Dallas Rental Property Market (newbie seeking info)

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Dallas Rental Property Market (newbie seeking info)

Eric Lee
Investor · Dallas, TX · Member since 2015 · 37 posts · 13 votes

Hi Everyone!

My name is Eric, I live in Addison TX, and I work in healthcare IT.  I've been a BP member for a while now, but this is my first post.  I've mostly just been in the background, reading and learning as much as I can, but I'm ready and excited to finally take action and get much more actively involved!

I'm interested in investing in rental properties in Dallas, and my goal is to acquire my first property later this year (targeting SFH, 150-200k). I'm hoping to get some general information from any seasoned investors out there familiar with the Dallas market.

From what I've read, it sounds like it's pretty crazy competitive right now (hearing things like properties having multiple cash offers over the list price getting turned down).  Has this been the experience for most investors here?  And do you think I would be at a big disadvantage for getting deals if I don't offer cash?

As far as location, are there certain areas that are more ideal for SFH rental properties under 200k? I'd be interested in anywhere in the general vicinity of Addison (Carrollton, Richardson, Garland, Mesquite, Irving, Plano, etc.). This might be too vague of a question, but any overall thoughts/advice on the current state of the market in these areas (specifically for under 200k rentals properties)?

Is a 1% rent to property value percentage reasonable to expect for homes in my price range, or is that pretty hard to come by these days? Also, in terms or cashflow or cash on cash ROI, what would you consider to be "good" for rentals in the current Dallas market? Just trying to make sure I'm setting my expectations correctly as I start evaluating deals.

This post turned out longer than I planned, but I appreciate any advice you can offer, specific to my questions or not!  Excited to (officially) be a part of the community here!

Eric

1Reply
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David Veeder
Investor · Dallas, TX · Member since 2014 · 112 posts · 83 votes
9y

Hi Eric Lee,

It has been harder to find properties through traditional sources (MLS). It seems to me the closer that you are to the deal the better. The last properties that I purchased were from wholesalers (Scrutinize their numbers), or more common is some picking up a deal from their own marketing or networking. The deals are out there but you will need to connect and dig (Persistence).

You might find some deals on smaller homes in Carrollton.  However, the markets that I hear discussed in my group of friends are have been in Garland, Rowlett, Mesquite, Lancaster, and Desoto.

A 1 % rent to value ratio is getting rare these days.  I advise you not to go below a .7 to .8 % rent to value ratio.  Also, I advise that you should make sure to have at least $ 300 in cash flow to protect your self in a down turn.  

Rules:

1 - Don't Loose money

2- There must be Cashflow (don't buy on speculation of future value)

3- You can't get rich slow ( like in over 40 years via a retirement fund)

I have six single families and two duplexes on my own.  I am currently more interested in apartment syndications the have built more equity for me in the past three years than single family.  

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  • Andy WebbPro Member
    Rental Property Investor · Carrollton, TX · Member since 2013 · 750 posts · 538 votes
    9y

    Hi Eric, since you are in Addison, check out the landlord group that meets at the Springcreek BBQ over there the last Monday of the month.  Do a search on Meetup.com to find it.  Good group.

    Andy

    0Reply
  • Eric Lee
    OP
    Investor · Dallas, TX · Member since 2015 · 37 posts · 13 votes
    9y

    Hi Andy,

    Thanks for sharing, I'll definitely look into it.  Hard to say no to spring creek BBQ..

    Do you find that the meetings are more geared for current landlords?  Or do they also discuss finding new properties/deals and that whole part of the process?

    0Reply
  • David Veeder
    Investor · Dallas, TX · Member since 2014 · 112 posts · 83 votes
    9y

    Hi Eric Lee,

    It has been harder to find properties through traditional sources (MLS). It seems to me the closer that you are to the deal the better. The last properties that I purchased were from wholesalers (Scrutinize their numbers), or more common is some picking up a deal from their own marketing or networking. The deals are out there but you will need to connect and dig (Persistence).

    You might find some deals on smaller homes in Carrollton.  However, the markets that I hear discussed in my group of friends are have been in Garland, Rowlett, Mesquite, Lancaster, and Desoto.

    A 1 % rent to value ratio is getting rare these days.  I advise you not to go below a .7 to .8 % rent to value ratio.  Also, I advise that you should make sure to have at least $ 300 in cash flow to protect your self in a down turn.  

    Rules:

    1 - Don't Loose money

    2- There must be Cashflow (don't buy on speculation of future value)

    3- You can't get rich slow ( like in over 40 years via a retirement fund)

    I have six single families and two duplexes on my own.  I am currently more interested in apartment syndications the have built more equity for me in the past three years than single family.  

    5Reply
  • Eric Lee
    OP
    Investor · Dallas, TX · Member since 2015 · 37 posts · 13 votes
    9y

    Hi @David Veeder, thanks for the advice, much appreciated!  

    0Reply
  • Jibran Najmi
    Real Estate Agent · Arlington, TX · Member since 2016 · 84 posts · 36 votes
    9y

    @Eric Lee

    I am a Realtor in the DFW area, and my family is from Plano.  While there are some deals to be had, I think you are going to be very hard pressed to find the deal that you speak of in the Collin County/North Dallas area especially under $200K.  If it is possible, I think it will end up coming from an untraditional source such as a short sale/foreclosure, and will ultimately need some significant work.  I agree with @David Veeder in that 1% rent is hard even in other areas such as Tarrant County, but that 0.85% - 0.95% is a great target.  With regards to deals being accepted, I think you will make your offer more competitive by offering to pay for a title policy, survey or reducing your option period.  Most of the properties that I am offering on have multiple offers, and are won or lost on the details.

    I hope this helps, and if you have further questions, please don't hesitate to reach out to me.

    1Reply
  • Eric Lee
    OP
    Investor · Dallas, TX · Member since 2015 · 37 posts · 13 votes
    9y

    @Jibran Najmi Very helpful info, thanks!  I actually grew up in Plano too, went to plano senior high.  

    0Reply
  • Jibran Najmi
    Real Estate Agent · Arlington, TX · Member since 2016 · 84 posts · 36 votes
    9y

    I went to West!

    0Reply
  • Andy WebbPro Member
    Rental Property Investor · Carrollton, TX · Member since 2013 · 750 posts · 538 votes
    9y

    @Eric Lee - the experience level there is varied; the discussions are more centered around issues that active landlords are having.  If landlording is your direction, there is a lot of value there even if you don't yet hold a property.  This is a relationship business so it is good to get out and meet the folks that are active out there.  One of my deals this year was a referral from another investor.

    Agree with the other guys - 1% is hard to find - but you can find them in the south.  I picked up two 1%ers in Desoto; the rest have been around .9%...

    Andy

    0Reply
  • Eric Lee
    OP
    Investor · Dallas, TX · Member since 2015 · 37 posts · 13 votes
    9y

    Thanks @Andy Webb, I'll plan on checking out that meeting, hopefully meet you there!

    0Reply
  • Steven Loveless
    Real Estate Investor · Sachse, TX · Member since 2016 · 69 posts · 60 votes
    9y

    @Eric Lee as an investor that has gotten started in the last year and a half, I can tell you it's a tough road with the property types you are describing. If you are looking on MLS, expect to make a lot of offers that get passed over for all cash & favorable terms. If you are trying to use conventional financing expect that 30-45 day close time to hurt you. Even properties that need a lot of work are competitive.

    If you stick with it though you'll eventually find something that will work. Just forget all of the rules you see on here, and run the numbers. Then run them again. If you got the numbers from a wholesaler, go run them four more times because they are probably wrong. Pay lots of attention to the major mechanicals - I would rather pay an extra $10k on the price (80% LTV finance) to not have to plop down an extra 5k in cash to fix a roof, AC, major plumbing, etc.

    My opinion with the $150-200k range is that unless you are finding incredible deals (sourcing them yourself), the key to being cash flow positive is operational execution. A 15% discount on the purchase or $0 down financing doesn't do you any good if you hemorrhage cash because of a 1 month vacancy every year, high loss to lease, or lots of maintenance issues.

    2Reply
  • Eric Lee
    OP
    Investor · Dallas, TX · Member since 2015 · 37 posts · 13 votes
    9y

    @Steven Loveless thanks for the info/advice. I've read about the BRRRR strategy on BP, could that methodology apply to doing cash deals for the kind of properties I'm interested in? Meaning pay cash for a 150k house cash (to get the benefits you mentioned of being able to close faster and be a more attractive offer), and then refinance afterwards to get some money back for future investing? BRRRR sounds like it's meant for fixer-uppers, but are there reasons it wouldn't work for a property that isn't a total fixer-upper?

    0Reply
  • Ralph Checri
    Real Estate Agent · Dallas, TX · Member since 2017 · 130 posts · 5 votes
    9y

    Eric,

    I sent you a private note with some info.

    There are an incredible amount of properties available that never make the MLS.

    0Reply
  • Steven Loveless
    Real Estate Investor · Sachse, TX · Member since 2016 · 69 posts · 60 votes
    9y

    @Eric Lee I haven't done a BRRRR yet for various reasons, but the strategy can work in DFW just like it can anywhere. As I understand it the key to BRRRR is to find something that you can get the equity built into the deal. If you can't get the equity you can't do the "repeat" part of that - which is the entire reason that strategy works so well.

    Best of luck to you - make something happen.

    1Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    9y
    Originally posted by @Eric Lee:

    @Steven Loveless thanks for the info/advice. I've read about the BRRRR strategy on BP, could that methodology apply to doing cash deals for the kind of properties I'm interested in? Meaning pay cash for a 150k house cash (to get the benefits you mentioned of being able to close faster and be a more attractive offer), and then refinance afterwards to get some money back for future investing? BRRRR sounds like it's meant for fixer-uppers, but are there reasons it wouldn't work for a property that isn't a total fixer-upper?

    Eric you mentioned that BRRRR is for fixer uppers. Not necessarily true. Listen to the BP podcast #233. @Arianne L. talks how she used delayed financing to pull out her cash for properties that were turnkey ready. Here is some info I have found on delayed financing that I will paste. Here it goes:

    "If an investor is buying with cash and flipping they get their money back when they sell the property. But if they are seeking to hold a property for any length of time and want their cash investment back there are some important rules to understand with conventional loan:

    If you buy a property with cash (or with a HELOC) you can receive a cash out loan on Day 1.

    There is not a 6 month waiting period with receiving a cash out loan if you purchased a home with cash or with a HELOC

    BUT you will be limited to the amount of….

    Your purchase price + closing costs (costs when you purchased the home)

    OR

    75% of the “After Repair Value”…

    WHICHEVER IS THE LOWER AMOUNT (super important)

    These rules are important to understand so here are two examples:

    Example 1: If you purchased a home with $50k of cash, and put $30k of renovations into the loan, and the home was worth $100k. 75% is $75k and $50k is your purchase price. So you could only receive $50k in your first 6 months ofownership since the LOWER amount is your purchase price. After 6 months you could receive the full 75% of the ARV.

    Example 2: If you purchased a home with $80k of cash, put $5k into the home, and the home was worth $100k. 75% would be $75k and your purchase price is $80k…so the lower amount is $75k.

    When buying a home with cash you can absolutely get cash back right away but you will be limited to the lower of those two amounts."

    Hope this helps.

    Jorge

    5Reply
  • Lynn Dee Murrow
    Investor · Las Vegas, NV · Member since 2012 · 119 posts · 104 votes
    9y

    @Eric Lee I would widen my search. Corporate headquarters are moving North along the North Dallas Tollway so don't be afraid to search further out into the tertiary markets. In fact DFW is sprawling in all directions with no indication it will let up anytime soon. The key on DFW is to always be looking. Search each day for new listings and properties where the price has been lowered. Be ready to get out to properties right away, learn how to estimate rehab, and make offers quickly. My last tip is to be ready to buy during the holidays. From Halloween to New Years a lot of people are distracted and not in the market to buy. Be ready and your will get your opportunity!

    1Reply
  • Eric Lee
    OP
    Investor · Dallas, TX · Member since 2015 · 37 posts · 13 votes
    9y

    @Account Closed Very interesting, thanks for sharing that info.  When asking my lender about this they said there would have to be a 6 month period before being able to refinance (even if the property was purchased cash).  Sounds like I should circle back and clarify with them.    

    @Lynn Dee Murrow Thanks for the advice.  So far I've sort of focused on looking in areas that can get close to a 1% rent to value ratio.  Seems like as properties get more expensive (200k+), that starts to get pretty hard, which is why I've focused on ~150k properties, which has led me to Mesquite/Garland.  However I'm definitely open to expanding my search as you suggest.  Are there any tertiary markets in particular that you'd suggest I start with as I widen my search?

    1Reply
  • Lynn Dee Murrow
    Investor · Las Vegas, NV · Member since 2012 · 119 posts · 104 votes
    9y

    Mesquite and Garland are good, and I look for the 1% too.

    Desoto and areas of Duncanville and areas of Fort Worth meet that criteria too.

    0Reply
  • Account Closed
    Contractor · Los Angeles, CA · Member since 2015 · 887 posts · 323 votes
    9y
    Originally posted by @Eric Lee:

    @Account Closed Very interesting, thanks for sharing that info.  When asking my lender about this they said there would have to be a 6 month period before being able to refinance (even if the property was purchased cash).  Sounds like I should circle back and clarify with them.    

    @Lynn Dee Murrow Thanks for the advice.  So far I've sort of focused on looking in areas that can get close to a 1% rent to value ratio.  Seems like as properties get more expensive (200k+), that starts to get pretty hard, which is why I've focused on ~150k properties, which has led me to Mesquite/Garland.  However I'm definitely open to expanding my search as you suggest.  Are there any tertiary markets in particular that you'd suggest I start with as I widen my search?

     Eric I have yet to use this strategy but from what I hear a lot of is that most banks are not familiar with delayed financing. It's out there. Make sure they are familiar with it because I have also heard that at the last minute banks have been know to withdraw and then your just kinda out there in no mans land. All the best to you.

    Jorge

    0Reply
  • Lynn Dee Murrow
    Investor · Las Vegas, NV · Member since 2012 · 119 posts · 104 votes
    9y

    If you start attending local investor groups you will find lenders who do delayed financing and will be reliable. Make sure you have this plan in place up front because there are time restrictions. Usually you will buy cash and must complete your delayed financing within 6 months of purchase. 

    1Reply
  • Robert Westbrook
    Real Estate Agent · Addison, TX · Member since 2017 · 57 posts · 7 votes
    9y

    Hey @Eric Lee,

    I wanted to reach out to you because I agree with most of these posts. The Dallas market is hot, and the MLS is teeming with investors like yourself fighting over the properties that are being listed at retail rates. I am a wholeseller here in the DFW marketplace and I can get access to off market properties that never hit the MLS, cutting out a large group of people for you to compete with. I would also be happy to share my knowledge of the market and what is going on because simply speaking an investors success is my success.

    0Reply
  • Robert Clifford
    Investor · San Clemente, CA · Member since 2016 · 14 posts · 10 votes
    9y

    Eric,

    my top recommendation that I would stress to you is never compromise on the 1% rule. In extremis, if you compromise on the 1% rule, ensure that you are 100% able to cover costs over a long term period (12 months or more in case the markets bottoms out) and secondly be honest with yourself about the numbers. You can manipulate numbers all you want until they tell you what you want to see but that may not reflect reality. For example, if you decide to take away monthly allotments for capital costs, in order to see the property cash flow, you are lying to yourself about the numbers.

    1Reply
  • James Phan
    Investor · Fort Worth, TX · Member since 2015 · 25 posts · 4 votes
    9y

    @David Veeder What does you can't get rich slow mean? 

    0Reply
  • Cindy Zhang
    San Jose, CA · Member since 2017 · 14 posts · 1 vote
    8y
    Hi Eric, I just did an investment in WA in the way you described. Purchased using cash and planned to cash out for the next investment. When I was asking my lenders to provide me an offer I notice the interest rate is much worse than an investment property purchase loan - we're talking about close to half point difference on a 30 year fixed loan and I find it noticebly hurting my cashflow. If a cash offer helps you to be a lot more competitive in a given market, I think it's a good strategy to deploy. If not, you want to do some calculation to see if the marginal advantage can offset the higher interest rate you need to carry into your next investment project.

    Have you made your purchase yet? I'm looking to invest in the area where you grow up and looking to pick brain of locals. If you are open to have a chat, please PM me.

    Originally posted by @Eric Lee:

    @Steven Loveless thanks for the info/advice. I've read about the BRRRR strategy on BP, could that methodology apply to doing cash deals for the kind of properties I'm interested in? Meaning pay cash for a 150k house cash (to get the benefits you mentioned of being able to close faster and be a more attractive offer), and then refinance afterwards to get some money back for future investing? BRRRR sounds like it's meant for fixer-uppers, but are there reasons it wouldn't work for a property that isn't a total fixer-upper?

    0Reply
  • Eric Lee
    OP
    Investor · Dallas, TX · Member since 2015 · 37 posts · 13 votes
    8y

    @Cindy Zhang  Thanks for sharing your experience.  I ended up realizing a similar thing, that the different in rate was too significant.  Luckily I was able to close on a deal using traditional financing.  Sorry for the slow response here, but if you still wanted to chat I'd be happy to.

    0Reply
  • Ankur Agarwal
    Southlake, TX · Member since 2018 · 27 posts · 2 votes
    8y

    @Eric Lee i am in the same boat as you were 6 months ago. I am curious to know where you ended up buying and how is it going with the tenant? In fact i posted a similar question couple of weeks ago.

    0Reply
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