To Invest in Dallas/Fort Worth Area or Not

17 Replies

Hi, I'm totally new to the forums but I have been listening to the pod casts for months now and have learned so much. I live in the Sacramento area and have a few rental properties here. Investing out of state seems to be the way to go. I am primarily interested in buy and hold deals, so I want to invest an area that works really well for that. I have always thought the growth in Texas seem very strong, so I am looking there in Dallas/Fort Worth for SFH's that cash flow in the 1% area. What do you think? Am I too late? Are the property taxes just too high to make it a good place to invest? Any advice would help. Thank you.

Greg

DFW has certainly experienced growth but there is also always opportunity.  Having said that, its not quite as simple as the 1% rule,  Rules like this are good weed out for those of us that look through large numbers of deals at a time and need a fast way to determine what to spend time on and what not to.  If you are going to invest out of state I think you likely need someone to help you set up your team and get organized to do this the right way.  If you are just going to look online and try to find something that seems to fit the 1% you are likely to be rolling the dice.   Good luck

@Greg Zabel

Hey Greg! Also a Sacramento native here... if you're looking for the 1% in northern California, you're probably going to have to consider a fourplex in the not-so-nice area of town. Nothing else is going to come close. The 1% rule really doesn't apply here in California as we're more of an appreciation-based state.

If you're willing to wait to see the returns until you sell, we've probably still got several years of solid appreciation in Sacramento / Stockton areas because of all the Bay Area migration into the Central Valley. To them, our low prices seem like an absolute steal. As more and more tech companies allow employees to telecommute or work from home, Sacramento and Stockton will explode. Just had a Bay Area techie reach out to me looking to buy a home in Sacramento with her $200k+ year San Francisco salary because she's able to work remotely.

That may not be the case for everybody... but give it 10 years and watch what happens. Just some food for thought. If you're looking for easy 1% rule with 20% though you'll have to look out of state for sure, or get some wild deal off market that you completely stole from the seller. Best of luck!

Ok, good to think about. I have an agent there but no other members. I'm trying to see how much she can help me with and figure it out from there. I will be taking my time to check out the deals I see. Thanks, Eric.

I believe you are correct with your prediction of future growth in the sac area. I think I will keep what I have here for a while and see how it pans out. The bay's tech job market seems to show no signs of slowing. It seems with any new investments out of state is the best bet. Thanks for your input Wes!

@Greg Zabel living in CA you should not even waste your time in Texas, unless it is for a very specific personal reason.  Buying in Texas is like shooting yourself TWICE with 1 bullet.  You get hit with high property taxes that change from year to year AND you have to pay income tax in CA.  If you keep buying in CA you will at least have prop 13 protecting you.

As soon as @Arlen Chou   can name one property in all of California that has cashed flowed and doubled in value in the last four years I will listen to what he has to say about Texas.

@Greg Zabel   You will probably need to expand your search to places like Sherman, TX to get far enough out to get good cash flow.  The growth is certainly headed that direction.  

@Account Closed do a search for my previous posts... I have posted details on properties purchased in Mountain View, and in Oakland.  The posts have the purchase prices, rents at time of purchase, new current rents along with appraised values for refinancing purposes.  All of these properties were purchased within the past 5 years.  

But in case you don't feel like doing the search and educating yourself, here are the stats in a nut shell:

1) Mountain View Ca - Two 4plex buildings next to each other. Purchase price $840k each 5/1/13. Rents at purchase approx $900 each.  Refi value as of 2017 = $1.7M each, current rent average $2100 each.  Cheapest multi in this city as of today is $1.85m and that is for a duplex!  I am pretty sure my properties have gone up since my last refi appraisal.

2) North Oakland Ca - 4 condo's, total complex.  Average price per unit $150k each 2/13/15. Rents at purchase approx $600 each.  Current rent average $1375 each.  I have not tried to refi these, so I don't have any hard numbers on value, but the cheapest thing in ALL of Oakland is an undersized lot for $170k, so I am confident that these units are worth double what I paid.

3) Fruitvale District of Oakland Ca - 6 plex. Purchase price $689k 2/25/16. Rents at purchase were near "1% deal".  I have not done any upgrades nor raised rents significantly at this time.  However, the property was refinanced with a value of nearly $1m last year.

In case you don't know this market, I don't need to conceal/carry to any of these buildings.

I also have a small tech business in Plano Texas that has been in operation for 13 years. 

ALL of my initial cash has been pulled out all of my purchase AND as you can imagine they cash flow very well... 

Duuude,  listen to Arlen. He let me ask a 100 questions at a meet up in Milpitas. You're going to make so much more money in CA in the long run. Read his posts. 

@Arlen Chou   Those results are good.  They are still not as good as many people have gotten in the last few years in Collin County.  Considering our population will likely double in the next 12 years, there is also lots of upside.

@Account Closed and the fact that he lives in CA and was asking about Texas or not for his specific situation.  If I was based out of Texas, I would be looking all over Collin County for deals, but I am not so I don't.  

You asked for specific examples of 100% growth, and I did not give you generalities about nameless faceless people as you have in your rebut.  I gave you my examples with real numbers and dates.  All of my  examples were ON market, no back pocket/court house step/yellow letter deals.  As a matter of fact, 2 of the deals I found on Redfin.

To be clear, my posts were not about CA vs TX.  It was specifically to help a CA investor make an informed choice about investing and highlight the potential tax consequences of his decision.

I used to live in dfw when I was starting in real estate. I looked around, saw the prices, saw the taxes and said no thanks. I bought first in Memphis, then Cleveland. In about 2 years I’ll buy in a third market which will be Little Rock.

On top of the taxes you also get hail damage a lot which makes your insurance higher.

I can buy a newly renovated home in Little Rock for 70k. Rent for 800, low taxes and evictions take 2 weeks. Similar numbers in Memphis.

To me this is a no brainer but to others it may vary.

Arlen Chou you bring up a great point on taxation. I'm not yet ruling out Texas but maybe I will expand my search to other neighboring states in the south. What you have done in California with your 4plex and condos is very impressive. 

Thanks @Greg Zabel , I am very happy with the cash flow and appreciation on these deals.  There is a really strong crew of people in the Bay Area and in the Sacramento area that are making deals happen, both locally and out of state.  There are some really good meet ups put together by BP members in both markets that you should try and attend.

Remember when you are doing your computations that it is not just about the purchase price and rents... cash flow is dependent on many factors including taxes.

Cash flow is King and Appreciation is Queen, you need both to build a lasting kingdom.

I have attended a REI meetup here in Sac, and it was great, so I defiantly plan on going to more. A friend of mine wants to do a flip here with me so we are also looking for something here locally. The market is so competitive that finding discounted deals is very hard, but we are trying to find new ways to make that happen. I am excited to get into something soon though. I have told myself that I will do something before the end of the year. Instead of a 90 day challenge its more like 180 day challenge, but for my first one that's ok.

@Greg Zabel I'm a new investor and been looking for a decent rental property in my target areas (mainly DFW, ddTX area) for about 6 months. You can throw away the 1% rule in the well-known areas and neighboring cities. Either you invest in the future with low cash flow or you go further out like some have suggested.

Yes, property tax is a killer but the growth is definitely in terms of jobs growth and people moving to TX. I personally don't think the ship has sail just a lot more difficult in finding a decent bang for your buck. I'm at the point do I get a mediocre cash flow and start my investment journey now or do I wait for the market to go down (don't know when that'll happen). I have been looking at FundRise and GroundFloor with a few other REIT crowdsourcing investments as an alternative.

@Greg Zabel I would always suggest buying in your own backyard when possible. It is what you will have the best knowledge of. I would highly suggest you look at what @Arlen Chou is doing and reaching out to him with just a few questions. He is spot on with the fact that we have high property taxes to make up for no state income tax. If you pay the prop tax and CA state income, you are being hit twice. You had better be sure it is a smoking deal if you are going to be taxed twice.

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