Newbie from San Francisco interested in Dallas / Fort Worth

48 Replies

Hi there!

My name is Griffin, and I'm looking to purchase my first real estate investment property in the next year. I'm most interested in long term buy and hold (5 to 20 years) - either single family or small multifamily (1 to 4 units).

I've done research on various markets and am particularly interested in the Dallas / Fort Worth area. I like that it has a strong economy in multiple industries, low unemployment, and great population / job growth. I also have family in the area, and it'll be easy to get a direct flight there to explore and learn the area. I'm planning to either use a turnkey company or work with a recommended real estate agent / property manager from a friend who has invested there.

Are there any other Bay Area investors on here who have experience investing in the Dallas / Fort Worth (DFW) area? I'd love to chat / grab coffee to hear your thoughts. Any tips, numbers you expect (aka cash flow, cap rate, etc.), favorite vendors, and recommended neighborhoods would be greatly appreciated!

Griffin

Hey Griffin! Welcome to the party :)

I'm not in SF, but I am down in LA and have always bought out-of-state properties myself. I don't own in Dallas but have worked with several investors who have bought there. Not to kill your mojo, but I will say that about 1-2 years ago was the time to buy in Dallas. The appreciation wave hit right after that, cap rates were better, and it was the beginning of that market really for investors (beginning....very relative). Now, however, prices in Dallas are higher than they were in 2009 before the crash, but a pretty good %. You can still get cash flow there, but it will be minimal in comparison with a lot of markets. I don't think it's the worst market you can buy in anymore by any means, but it's totally different than it was just a year and two ago. Inventory is very low as well. 

But, still not the worst market out there to buy in! But there is definitely more cash flow elsewhere.

Hi @Ali Boone ,

Nice to meet you! Yeah, I've read that Dallas / Fort Worth is pretty hot right now. I've been debating quite a bit but eventually came full circle and thought it'd still be a good idea, since I believe it has solid long term appreciation potential (5 to 20 year horizon). That said, I do have a market short list:

- Las Vegas: Easy flight from San Francisco. Values still below the bubble peak. Worries: Will have bigger ups and downs, since so many jobs are in tourism. Also, quick and dirty math looks it cash flows less than Dallas / Fort Worth (emphasis on the quick and dirty - just looked at a sample of listings)

- Chicago: Plenty of direct flights from SF. Market is cooler than Vegas, but Chicago has started to and *should* rebound. Worries: Low job growth, population has been shrinking.

- Providence: This is an oddball in the mix. Not as easy to get to, but I have lots of family in the area. Buyers market right now. Worries: Economy is not doing so well - will it recover? Also Rhode Island isn't known for being landlord friendly.

Thoughts about any of these markets? What areas have you been excited about lately?

Griffin

Just wanted to say "Hi," I'm a local Fort Worth investor with 6 rental properties.  The rental market here is great.  Always easy to rent.  Eviction laws are very landlord friendly as well.  Let me know how I can help!

@Yoochul C. - San Antonio looks like a great market too. What's your experience been like as an out of state investor? Do you use turnkey or have a network built up in the area? How long have you been buying in San Antonio? Any metrics you target as far as cash flow / cash on cash / cap rate, etc?

@Ann KESSEL Great to hear! What's your strategy been... are you buy and hold, as well? What's your investment criteria? (aka, do you have minimum cash flow, cash on cash, cap rate requirements?) Any favorite neighborhoods? Also - have you had any issues with cracked foundations? I heard that's a common headache.

Hi @Griffin D.

Welcome to BiggerPockets!

Glad to hear that you want to get started in real estate investing.  It's a great time to be building your real estate portfolio.

It's great that you've done some research and narrowed down your market options.  This is the first step.  Too many investors look at properties first and leave the neighborhood or market as an afterthought.

The Dallas/Fort Worth market has appreciated considerably over the last two years and has squeezed some of the margins away.  But it is a solid market with strong growth, and has good prospects for a long time to come.  Although interest has waned a little over the last six months or more, we still get interest for that market. 

San Antonio is another great market to consider if you're looking at Dallas right now.

Given a choice between Las Vegas, Chicago, Providence, I would go with one of the Texas markets at this time.  Don't base too much of your decision on the fact that you have family in those areas.  Unless they are professional property managers and can help you manage your properties, the only real value they're providing you is psychological comfort.   :) 

Be sure to check out the Ultimate Beginners Guide as well as my 10 Rules of Successful Real Estate Investing.

Continues success!

@Griffin Dorman-I have been investing mainly for cash flow to this point,  I'm not sure I would recommend that (because it does put you in the not so great neighborhoods and is a lot more work).  Being out of town, it might be better to invest in some solid neighborhoods with good schools, to attract more stable tenants.  What price range were you looking at?  It might give me a better idea of what to recommend to you. You are right about the cracked foundations.  They are particularly bad in the mid cities areas (areas around Hurst) and south through Arlington, and Benbrook as well.  I'm not that familiar with the Dallas area, mainly just the areas west of the airport.

@Marco Santarelli Thanks for the thorough response! From your web site, it looks like you also specialize in the Houston market. DFW, San Antonio, and Houston all seem to have solid fundamentals. What would you say the pros and cons of each of these three markets are?

@Ann KESSEL Totally agree! I think I'd be looking at B and A class neighborhoods. Thinking $100-200K price range. Thoughts?

Hello all, I've been buying, holding, and selling in the San Antonio metro area for a few years now.  This is a great rental market.  Inventories are low, so you need to work hard to find great deals.  The economy of Texas is solid.  Don't expect the wild swings of appreciation.  Property values here tend to rise fairly steady over time.

Originally posted by @Griffin D. :
 

@Marco Santarelli  Thanks for the thorough response!  From your web site, it looks like you also specialize in the Houston market. DFW, San Antonio, and Houston all seem to have solid fundamentals.  What would you say the pros and cons of each of these three markets are?  

They all share common pros -- strong housing market, strong buyer and tenant demand, population growth, etc.  The only "con" I see at this time is the lower oil price causing some job market softening in Houston, but the impact so far has been small.

Hey! Well you know the Dallas thing...definitely possible for the appreciation but a lot of that window has closed recently (remember prices in 2009 before the crash were at their high, and Dallas prices are currently higher than those...). But, you can still get cash flow there so worst case if the appreciation didn't happen (unlikely but still worst case), you aren't in the hole. So, definitely not the worst market to shoot for.

In terms of Vegas, Chicago, and Providence...

Vegas--I've not been a fan. Main reason is because there is 1 industry there, which is entertainment, which means two major things to me in terms of owning rental property there: 1. any decline in the general economy, and entertainment is the first to go in terms of what people spend their money on. Meaning, less people going to Vegas. and 2. very transient tenants because most are entertainment workers.

Chicago--much more potential than the rest in my opinion. You have to buy in certain areas for the cash flow to work, but I think it's still an option and has good properties. 

Providence: No idea, honestly. Not familiar with their economy, but I would suggest making sure the numbers work out there in terms of cash flow. Not many states in the Northeast allow for cash flow. 

Markets I do like: Philly (if you like the Northeast idea), Birmingham, Kansas City. Those are my faves. They are very strong for cash flow and good stability in the market economy. Not the highest of appreciating cities, but since Dallas already saw it's appreciation, may not be too far different. But again, with all the markets, it completely depends on your interests and goals. Every market has a different property type, different caps, different appreciation potential, different risks, etc. So everyone may like something different. I work with quite a few markets so can speak to pros and cons about all of them, and they definitely aren't all for everybody, but that's the fun in diversifying :)

http://www.realtor.com/realestateandhomes-detail/3...

@Griffin Dorman

Welcome to Bigger Pockets, I'm a retiree from SF and still own and stay there part of the year but Hawaii is home. You are short changing yourself by not investing locally in arguably the most profitable real estate market in the US.

The above property is on the street I grew up in and is the exact same model my parents bought in 1967 for $17,000. At full asking that is only 3% appreciation. Inflation alone has wiped out any real value growth. Compare to a SF property bought at the same time. This NBHD is about 12 miles to downtown Cincinnati and maybe 5 minutes from Greater Cincinnati Airport. I sold homes in this area in the 70's. I am so glad I picked the better market of Honolulu.

At 3% appreciation a $100,000 property will be worth $180,000 20 years from now in 2035. $100,000 worth of Bay area property would be worth $560,000 based on only 9% appreciation which is actually lower than actual over the last 40 years.

I bought in Vegas in 1994 and saw a big run up and a big rundown. Rents are about the same as 1994 rents. I gambled on the water restricting supply. Didn't happen. Didn't cost alot but didn't pay out anything either.

Good luck.

Originally posted by @Griffin D. :

@Yoochul C. - San Antonio looks like a great market too. What's your experience been like as an out of state investor? Do you use turnkey or have a network built up in the area? How long have you been buying in San Antonio? Any metrics you target as far as cash flow / cash on cash / cap rate, etc?

@Ann KESSEL Great to hear! What's your strategy been... are you buy and hold, as well? What's your investment criteria? (aka, do you have minimum cash flow, cash on cash, cap rate requirements?) Any favorite neighborhoods? Also - have you had any issues with cracked foundations? I heard that's a common headache.

 Hey griffin,

I usually look for the 1% rule when buying houses.  I seem to be happy with that number.  I don't really look at cap rates.  I usually can cash flow on homes with a 25% down payment at 1% rule.  I do use a turnkey guy in San Antonio but he's telling me that its getting harder to find the 1% rule.  

Yeah I think San Antonio is under the radar when people always are talking Dallas/Austin/Houston markets.  I think the San Antonio/Austin area will tend to merge into one another over a long period of time.  All the communities between the two cities will be taking off over the years.  

Yooch

@Ali Boone Thanks for the advice! I was curious and did a deeper analysis on the "stability" of a few US markets based on the appreciation rates shown at LittleBigHomes.com. Looking at start dates from 1984 to 1999, I mapped out what the appreciation (using CAGR) would be over a 15 year period. Aka - for 1984, I looked at the period from 1984 to 1998 and for 1990, I looked at the period from 1990 to 2004. And so on. Then, for all of those 15 year periods in each city, I looked at minimum, median, and maximum - aka, if you picked the worst / median / best year to invest, what would your 15 year appreciation be?

The results reflect the thoughts that both you and @Bob Bowling have posted here:

  • San Francisco has incredible returns. Worst 15 year appreciation is 5.5%, median is 6.6%, best is 8.0%. Even in the worst 15 year period, you're doing better than most US markets.
  • Philadelphia, Birmingham, Chicago, and Kansas City are all relatively stable. Worst 15 year appreciation around 2%, medians are all ~ 4-5%, best case scenarios are all around 5.5%.
  • Las Vegas is the opposite of stable. Worst case scenario, your property *loses* value over 15 years, best case scenario is 6.7%. Better hope you strike it right or hold longer than 15 years!
  • It turns out that the Texas markets haven't had a great run with long term appreciation. Dallas ranges from 1.3% to 3.4% appreciation. Maybe this will turn given recent history, maybe not.
  • Other markets with impressive long term appreciation: Seattle, Salt Lake City, Denver.
  • And markets with stable appreciation: Milwaukee, Minneapolis, Providence, Boise.

Couple caveats: Just because a market has appreciated consistently in the past, doesn't guarantee it'll continue to do so. And this analysis does not look at cash flow, which obviously should be considered.

Griffin

@Joe Fairless Great to hear! I was thinking about the Fort Worth / Arlington area... what sort of cash flows / other numbers are you seeing these days?

@Yoochul C. I'm planning to use the 1% rule once I've selected a market. Glad you can still get that in San Antonio - I might want to visit and check it out.

Ooh, awesome research! I really like how strategic you were in gathering data, and organized. There are few posts on here I'm actually really interested in reading, but this one was actually interesting. Especially the note about the Texas cities, and Vegas too really. 

Yep, every market in every part of the country will offer something different. I don't disagree with Bob or any of those guys who are appreciation-focused, and most definitely some serious money can be made doing so. I just have always been cash-flow focused, not to say I won't ever convert, but I enjoy it and my comfort level is with that, so there I stick (for now). There is really no wrong way to do any of it, just know what you are doing and the ins and outs of each method, most importantly the risks, and you should be good! If you stick with the appreciation route, definitely keep in touch with Bob and them. If you want the cash flow route, let me know how I can help. (side mention...there can still be appreciation with cash flow investing (I'm cashing out some appreciation right now on a property I bought solely for cash flow), but it won't be SF levels, for sure. Just for any confused readers.)

Great data-hunting.

Griffin Dorman I am new to this as well and if I remember correctly I think Texas has higher taxes for out of state investors not living in Texas or something like that. Regardless that was taking a hit on our cash flow researching and found better numbers elsewhere like Birmingham and Indianapolis. The numbers are important and I would continue your research and learn the best way to crunch these numbers accurately and conservatively and doing it your way as well. If that makes sense???

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