Is DFW still a viable investor market?

30 Replies

It seemed like only a few years ago that it was a bit simpler to make money in the DFW market, but recently I've been hearing a fair bit of cynicism related to buying and renting single-family homes.  Is this true or do we simply need to work harder?  I would like to finally get started investing here, but according to many the timing doesn't sound good.

What's working out there?  What areas are still desirable from an investment perspective?  How are people finding deals?  I know price appreciation and taxes are compressing profits, but surely some things must be working... any direction/feedback is appreciated.

I think the market has finally crested and prices are gong to start coming back to sanity.  Many newer investors are going to find they can't make profits because they overpaid at the purchase.

Don't buy into a bad deal. Be willing to wait until you find a good deal.  Dallas is investable for someone with patience and discipline.

People are saying that across the country.  The short answer is that you have to accept lower cap rates even if you work harder, because that is how the market is.

Originally posted by @Aaron K. :

People are saying that across the country.  The short answer is that you have to accept lower cap rates even if you work harder, because that is how the market is.

 ITs more than that in the DFW market.  There has been a conscientious move by the taxing authorities to push the appraisals.  In many cases to stupid levels.  as an example, we got the privilege this year of writing a $7,500 check to catch up on the escrow reserves (on a property we bought 3 years ago for $180K.)

I also think that the institutional investors and out of state investors have picked over the market.  I am sure those who do really large volumes are still able to find deals that work for them.  

But we are having trouble finding deals that work for us. So while we are looking every day, for the most part we are content to sit on the sidelines.  In fact we might prune a property or two.

I don't know how someone from out of state could buy in the DFW market and make any money today in SFR, at least not in the buy and hold/Flip/Brrr game for 4 units or less.

Maybe in the Ft Worth side of things?  But definitely not on the east side/north side of the metro area.

I will go out on a limb, DFW is no a good market to invest in over the next year or two.

@Bart H. when you compare cap rates to some of the other states you will see why TX is still a good option for many, it appears the way that CA did back in the day.  Better cap rates than other places and a huge opportunity for growth.  If looking for pure cash flow agree that TX is not the place.

Originally posted by @Aaron K. :

@Bart H. when you compare cap rates to some of the other states you will see why TX is still a good option for many, it appears the way that CA did back in the day.  Better cap rates than other places and a huge opportunity for growth.  If looking for pure cash flow agree that TX is not the place.

Our investments so far have been in SFR. Cap rates arent really relevant there.

In the SF space out of state investors arent factoring in real estate taxes.  Two examples:

Property 1: Purchase price $180K

Property taxes: 

2014 2,400

2018 7,000

Property 2: Purchase price $235K

Property taxes:

2014 2,400

2018 8,000

Those kinds of increases will eat into most "cap rates", Frankly I am glad that we bought right on those properties and have done well. But the market in DFW is cooling off, someone buying today isnt going to have cash flow, and I dont think they will have much if any ROI. At least not in the next 4-5 years. The more we look at the values in this market, the less I believe its a good place to invest. And imo its definitely a terrible place for out of state and/or brand new investors. (unless you have some sort of other competitive advantage.

I appreciate everyone's feedback, thank you.  This feels consistent with everything I've been hearing lately.  I have a couple of concerns: late-stages of a cycle, (like what I think is being described here,) can last a long time...years.  During that period of time, we still need to find investment opportunities.  So, what should we be looking at (multi-family?)  It should also be noted that it looks like the prognosticators think the Fed will ease later this year...this would tell me that we may be in for a slowing in the economy...will opportunities (foreclosures, etc.) start becoming more prevalent as a result?

@Frank Klarich A lot of my clients are looking for small multi-family on the MLS in DFW. I do see some of the prices being fair but it is a very hot market for investors so the properties don't stay on the market for very long at all. Even if you are seeing late-stages of a cycle then you can still bank on the low interest rates at the moment so I would say that they are good investments if you can get your hands on one.

Originally posted by @Frank Klarich :

I appreciate everyone's feedback, thank you.  This feels consistent with everything I've been hearing lately.  I have a couple of concerns: late-stages of a cycle, (like what I think is being described here,) can last a long time...years.  During that period of time, we still need to find investment opportunities.  So, what should we be looking at (multi-family?)  It should also be noted that it looks like the prognosticators think the Fed will ease later this year...this would tell me that we may be in for a slowing in the economy...will opportunities (foreclosures, etc.) start becoming more prevalent as a result?

 Here is the thing, I think its always possible to find deals in EVERY market.  If you have a 10 or 15 year timeline, I think now is a good time to invest.

From our perspective we have been consistently doing a few deals a year since 2013.  There are properties we would have jumped on in 2013 that we arent coming close to finding in 2014.

Because my wife and I work regular W-2 jobs, there is no sense of urgency on our part to do a deal just to do a deal.  We have gotten a lot more cautious and we are on the longest period between deals since we started as investors.   I dont think we will get the huge capital appreciation over the next 3-4 years that we got over the last 3-4 years and we dont really want to leverage out to the max.

But if we found a good deal, (likely a value add/BRRR) we would pull the trigger. If we didnt have any deals under our belt, I think we would be more inclined to do one just to get started.

Originally posted by @Frank Klarich :

I appreciate everyone's feedback, thank you.  This feels consistent with everything I've been hearing lately.  I have a couple of concerns: late-stages of a cycle, (like what I think is being described here,) can last a long time...years.  During that period of time, we still need to find investment opportunities.  So, what should we be looking at (multi-family?)  It should also be noted that it looks like the prognosticators think the Fed will ease later this year...this would tell me that we may be in for a slowing in the economy...will opportunities (foreclosures, etc.) start becoming more prevalent as a result?

 I dont know your personal situation, but If you are willing to try it, have you thought about buying a duplex/triplex or quad and living in one of the units?  If so I think that is the best way to get started.  And I would do that even if the numbers were ok/not great.

Originally posted by @Bart H. :
Originally posted by @Frank Klarich:

I appreciate everyone's feedback, thank you.  This feels consistent with everything I've been hearing lately.  I have a couple of concerns: late-stages of a cycle, (like what I think is being described here,) can last a long time...years.  During that period of time, we still need to find investment opportunities.  So, what should we be looking at (multi-family?)  It should also be noted that it looks like the prognosticators think the Fed will ease later this year...this would tell me that we may be in for a slowing in the economy...will opportunities (foreclosures, etc.) start becoming more prevalent as a result?

 Here is the thing, I think its always possible to find deals in EVERY market.  If you have a 10 or 15 year timeline, I think now is a good time to invest.

From our perspective we have been consistently doing a few deals a year since 2013.  There are properties we would have jumped on in 2013 that we arent coming close to finding in 2014.

Because my wife and I work regular W-2 jobs, there is no sense of urgency on our part to do a deal just to do a deal.  We have gotten a lot more cautious and we are on the longest period between deals since we started as investors.   I dont think we will get the huge capital appreciation over the next 3-4 years that we got over the last 3-4 years and we dont really want to leverage out to the max.

But if we found a good deal, (likely a value add/BRRR) we would pull the trigger. If we didnt have any deals under our belt, I think we would be more inclined to do one just to get started.

This is a very helpful insight. My time horizon is probably about 15-20 years. I would like to build a portfolio that produces adequate cash flow at retirement to help supplement income, etc. What I don't want to do is take on a property that costs me money (negative monthly cash flow,) in the interim. Ideally, I would like to also do a value add/BRRR, as that seems the only realistic approach in the SFR space right now, (due to high prices.) Fortunately, I also have a W-2 job that provides well for my family and me, however that will not last forever and I need to start working on things now, (or at least very soon,) for that eventuality.

Losing money is a primary concern, but inaction comes in at a close second.  I believe in prudence, but I am also trying not to be apathetic.

In DFW market I still like Single Family, but others are right you have to be patient.  I'm sending out maybe a deal a week to clients...not 10 a day or even 10 a week normally.  There are still deals to be made.   Multifamily I find is very very tough to find the right deals.  Lots and lots of people chasing those, and normally you're buying from another investor.  If they're rolling up their 1031 sometimes they want to make deals...so you just have to look and be open to different opportunities...and sometimes different areas.   Near you, I would be looking north to Gainesville and NW and W...Ponder, Justin, Krum, maybe Decatur, Bowie....

We're cashing out on our DFW home for the equity, and are leaving the area.  I don't think the prices will go up any higher here.  Also, the property taxes have exploded to ridiculous levels.  

Do you find the same for the Arlington, Grand Prairie and Fort Worth areas?  I am a new investor and looking at investing in these areas, as I could see how Dallas is now overpriced.  Thank you

@Melissa Barnard I have currently been looking for small multi-family (duplex, tri, 4-unit)  in Dallas and the supply is very thin.  I am only getting to know the market but it looks like a few properties might really be swinging for the stars on price. 

One other thing I've noticed is that often new construction will be listed as a multi-family when in fact it is not.  For example, if a developer is selling one side of a duplex it will be listed MF instead of a townhouse or semi-detatched.  I have not seen this in other places and it makes finding true MF properties more difficult.  Do you have any insight into this practice as so far I have only seen it in Dallas. 

@Christopher Grobbel You are correct on that! The supply is very thin in comparison to SFH and you'll see the prices getting pushed up from investors coming in with cash offers. Overall it is a very difficult market to be in but depending on your investment strategy it can still work out in your favor.

Unfortunately, you will see a lot of multi-family houses mislabeled on the MLS. That is just due to agents inputting the information wrong or not being familiar with the multi-family market in general. I have seen this all around DFW so it isn't just in Dallas. Do you currently have a realtor that has set you up on emails? The emails I have set up for my clients do not show an abundance mislabeled multi-family properties so it could be how the search is set up as well. Let me know if you'd like my help on that end!

I have investors that are still buying left and right - including myself. Yes, taxes have risen and it's unfortunate, but that doesn't mean that I'm going to be looking elsewhere to invest. I personally only have interest in investing in my local market that I'm an expert in. 

@Mark Severino there's really no secret sauce. Every person is a different investor and what may make sense for one person would never make sense for another. Obviously owner occupied loans are going to be at a lower interest rate and you can get a better deal if you occupy it (so doing a live in flip, a MFH house-hack, etc) versus an outright investment purchase. There's also areas of the metro-plex that are still very affordable and have decent cash flow, it's just a matter of finding what makes sense for you and where you are financially (obviously if you had a wad of cash, you're likely going to be able to obtain better deals as buying outright will be highly preferred over a financing offer for most sellers). 

@Christopher Grobbel I've suffered through the half duplex = multi-family issue in DFW on my primary search site RedFin for the last year but have recently found that Realtor.com sorts these out. All the 'Multi-Family' listings on Realtor.com will be full duplexes or bigger.

@Bruce Lynn To most people on this thread I would say if you have at least $25k & our at least a sophisticated investor & have 5 years or longer why not consider two things, syndications in mobile homes or multifamily & investing in straight rentals in Oklahoma & Kansas for straight cash flow & high cap rate operating aka above 7%!

Now I’m giving away my career secrets!

The best time to purchase a rental is 30 yrs ago. The next best time is today. You can always find a good investment. Just look harder. I have been purchasing in Granbury, Azle, and Fort Worth recently. All have made me money either as a flip of BRRR.

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