Buying New Constructions Homes in Dallas for Rentals - Worth It?

Question

Looking through some Dallas listings, there's a slew of new construction homes especially in the east / Forney areas, all good neighborhoods, for 225-275k. Builders are Lennar, DR Horton, Meritage, etc. Those prices are in line with the preowned homes in the area.

-Does anyone have local experience with those builders/have you been happy-not happy with your purchase?

-Any general tips on why or why not to go down this route, particularly in the DFW market?Thank you!

Ronald Rohde · Answer

I think it can work if you are factoring in a longer term hold. The best value of new construction is lack of maintenance costs for 5-10 years. Also, new construction lets you buy multiple units all at once bundling your ownership further cutting costs. The people who have done that IMO have the best returns and headache free ownership vs buying 1-2 used SFR at a time.

I would gladly trade 1-2% net income if my properties never had issues.

Ryan Dierker · Answer

Layne,

There's a slew of new construction all over the Metroplex, though I just read tonight multifamily starts are starting to slow here. I haven't seen any stats on SFH.

Forney has been interesting to me too because of the new Amazon distribution center. As far I can tell, that's still on track to be completed this year. I actually drove the area yesterday. It's about 30 min east of downtown, freeways the entire way. It's a similar distance to the more desirable northern suburbs, though much less developed, but close to a nice lake and seemingly good schools. The one thing I noticed that gave me pause was homeownership was quite high - like 87%. I'm not sure how that might impact the rental market.

I can't speak to any of the homebuilders you mentioned, but I've heard mostly good things about DR Horton. The individual builder probably matters more than the company. All else being equal, I'd try to find that out, and then do more internet sleuthing before making a final decision.

With a new build from a reputable company you should get a warranty on almost everything for 12 months, and big-ticket items for 24 months or longer. If the prices are comparable, I'd say that's a good reason to go with new construction.

If you have any other questions on DFW, feel free to connect/private message me and I'll help if I can.

Ryan

Bruce Lynn · Answer

New construction almost always has lower returns than older homes.  In the areas you mention you might be able to get a resale for 10-15% less than new.   The tax issue may or may not hold true and at best that would be for a year.  Depends on when the transaction happens and when the home was appraised and how far along it was.   If you finance, it can be a shocker 2 years in, when they have under collected escrow and then hit you hard to make up for what you didn't escrow and more or less collect double for a year or two to catch up.  We warn and warn and warn people about this and title company does and lender does, but somehow it doesn't sink in until they get the new bill in a year or two.

Some of these builders might not sell to investors and may not allow rental signs in the yards, so you might want to check that first.   They just don't want to change the character of the neighborhood while they are still selling and building.  Some will, some won't.

I like the DR Horton Express product..which is probably that $225,000 price point you mention.  Lennar has a similar product.  All 3 builders have been around for a long time in this market.  These are very base products often with no choices and that's how they keep the prices low.   You still want a realtor involved and have the realtor and yourself keep an eye on the project weekly while it is under construction.  I also suggest professional phase inspections during construction if you go this route.  While you pay good money for these, almost every time they find a big laundry list of repairs that need to be done and builders will typically make them when presented with the report.  If you waive this....then your renters catch the flaws or when you sell the buyer will catch the flaws and then you get to pay for the repairs, which should have been corrected by the builder.

Growth to me in DFW and most cities when you think about it seems to occur north....Forney is a nice place, but not really any demand drivers I can think about...so mostly a bedroom community.

Lucia Rushton · Answer

@Layne T. I think if you ask any investor who's held long term assets in DFW, they never thought they'd have the appreciation they have had since 2015-16.

The biggest factor in Texas is the property taxes, at some point there will be a breaking point for owner occupants where they just can't afford the property tax as the value of their homes increase (while much of the time, they have not done any value-add to their own property)

Lucia Rushton · Answer

@Layne T. @Bruce Lynn and @Ryan Dierker both have great points. But as you say the price point is similar to new properties towards McKinney.  If you are going for long term cash flow then the appreciation isn’t AS important. Texas ashy always been an appreciation play, more cash flow. As long as your numbers work then it’s a good investment. Just like buying a new car off the lot, new homes have the same sticker value.

While I like Melissa and Anna even up to Sherman but there is a commutable location for rentals vs home ownership. Why would someone rent in Anna? Where are they going to work? Yes we will have more “knowledge” based workers working from home but can we rely on that exclusively? How far would someone commute from Melissa or Anna - Frisco? North to Oklahoma? Of course there are niche employers everywhere but best to capitalize on the many vs the few.

Did I help or add too many questions?

Kyle Mccaw · Answer

@Layne T. to answer your actual questions...

The East/Forney areas rent very well. There is a large demand for affordable rental homes with reasonable commute to Dallas. All the builders you mentioned have good reputations. Really all the builders provide a good product built to city requirements. One nice thing but commonly overlooked is that the newer properties have post tension foundations. They seem to hold up much better than the 1960-1990 traditional rebar slabs.

These builders do not sell to investors. Your best bet is to purchase a resale in those areas. LGI is one builder that will sale a percentage of their new builds to investors.

You would be purchasing a good product with high demand. It may not cashflow great at first. But time is your friend with real estate investing.

Ron McGriff · Answer

I was curious if there was a change in the opinions of buying new construction homes in Dallas for rentals.  Prices have gone sky high for pre-owned homes and rental hasn't grown nearly as much. Does it make even more sense now to get a new build?

Gian Zhang · Answer

Which builders in the Dallas market sell to investors in 2023?

Linda Conrad · Answer

I have been pursuing this road of new construction in Dallas area.  McKinney since Frisco is well overpriced now.  I have found what Bruce mentioned.  Several of the builders will not sell to investors.  In addition, they have waiting lists of buyers and not only because of the interest but because the material supply is slow.  I did find one builder who said yes if I buy as a second home it's okay, but supply is still limited.  Thanks to all on your feedback on this because I  thought I found an unsaturated route in Texas but that was not the truth.  At least for now.

Rob Lee · Answer

As of 2021, in addition to a waiting list, a number of builders require that the buyer lives in the home. It's an opportunity for those able or willing to house hack.

Buying New Constructions Homes in Dallas for Rentals - Worth It?

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