The days of buying property in DFW for 65-70% minus repairs are over. What percentage are investors buying throughout the Metroplex?

Question

We are currently seeing a big swing to investors calculating an acceptable dollar amount for NET profit and not necessarily purchasing on a set percentage.  For example, if a house needs a true $5,000 in rehab, and the days on market are super low in the neighborhood, investors would be looking to make a quick and easy $10,000 on a house rather than purchase it at a certain percentage.

SW Fort Worth 75-79%

Keller / Grapevine 75-83%

Arlington /Grand Prairie 76-80%

North Dallas High End 78-82%

Cedar Hill/ DeSoto Rental 20k equity

Kesler Park  High End 81-84% or 20k

M-Streets 82-84%

Richardson 82-87% rental

Plano 15k profit

What are your thoughts on these markets and others such as Denton, Frisco, Lewisville, Little Elm, Flower Mound, South Oak Cliff, Seagoville, Arlington Heights etc...

John Chapman · Answer

Okay, I'll jump in.  This is a silly thread.  I know many investors who are doing very well, and would never buy on the margins advocated in this post.  People who are buying at these margins are not "investors".  If you are an out-of-state investor or newbie whose only source of deals is a mammoth "wholesale" operation that trolls the MLS  and marks up junk, then I guess these margins might be your only option.   I'd suggest investment in a different asset class in that case.

Mat Farmer · Answer

@JD Castillo  I hope more people see and absorb your post.  I, as a profession, do direct placement of properties with investors, and the most frequent roadblock I run in to in today's market is investors expecting to buy at a cheaper price than the market will allow.  A handful of my clients work with local real estate mentors who still teach investors to buy at 70% of ARV less rehab costs.  Now this principle is great if you can find a property that meets that criteria (which is possible if you are the one out there pounding the streets and drumming up your own leads), but to draw a line in the sand and say that you will ONLY buy a property that meets this criteria is, in my opinion, a mistake.  I fear these investors will watch a lot of decent deals pass by while they search for a white whale.

Like @Antonio Marte suggested, it is indeed a seller's market, and they definitely know it.  The market right now dictates tighter margins.  People, estates, municipalities, etc. know that there is a shortage of inventory and therefore the prices are appropriately reflected...simple supply and demand.  The good news of all this?  Do a good rehab, keep your costs under control, and once you are ready to flip, you'll have one of the few properties on the market and will likely keep your holding costs down.  Given the appreciation the area has experienced as of late, there has been a trend of investor's receiving a higher selling price than the original quoted ARV (which are of course estimated by historical area comps).  So, there is indeed a trade-off to the higher entry prices we are all experiencing at the moment.  Okay - that's my soapbox...I'll step off now.

Tim Watts · Answer

I can't give you exact numbers... I'm new and don't have a wide perspective.  Not sure if this is a rabbit trail, but it is related to your question.

From what I'm seeing... the super experienced investors are moving into direct marketing or financing birdogs and not using whole-sellers as much.  So, they are still getting better margins.  But there is more competition.  I was outbid on a probate lead... person offered essentially 100% as-is, and with repairs, would be 100% ARV.

I can't prove it, but I think the off market selling directly to buyers is growing along with owner finance deals.  A house near me with a 70k ARV based on MLS numbers was sold for 150k directly to a seller with owner finance terms.  So they are buying on "tighter" numbers but selling high off market with interest terms to boost profits.  This is a growing trend I'm seeing in lower priced neighborhoods.  So, this would explain why people are buying so high... they are going to create value away from MLS.

Shawn Thom · Answer

There are a whole lot of factors for me to answer that go into answering that.  Exit strategy, proximity, what else you have going on etc.

I know some people take on some deals with less profit just to keep their crews busy.  they don't want to loose their guys to other investors/rehabbers so they buy a house just for busy work for them.

If I had to drive from McKinney to Fort Worth it would have to be a heck of a deal.  I took a Carrollton deal that initially looked like less of a deal because it was so close to my office. In the end it turned out to be a very good deal.

I know some investors that will take a thinner deal on an owner finance deal because they can manipulate some numbers on the back end to make it more acceptable.

Whats the ARV? A 75% deal is possibly more acceptable on a 250k deal than a 100k deal.

For me, I'd have to really think before taking an 80% deal, or something with less than $15k expected profit

Mike H. · Answer

Wow. That is tough. I guess that begs the question though. Does the mean the opportunity out there right now is in new construction because there simply is no inventory to flip or buy and hold?

I've always believed that a market is either supposed to be good for either flipping or buy and hold. If the prices are low, then buy and hold. If the prices are moving up, then flipping is the better option.

But if there's just nothing to buy with any margin, then the only thing I can think of is new construction must be where the opportunity is at there.

At some point, everybody had to see this day coming. I think its occurring in certain markets first and then they're all going to see this hit. The simple fact is we have not had any meaningful new construction in a long time. At some point, there just isn't enough inventory to go around - at least not the right kind of inventory anyway.

And that appears to be the case out there. But eventually, everything works its way back to the mean. So new construction will pick up. Prices will go up. More inventory will come available as people will build equity in their homes to allow them to buy a new home.

Lynn Weber · Answer

We are having a really hard time finding anything with enough room to flip.  We just got one under contract in Benbrook that should net us between $10-15K if all goes to plan.  We are having it inspected and a second contractor come out later this week to see if there are any surprises waiting.  Average DOM in that area is 23.  Most we've found have gone the highest and best offer route, but we are not finding enough room to play that game.  Not going to short ourselves to one-up someone else.

Shane Woods · Answer

I live in Weatherford, 20 miles west of Fort Worth.  I've scoured the MLS several times a week for the last several weeks, and I couldn't find one deal within 10% of asking price that I'd jump on for a rehab.  The only ones even close on the numbers were weird layout (built-on-to) houses or 1 bath houses, which would cost lots to "fix" and make them more attractive.

Another trend I'm seeing in the Fort Worth & West area, is what I call non-rehabs, or the "well-kept".  Many of the sales are not full remodel-rehabs like you see on TV, or even here on BP.  In many cases it's clean everything really well, paint some things, make sure the existing floors are decent, replace carpet if absolutely necessary.  Make sure mechanicals are all good, take some pics, put a sign in the yard.  These would be "move-in-ready" rental property level of finish...but being purchased by owner-occupants because they can get them cheaper than a full rehab.

Very interesting.  Even these properties don't fit the 70% ARV - repairs as "cosmetic" rehabs. They would be closer to 80-85%.

To buy off the MLS in Weatherford, and other parts of West Fort Worth, you'd be at 80% ARV minus repairs minimum in most cases, from my research the last few weeks.

Andrew Herrig · Answer

@JD Castillo

I got into real estate initially intending to do rehabs, but I turned into an accidental wholesaler. You can still find good deals directly from motivated sellers, and I've found that investors are willing to pay what I consider crazy margins as you mentioned in your post. Decent rehabs are going for 80% and rentals 80-85% in my experience. At those margins, I find it too enticing to sell to a flipper willing to take all the risk for a $10-15k profit while I make a $10-15k profit with zero risk and no rehab.

Steven G. · Answer

Super good deals are getting harder to come by, here in DFW, but they can be found.

Experienced investors need to stick to the 70% ARV minus repairs formula for rehabs, with no exceptions. With properties held for cashflow - aka rentals or notes - you can cross that threshold but should still try to avoid it as much as possible unless its a cheap / lower income property that cashflows like crazy (eg a South Oak Cliff rental purchased for $25k that rents for $750 a month).

JD Castillo · Answer

@John Chapman

That's what the post is about...It asks the question, what percentage and/or margin are you seeing investors buy at throughout the metroplex?  Not advocating...just wondering.

The days of buying property in DFW for 65-70% minus repairs are over. What percentage are investors buying throughout the Metroplex?

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