Dallas area: Rent to Price ratios

Dallas area: Rent to Price ratios

Investor · Fremont, CA · Member since 2016 · 12 posts · 4 votes

Looking for all  your input on "Rent to Price" ratios for Dallas area (surrounding towns like Plano, Irving, Burleson, Crowley, Little Elm, McKinney...). I'm looking primarily at SFRs but open to high cash flow  2unit/4unit properties too.  Would like to get input on aspects such as:

a) Rent to price: Is a 1% or higher ratio a good rule of thumb for initial screening of SFRs or can we do better (for B-level properties). I'm thinking that detail caprate/COCR calculations can be done after the basic filtering. If you're an active investor in this area, what other metrics would you recommend?

b) Property managers: Is Yelp a good way to find reliable and reasonable ones?

c) Towns to focus on: From a cash flow point of view, what areas would the experienced Dallas investors recommend ? I want to strike a good balance between area's safety and ROI - should feel comfortable visiting without needing to looking over the shoulder or worry about high burglary rates :) Good schools are a bonus too, but ROI trumps.

Thanks

- Jyotin

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Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
10y

I try to buy rentals around 1.2-1.3% in Dallas. It is certainly do-able, but you will not find those kinds of deals on the MLS. I am finding these properties mostly in the inner-ring suburbs, houses built in the 1950s-1960s, and B or C+ neighborhoods.

In A neighborhoods, you are going to have a tough time hitting a 1% rent/price ratio.

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  • Investor · Playa Del Rey, CA · Member since 2016 · 51 posts · 46 votes
    10y

    I've been having issues finding anything close to 1% in the Dallas area, especially the A-level places..  Let me know if you have better luck!

  • Investor · Fremont, CA · Member since 2016 · 12 posts · 4 votes
    10y

    @Gabriel H. Thanks for your input - looks like I'll have to lower my expectations regarding rent-to-price ratios if that is indeed hard to find in Dallas areas.

    I'd also like to get member input on other aspects of investing in Dallas area, such as what towns are good from ROI perspective, and finding reliable/reasonable local property managers with good reviews/references.

  • Specialist · Dallas, TX · Member since 2010 · 511 posts · 252 votes
    10y

    Till 2014, it was possible to get 1% ratio in DFW for good property. In last two years, appreciation make this impossible. Plano, Frisco and McKinney is too pricey. you can get some better deal in range of 0.8% in other area like Little Elm etc...

  • Investor · Sachse, TX · Member since 2015 · 223 posts · 66 votes
    10y

    @Jyotin Gautam

    The most important question is how are you finding the properties to rent. If you are looking on the MLS then you will find nothing in the area that will meet 1%. There are a lot of people buying in that area and it is really hot. If you utilize some off market tactics, you may find something. How you are buying is also another question. Cash is king and a lot of people have it here right now. You will have to move fast in order to pick up property.

    I recommend coming to the DFW area and spending some time driving around and finding your risk tolerance. I looked at a property in Arlington that I can be all in on for 94K and will rent for 1250. It currently has a tenant paying 950 that may be able to absorb the increase if done correctly. There are a lot of great areas to invest in the area with favorable rent ratios. 

    I own in multiple cities so I can not recommend any particular one. There are good and bad areas of each one. That is why boots on ground is a must for me.

    Just my opinion, feel free to reach out with any questions.

  • Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    10y

    Get some background on price-rent ratios:

    SmartAsset.com says

    It is calculated as the ratio of home prices to annual rental rates. So, for example, in a real estate market where, on average, a home worth $200,000 could rent for $1000 a month, the price-rent ratio is 16.67. That's determined using the formula: $200,000 ÷ (12 x $1,000).Feb 29, 2016

    The use of a price/rent ratio is analogous to employing a price/earnings ratio for stocks. When a stock price is high, and its earnings per share relatively low, the P/E is high. A high P/E often indicates that the stock is too expensive, and the share price is headed for a drop.

    What someone is willing to pay to rent a place is that home's "earnings." And, just as in the stock market, a high home price related to the rental earnings mean homes values will probably drop.

    chart for major areas which can be sorted by Name, ratio, & 15yr avg

    http://money.cnn.com/real_estate/storysupplement/price_to_rent/

    Interestingly, Investopedia attempts a price-noi ratio

    ProteckServices.com inverts the ratio (rents/price) and names it Rent-Value ratio

  • Investor · Fremont, CA · Member since 2016 · 12 posts · 4 votes
    10y

    @Jeff B. , thanks a lot for your insights and pointers. I'll followup on these!

  • Rental Property Investor · Dallas, TX · Member since 2012 · 502 posts · 263 votes
    10y

    I try to buy rentals around 1.2-1.3% in Dallas. It is certainly do-able, but you will not find those kinds of deals on the MLS. I am finding these properties mostly in the inner-ring suburbs, houses built in the 1950s-1960s, and B or C+ neighborhoods.

    In A neighborhoods, you are going to have a tough time hitting a 1% rent/price ratio.

  • Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
    10y

    @Andrew Herrig is right. It unlikely you will find a 1.0%-1.3% on the MLS. Prices have been increasing faster than the rents can be increased in the many places in Metroplex.

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