Investing in Dallas/Fort Worth vs Atlanta

23 Replies

If was forced to invest out of state. Without having to think about it, I would probably concentrate my investing dollars in Dallas / Fort Worth.


1) Population is estimated to grow over a million from 2010 - 2020.
2) GDP is one of the highest
3) 0 state income tax and overall good public school system
4) One of the lowest unemployment in the country
5) One of the highest salary in the country and the low cost of living.
6) Dallas/Forth Worth Real Estate market was practically recession proof during the 2006 - 2012 downturn while Real Estate in the rest of country practically fell off a cliff.

These are all attractive features of why Dallas is a good place to invest.

For those investor who invest in either or both Atlanta and Dallas markets. Let's discuss some similarities and differences of the two markets. Pros and Cons.

Although I would like to believe where I live and invest (Atlanta) is the best market to invest. I believe that Texas has slight edge over Georgia in terms for the buy and hold investor. Sort of like a big brother, little brother relationship.

Well I think cash flow wise Texas is a bit harder because property taxes are so high. 

@Kevin Auyong

That is a good point. I heard that Texas property taxes are around 3%. Here in Atlanta property taxes can be anywhere from 0.8% to 1.5%. 

The median home price back in 2006 was about 10% higher in the Dallas market over Atlanta market. Today, Dallas metro's median home price is $148,400, median rent $1285, with a 6.1% appreciation in the last 12 months. Atlanta metro's median home price is $159,900, median rent of $1100, with a 14.7% appreciation in the last 12 months.

I forecast that the population will increase by 1.5 million in Dallas metro from 2010 - 2020 and close to million (944k) in Atlanta metro from 2010 - 2020.

I think both markets are going to do very well in terms of equity build up / appreciation from now until 2020. I would not be surprised at all to see unprecedented appreciation numbers in the Houston and Dallas in the years ahead.

I am extremely bullish and optimistic in the future real estate prices for both Texas and Georgia.

Ft. Worth as opposed to Dallas offers about 4% more equity capture on single family deals.  

As you stated, DFW wasn't hit by the crash.  That doesn't mean we weren't impacted.  The lack of available credit for would be home buyers caused the normally stable appreciation to stagnate.  The same problem caused a receding of prices, not a correction, as sellers were forced to lower prices or become landlords, simply because there were fewer buyers able to qualify in the new world order.

As credit loosened and banks began originating again, prices began increasing much faster than the normal average of 3% - 6% appreciation.  It isn't runaway appreciation as much as it is the market catching up as buyers have suddenly reentered the market.  In some of the more desirable areas - not luxury areas - we're seeing close to 30% appreciation over 2013 with inventories less than 2-months.

The result of all this is that we find ourselves in an inverse rent:value market.  Market rents simply haven't caught up.  It's tough to find cash flow properties in B neighborhoods right now.  A neighborhoods are almost impossible. 

Demand will continue, so I believe rents will catch up.  It's just going to take a couple of years as leases turn over.

I normally estimate property taxes at 1.7%, in most of DFW that is about right.

Insurance is also extremely high in all of Texas (thanks to the people in Austin).

The best market to invest in is the one you know better,,the difference in two houses, one block apart in the same city and school district can be more than you think, one might be in a 'in demand' high school area, the other one may have students going to a less desirable high school,,,as far as rentals go, the difference in rent rates and how long it takes to fill a vacancy can be affected more than you think by things like that

Although I've never been. I have heard that both Plano and Flower Mound, TX are very nice places to live. Probably similar to that of North Fulton / South Forsyth in Atlanta. 

Sales tax is 6% in Gwinnett and 7 % in Forsyth and Fulton. In Texas, the average sales tax seems to be right around 8%. Where I live the annual car registration is $20 a year.

I can only dream not to pay any state income tax like TX. Here in GA the state tax is 6%. I think that in itself is one of the huge drivers of why so many people are moving there. TX is like paradise for entrepreneurs and small business owners.

@Hattie Dizmond

Compared to the rest of the country, DFW RE market was definitely Crashproof in the last real estate melt down. 

I think that rents will definitely go higher and catch up to home prices. Hattie, do you have any idea of what the inventory level looks like the DFW RE market in the A and B areas? 

Sales tax in gwinnett is 7%.  Until the voters wise up and quit voting for the tsplost anyway....

Texas also doesn't have a state income tax as we do here in ga.  

I'm very new to RE investing so just sharing my experience.

I don't know about other DFW investors but I'm experiencing major property tax increase this year due to comps going higher. I can't raise my rent high enough since I don't want to take the chance of a vacant property.

There are also quite a lot of for sale and for properties there if you look on zillow. I got discouraged many times looking at an area seeing a sea of blue and red that I don't know if it's a good decision or not.

Insurance was rising last year but I ended up raising my deductibles to lower my premium. I'm not sure how bad it will be next year.

Lastly I'm hearing there are a lot of hedge fund activities. Not sure how that is affecting my holdings but it may come to play when I sell my properties. I'm hoping that I will hold them forever but one can't plan everything...

Happy investing!

I own 20 SFR in the suburban Houston SFR market. Most purchased in 2010-2013. Tax and insurance are definitely on the rise but due to strong demand I've had good success raising rents to keep ahead of the rising costs. Often increasing monthly rents by $50-100 each year.

Deciding to keep your rent rates stagnant during lease renewals because you have a "good tenant" is a mistake in my opinion. If you have a good property in a desirable area, you are doing yourself a dis-service if you don't keep up with surrounding market prices. These tenants have to move somewhere so you must consider their options when establishing new market rents.

I continue to be optimistic about appreciation in sale and rental prices in Texas for many reasons, but jobs is #1. We are experiencing a historic migration because of our strong economy and lack of a sales tax. Property taxes are high, but since they are based on values, you are seeing the gain in appreciation at the same or similar rates. If they get high enough you can cash-out refi to fix your cap rate.

Only problem is finding new properties to invest in. The deals of 2-4 years ago are mostly gone so maximizing returns in my existing portfolio has been a key strategy of late. Good luck out there!

Great topic!  I love both of these markets, but haven't done enough research to be smart in either :(.  I look forward to the continued discussion!

@James Park some of these historical numbers you discussed, where are you getting these from? I'd love to check them out. Also, have you considered Florida? Has half the property taxes of Texas, no income tax and insurance isn't too bad if you're not in a flood zone. 

Yes those pesky property taxes in Texas.......... : )

One way around that is to buy NNN shopping centers with base rate per sq ft and pass the cam onto the tenants. They end up paying for almost everything versus a house rental.

There is still good value there at an 8 cap and with debt in the 4's you get 15 to 18% coc going in with 25% down.

It's not going to last forever so my buyers will be in a BUY position all of 2015.

Even foreign investors they are looking at favorable currency exchange rates to the U.S dollar, high caps, and low debt.

In 2015 toward the end rates will rise, caps will compress, and currency conversion for many foreign countries will lose value from where it is now.

I plan on working non-stop with my clients through 2015. People will always be buying and selling but 2015 I think will be a record year for infusion of capital into the U.S and investing as buyers get off the fence.

DFW isn't the only area in Texas. There are many areas that are very, very strong in affluent areas there. We target about seven different ones. Austin is great that just have quirky development rules that have gotten even tougher lately as they want the green space feel.

As for houses yes those are likely overheated in most of the coveted areas in Texas. I think big value for houses in TX that ship has sailed years ago. Commercial real estate lags behind a few years in recovery cycle from the last recession. The downside is you need big money to start. My clients often have into the millions to invest on deals. You could get in with 300k to 500k down if you are willing to partner etc. 

We focus on areas with good population growth, job growth, and median income is approaching 100,000 or more and on an upward trend.

I agree Atlanta is a great area as well.

In demand from my clients are warm belt states. NC, SC, GA, TN, FL, TX, AZ etc.

Most stay away from cold belt states as they are dying off except for urban core and some suburban not too far out. The growth is happening in a lot of warm belt states due to baby boomers in the tens of millions retiring to warmer climates and fueling influxes of population and money which creates more jobs. 

Originally posted by @Henry J. :

I'm very new to RE investing so just sharing my experience.

I don't know about other DFW investors but I'm experiencing major property tax increase this year due to comps going higher. I can't raise my rent high enough since I don't want to take the chance of a vacant property.

There are also quite a lot of for sale and for properties there if you look on zillow. I got discouraged many times looking at an area seeing a sea of blue and red that I don't know if it's a good decision or not.

Insurance was rising last year but I ended up raising my deductibles to lower my premium. I'm not sure how bad it will be next year.

Lastly I'm hearing there are a lot of hedge fund activities. Not sure how that is affecting my holdings but it may come to play when I sell my properties. I'm hoping that I will hold them forever but one can't plan everything...

Happy investing!

 I'm not sure where in the DFW Metroplex you're investing.  Since it's such a large & diverse area, it's hard to speak to your comments without knowing.  However, it is very common for smaller MF & SF rentals to see annual increases to offset property tax increases.  I have a friend who rents a 4-plex in one of the historic areas near downtown Dallas.  He has been there almost 6-years and sees a $50-$75 increase with each renewal.  It's not a problem, and he has no intention of moving. 

In DFW your ability to increase the rent is dependent upon where the property is located.  If you are in a desirable area, a monthly increase of $100 or less should present no problem and not increase your likelihood of vacancy, particularly if you are maintaining the property well. 

Rental demand in the norther portions of Dallas County & Southern Collin & Denton counties will do nothing but increase over the next several years due to the job growth & new housing development in those areas, as the Metroplex continues to push further & further towards the Red River.  

Also, the Metroplex as a whole continues to see inventories below 90-days.  A & B neighborhoods are at or under 60-days, and the A - A+ school districts, in median to upper median price ranges, continue to be under 45-days, with some areas - $200k to $300k ranges - under 30-days.  That's a great market for flipping, but it is driving prices up, so buy & hold is difficult in those areas.  However, in the last 45-days I've noticed a slight slowing.  Good properties in the good school districts that are priced appropriately are still flying off the shelf.  But...and this is significant...overpriced properties are beginning to sit and prices are being adjusted, before they sell.  In the summer that simply wasn't the case.  Properties were selling not only above the listing price, but above comp value.  It appears sanity is returning.

Finally, I believe the hedge funds, REIT's & institutional investors have stopped their scorched earth buying in the DFW area.  They haven't started dumping those properties yet, but the buying has definitely slowed.

James,

Where I live in Prosper, I am paying about 2.5% in property taxes.  I do prefer our state income tax, or lack thereof.  I think insurance is high, because of the wind and hail risk here in North Texas.  Atlanta can't be all bad, as Joel Owens lives there, but it is amazing that the Falcons are in first place at 4-6.

Mark

@Mark Creason,

Hi Mark, I had no idea that home insurance was so high in TX due to hail and wind risk.

For example a 4 bed / 2.5 bath 2450 sq/ft rental home I bought in South Forsyth runs me about $400 a year with allstate. What would a similar rental home in Plano, TX cost me in terms of insurance? What is the property taxes on a rental home in Plano, TX? 

Thanks,

I have a 3/2 about 1800 sqft out in the rural Western Metroplex. It has a replacement value of $178k and landlord's insurance through Allstate is about $1450.  Taxes are about $1400 as well since I convinced the county to drop the value a fair amount.  Expect taxes in the city to be 2% to 2.5% of appraised value.

@Paul Ewing,

Thanks for this information. I knew that property taxes were higher in Texas, but had no idea that homeowner's insurance is triple that of Atlanta. Hmmm. this is interesting information. I just paid off all my property taxes for my rentals in Forsyth County and taxes were right at 0.9% of fair market value on all my properties.

Overall, I think as a tax package, Texas wins over Georgia. The zero state income tax in TX is  a huge advantage over GA. 

I can see the no state income taxes as a great thing for us here, but won't you still get hit with them from the GA side since it is passive income?  I don't think you can split it out and say 20% of your income is from TX and not taxed by GA can you?  I know you can for work income earned in another state, but I figured rentals or flipping income would be considered the same as other investment income and subject to your home state taxes.

I would think an out of state investor will not be able to take advantage of the no state income tax, but maybe I'm missing something.

When I owned property in Texas the property taxes were killers. I had a new house that cost $163K and my taxes were just under $5k in Cypress, Tx. So I am surprised taxes in the DFW are only 1.7%

@Kevin Auyong  

DFW property taxes vary by city and usually range between 2.5-2.8% depending on the city.  Dallas is 2.74% and Ft Worth is 2.84%.

So how is that guy paying 1.7%? 

That's a pretty big difference.

One possibility is the property is not in a city limits.  That can cut a few hundred dollars off taxes right there.  The other possibility is that they are not seeing the whole tax.  Someone on here recently was seeing a low rate, but it turned out to only be the school district taxes which are often collected by a separate entity than county, city, and misc other taxes.  There is a state cap of 1.7% for school taxes (though districts can vote for bonds that can raise the rate now) so he may have just seen the school rate.

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