like what I'm hearing so far and it lines up with my suspicions, considering realtor.com shows a lot of houses close in price that meet a lot of my criteria. I just assumed that using a realtor to check MLS would yield better results than me looking on what's readily available to the general public on the web.

I guess the next natural question is, where does one look to find off MLS listings?

Thanks for the quick responses!

Think you should check your numbers. Are you putting down more than 20%. How much are you setting aside for maintenance and vacancy. 1300 rent and 130k price with 200 association + property manager I find hard to see how you cash flow 100/mo. I have bought similar and would recommend but do not use property manager and assuming vacancy and maint don't clear 100. I know prop taxes are low in Texas but can't be that low. Best of luck just don't underestimate expenses even on newer properties

@Travis Christl My fictitious rental number is VERY conservative and I am looking to put down at least 25% in order to give the cash flow a jump start. Even considering all cash. I assume at some point of increasing the down payment there will be a point of diminishing returns. Although I don't know if that's really true or where that limit sits. I'm somewhat on the side of the fence that says, just make a move while being as cautious as possible and figure out the rest on the fly for the sake of getting something started. Not great business sense, but I have to start somewhere. So I figure a "decent" deal is better than paying the 90%+ of the asking prices in MLS that my realtor mentioned.

Just trying to figure out where to start. But you're right, the numbers are very tight and prop taxes in my neck of the woods are around 2.5%.

Rick, when you get a chance check out Lifestyles Unlimited.com, is a great mentoring/realty group, they find exactly those types of properties. I've bought 2 SF in San Antonio with their help so far (in about 10 months). They have offices in DFW, SA and Houston, and I'm actually about to close on a third that hopefully will cash flow around $500/mo. I can give you details if you want.

Good luck!

Christian I.

...most of the retail agents don't want to mess with investors and they have no idea the investment route...they won't even return your calls....it can be frustrating dealing with them. I am an agent here in Dallas, let me know if you need anything....goodluck! @Account Closed

...and I agree, you have to look beyond MLS...I watch the MLS everyday and the inventory is overpriced and has been on the market awhile. The deals are made elsewhere.

I would stick with a SFR 3/2...the easiest to sell when you want to get out. PM me with your email address if you want me to setup a search for you. You will get email notifications anytime a new property goes on MLS, or a price drop occurs.

I invest in the same general area you're looking in, parts of Allen, McKinney and Frisco.

Properties are moving fast in those areas, but I do occasionally see a property go by that would fetch 1% or maybe a bit more of the purchase price in rent.

I'm watching out for a distressed property that I could add some value to to push that rent to price ratio up a little.

The good thing is, rents in the area have been on a tear in the past year or so. If that trend continues, the cash flow has the potential to increase nicely year over year.

Originally posted by @Account Closed :
I'm currently looking for my first rental purchase in DFW (Plano, Allen, Wylie).

My realtor is telling me that what I'm looking for does not exist. It seems houses are selling very fast in this area, therefore no one is really willing to sell at prices near where I need to pay. I was wondering if anyone else is in the same boat in the same market?

I think your Realtor is right Rick.

Out of those 3 your best bet is going to be Wylie. But expect to pay more than $130K.

I think that the market here is going to continue like this for a few more years to come. The builders are having a very hard time playing catch-up to the demand which keeps outstripping supply due to new development lending issues and lack of construction workers.

So with that in mind I am going to utter something sacrilegious; if you don't need that extra income today I wouldn't be so concerned with cash flow. If you pay market price and pick up something desirable (maybe more like $200K than $130K) I think you will be happy in the long term.

It looks like the Birmingham Elementary area of Wylie is probably your only option if you want to stick to that criteria. Also, you won't find many off-market deals built in the last 15 years. I would stick to keeping a close eye on the mls and making strong opening offers. I agree with another poster that your cash flow is likely going to be very thin with those numbers, so I'm hoping your strategy is something other than immediate cash flow. I have one similar deal in Forney (safe, stable, new, very few headaches, but tight cash flow) in my portfolio, and I've been very pleased with it.

@Robert Steele , @Waylon Themer , from what you're both saying, it sounds like I should either be looking in other cities or change my price point. Or is this something I just have to deal with in the area due to the current market? I'm not married to Plano, Allen, or Wylie. They are the closest cities to where I live and do have some houses that meet my price point and age of house, but don't provide much, if any, cash flow.

I'm open to any and all suggestions, so please be candid.

Originally posted by @Account Closed :
@Robert Steele , @Waylon Themer , from what you're both saying, it sounds like I should either be looking in other cities or change my price point. Or is this something I just have to deal with in the area due to the current market? I'm not married to Plano, Allen, or Wylie. They are the closest cities to where I live and do have some houses that meet my price point and age of house, but don't provide much, if any, cash flow.

I'm open to any and all suggestions, so please be candid.

Those are all great cities but you should also consider west McKinney and Frisco in that order. Bottom line is I think you need to raise your price point or wait out the sellers market.

All of the large third party sites (zillow, realtor.com, trulia, etc) are fed from MLS and the data is usually outdated by the time is gets there.

I can raise my price point, but from my limited understanding, I didn't see rent prices scaling in line with purchase prices beyond the upper limits of my budget. At least not in a linear fashion.

Robert, how high of a price are you thinking? I don't mind spending a bit more as long as the numbers make sense.

Originally posted by @Account Closed :
All of the large third party sites (zillow, realtor.com, trulia, etc) are fed from MLS and the data is usually outdated by the time is gets there.

Good to know. I didn't realize that. Might explain some of the disconnects between me and my Realtor. Thanks!

yes @Account Closed my clients ask me to look up properties they see on these sites and they are usually already under contract. If you want to see properties as soon as they come on the market, you really need your agent to set you up with a "prospect gateway". This is available in the DFW MLS and can define multiple search criteria and areas that you want to focus on. You can get new listings, price changes, vacant properties, homes on the market for X number of days, foreclosures, certain sizes, homes under a certain $/sq ft, rentals, etc.

The prospect gateway is also your own personal website that only you have access to. You can save your favorites, make notes and reject properties you don't like.

Ask your agent to set it up for you.

Out of curiosity, have you ever thought about investing in condos or SFH in other areas? For example, I think you could get a decent condo that cash flows in Uptown or around SMU area that are same price as what you are looking at - with a higher renting base. I'm just beginning (obviously by my post-count) and am playing a little bit of a devil's advocate just to hear your thoughts on the DFW market. Thanks!

Rick, $200/month in HOA dues for a single family? Yikes! That is really a killer.

$1300 Rent

-523.40 P&I 25% down, 30 am, 5% int

-325.00 Taxes 3%

- 75.00 Ins (Est)

-130.00 Prop Mgmt

-130.00 Maint & Capex

-104.00 Vacancy 8%

-200.00 HOA

($1487.40 expenses, including debt service)

($187.40 negative cash flow)

Now if you can get more like $1500 rent, as @Josh Dotzler suggested, you'd be positive, but still too close for comfort - you'd really be banking on future rent appreciation. Risky. I think another area, without those killer HOA fees, that still provides decent rents would be your best bet.

@Travis Christl "I know prop taxes are low in Texas but can't be that low." LOL! Texas has some of the highest property taxes of anywhere in the country, like about 2.7-3% vs. Calif, for instance, at 1.25%. Just fyi :)

@Justin Cooper I have not looked that far out yet. Since this will be my first investment property, I'm looking to stay in areas I'm familiar with and are close enough to home to potentially be my own maintenance man. By skipping a mgmt company, I might free up enough cash to allow for some cash flow.

@Sharon Tzib Not every HOA I've seen posted was that high, but it's not uncommon to see them above $100/month. Generally speaking, the property taxes in the areas I've mentioned are around 2.5% of appraised value (the joys of no state income tax?). Appraisals are typically below market, but I'm assuming 2.5% of market just error on the high side. It may be possible to get closer to $1500/month for rent, but I don't want to bank on it. As you can see, the numbers are so tight, one wrong assumption and I either break even or have negative cash flow.

Now, I'm still learning, so my "market analysis" may be way off. But even if my numbers are close to being right, it's not very promising.

I'm beginning to think I may need to focus on houses that need some rehab work, or as @Robert Steele mentioned, focus further Northwest where houses are a bit newer, and less expensive.

"It may be possible to get closer to $1500/month for rent, but I don't want to bank on it."

@Account Closed I'm definitely not suggesting you "hope" that you can get $1500/month in rent. Rather, find an area that you know for sure can via using resources like Rentometer, Zillow and Craigslist, before you ever sign on the dotted line.

Glad you're finding 2.5% prop taxes. Just keep in mind when you purchase, taxes will be based on your purchase price, so make sure you aren't using the properties current taxes to calculate. And nice to know you can get those pesky HOA fees down some.

I would think if you could find something within a 2-3 hour drive from your house, that should be very doable. Good luck!

@Account Closed Absolutely, I understand that reasoning perfectly. I'm looking to do the same whenever I purchase my first too. Good luck on the the property!!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.