Investor · Chicago, IL · Member since 2015 · 10 posts · 1 vote
My business partner and I decided to start investing (buy and hold) recently in the DFW area, and we noticed that most of the properties end up in a bid war, often selling about asking price. Single family, Multi-units, it doesn't matter.
For single families I can understand a future home owner falling in love with the property and paying above market price for a property, but for investors I honestly don't get it. We have target a 10% ROI (including equity for loan amortization) and properties end up selling at prices that would make returns on the 4-6% range (after all expenses, mortgage and capex). Our reasoning is that you can get an average 7% return on the stock market more passively therefore if we going to get active we need to be compensated for.
Are our targets unreal? or we are in a housing bubble?
Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
9y
I'm not so sure I'd use the word bubble, but DFW's investment market is a bit overheated in my opinion, w/ too much competition (esp. from newbies anxious for a deal) driving up prices IMO. The tailwind of ever rising prices has transformed many bad deals into good deals by the time they sold, but buying on that expectation is speculation, not investing. Given DFW's strong economy and population/job growth, I expect the market will continue to be strong through 2017 (at least), but the marginal rate of growth can't continue at the current pace indefinitely, esp. since we're not at all landlocked and have plenty of room to grow in all directions.
I like wholesaling in DFW, but prefer investing in tertiary markets that are less competitive and cash flow better.
Investor · Henderson, NV · Member since 2016 · 227 posts · 86 votes
9y
Where in Dallas are you investing? From my personal research, there are some specific areas that are heating up where sellers and investors are anticipating that. If you are doing a buy and hold strategy then I share you pain about people driving up the price. Most of the time when investors drive up the price, it is all for appreciation of the equity, by creating buzz and getting more people interested in the area, pushing up the comps, then selling within two years. It is a big problem here in OC, and we have definitely hit or are very close to that ceiling (D class neighborhood listing and getting 4.2% Cap Rate). There are still areas that you can get about a high 6% to low 7% return in the Dallas County area, might be in the C class area though.
I think your target is realistic...depending on the area. You WILL NOT get 7% in an A class or up-and-coming that is approaching A class neighborhood...in any national comparable market.
There are areas in Chicago where you can still get 12-15% or higher Cap Rate, but after looking at property tax, property rental laws, and the neighborhoods I headed another direction. Same case with you?
Investor · Chicago, IL · Member since 2015 · 10 posts · 1 vote
9y
@Daniel Y. You are right in an A-class neighborhood would be very difficult to get those yields we are looking at B/C class neighborhood. The reason we/I are investing in DFW is because I'm more familiar with the area, I moved to Chicago last year and I'm still trying to figure out how each neighborhood works.
Investor · Chicago, IL · Member since 2015 · 10 posts · 1 vote
9y
@Shital Thakkar. Yeah I know DFW has an influx of residents and is also one of the reasons we are looking at the area. We are mostly working around fort worth. As an investor I don't want to rely on projections and appreciation to drive my returns. I want the asset I buy to produce an income today vs. "maybe" tomorrow. Maybe other investors don't share this view. Speculation rarely pays-off.
I hear you. Yeah, I took a quick look at Nashville the other day because I hear it up up-and-coming. I'm pretty sure a lot of people hear this already because in the A class areas, it is the same story, about a 4-6% Cap Rate. I might as well invest locally...if I had the entry capital for my market as well. Well, good luck with everything. Let me know if you have any questions, I am still learning and researching the DFW area as well and we can probably bounce notes off each other.
Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
9y
I'm not so sure I'd use the word bubble, but DFW's investment market is a bit overheated in my opinion, w/ too much competition (esp. from newbies anxious for a deal) driving up prices IMO. The tailwind of ever rising prices has transformed many bad deals into good deals by the time they sold, but buying on that expectation is speculation, not investing. Given DFW's strong economy and population/job growth, I expect the market will continue to be strong through 2017 (at least), but the marginal rate of growth can't continue at the current pace indefinitely, esp. since we're not at all landlocked and have plenty of room to grow in all directions.
I like wholesaling in DFW, but prefer investing in tertiary markets that are less competitive and cash flow better.
Investor · Chicago, IL · Member since 2015 · 10 posts · 1 vote
9y
@Corderos SMith I've bought my first house in 2014 in October for 263k at the time I was able to negotiate down. The same house 2.5 years later could be very easily sold for 310k given market conditions.
Real Estate Broker · North Richland Hills, TX · Member since 2013 · 1k+ posts · 607 votes
9y
Sherman/Denison, Ennis, Greenville, Weatherford, Gainesville, Granbury, Justin, and I could go on and on. I'm not endorsing all of those specific markets, but you'll likely find less competition in all of them.
Investor · Weatherford, TX · Member since 2015 · 43 posts · 40 votes
9y
@Chris Soignier I agree. I'm a DFW native and I focus on West Fort Worth to Weatherford for my buy-and-holds. Even here in the West-o-plex the market is going pretty crazy. I submitted an offer down the street from a property I own in October, and offered list / market price. It was priced just right to cash flow and return a decent ROI for that area (about 10%). I lost to someone who offered 10K above list CASH. I don't blame them for taking that offer, but it's hard to compete with that.
I can't decide if it's a bubble or if we're just on the upswing of the the pendulum. If not a bubble, I think we've got to be nearing the peak for appreciation in B/C areas. If the market keeps climbing, I might have to think seriously about selling some of mine and taking the profit, but then I will have to hustle for new deals.
Investor · Boyd, TX · Member since 2014 · 688 posts · 467 votes
9y
I also invest in the Tri County area west of Ft Worth. I am wondering if we are getting to the top of the market around here at least in the sub $100k realm. I am seeing a lot of price reductions and it seems that initial listing prices are scaling back down a bit over the last three to four months. Still lots of heat in the newer A class and McMansion areas but in the working class $800-$1000 rent range it might be getting a bit more profitable.
Real Estate Agent · Fort Worth, TX · Member since 2010 · 208 posts · 70 votes
9y
I agree with @Chris Soignier, the market is a bit over heated--and should continue through 2017. Nevertheless, demand exceeds supply, specifically affordable housing under the 200K price point, at or under $100 sq ft (compared to $115-135 sq ft for new construction). When I rehab and list properties under 200K, I have literally 40+ showings in 1 weekend, with multiple offers. Population and job growth @Shital Thakkar mentioned, continue to fuel/drive the demand, which doesn't point to a "bubble." Perhaps gradual interest rate increases could affect demand on higher price points. There are areas/pockets that are undervalued, but its difficult to make a living investing in or out of state by relying on MLS inventory.