Hi, DFW experts
I am a newbie to both Bigger Pocket and Real Estate investment and am absorbing a lot of information on BP now and learning from all experienced experts here. Really appreciate all for sharing valuable experience and knowledge.
I relocated to Dallas from Bay area last year and am having a healthy W2 job that I would like to continue for at least 10 years (or more) but would like to start REI and build my own portfolio of equity in real estate for financial freedom. (rather than early retirement).
Now, I live in Frisco (Coit and 121 highway) and have no experience in direct real estate investment except REIT and crowdfunding. I bought my primary homes twice (one in bay area and the other one in Frisco, TX) and sold my first home in bay area only once in my entire life.
With that said, my current strategy is to buy and hold multiplex and single family home for a long run that can generate monthly cash flow, and I would like to expand the units slowly.
Now, as a very uneducated, baby investor (and relatively new to DFW area), I have some questions and would like to hear your opinions.
1. I went through the forum and learned that it's very hard to find a good deal "these days". Market has been good, and housing price is continuously increasing and at peak across most of country. I understand DFW is a big metro covering wide areas, and each city/county may vary widely, but is 1% still applicable in DFW in general? What % (monthly rent / purchase price) is a rule of thumb number that is generally used in DFW area when considering a good deal (or not bad deal)?
2. Similarly, is there common break price point in DFW that typically makes positive profit/cash flow? I believe various population are spread out in various rent range but think at certain purchase price it may be very difficult to find tenants or to make positive or even profits.
3. Considering DFW population with wide range of incomes, I strongly believe that there will be always rent demand in any area at any rental price, if the price is set at a proper level. From rental websites, I see $1000 - $2000 is the most popular rental price range for single houses depending on the condition, size and location. Small condo and APT seems to range from $500 to $900 in general. Is my study reasonable?
4. What type of property at which price range do you recommend to extremely beginners like me?
5. What do you think of those properties for a beginner? Those are very cheap and small condos that I would not expect appreciation in the future but generates good cash flow with 40-50% down payment. Thanks to the positive cash flow, I see low risk and think it can give me a chance to get into the REI water and learn through experience. Or is this type of condo/APT not a favorite investment regardless due to no appreciation, costly HOA, etc? Any opinion/feedback would be greatly appreciated!!
a) 9617 Walnut st APT 4105, Dallas TX
b) 3121Park Ln APT 1126, Dallas TX
6. I will further invest my time and dig into more threads and information on bigger pocket, but if you have any valuable tip how to start for newbie like me, please share with me.
Thank you all for your time!!
Those condos are in great parts of town but you'll pay a premium. Is your goal cash flow? Or appreciation? As a general rule I always recommend going multi family even for your first. it hedges your risk against capex and vacancy. You can get a duplex up to a fourplex with traditional financing. I just helped another young investor purchase his first. I'll be happy to run comps or help you in anyway I can.
@Sehun Kook I'll go ahead and try to answer most of your questions.
1. Yes it's attainable but you'll be sacrificing one if not a few of the following: Area, condition, appreciation. The monthly rent / purchase price can vary so drastically. You will get a higher ROI in lower income areas. Lower ROI in your North Dallas suburbs, just as an example.
2. Cash flow can be obtained in many different ways. You may be breaking even after renting to two roommates in a live in SFH house hack. You may cash flow $100's+ if you put 20-25% down and buy an older MFH in Arlington or FW. You may be negative cash flow if you buy a SFH in Frisco, etc. It truly varies and will depend on that particular investors goals.
3. You'd be about right. I have a duplex that rents for $1500+/side and a SFH that I'm renovating nicely and it'll rent for $2300+ but it's not your typical rental. I don't touch condos/apts so that's a question for someone else.
4. So you own a primary in Frisco? I'd look at SFH or MFH in a C class neighborhood if you're looking strictly for cash flow. There are plenty of areas in the DFW metro-plex that I'll be investing in - as I will be buying 2 more investment properties this year alone.
5. Not a condo fan. I'll pass on this question lol but if that's the avenue you'd like to go around you do you. You kinda hit it on the nail though, no true ownership (HOA can change whenever, and dictate a lot), no appreciation, low cellar-living tenants, high turnover (not many choose to live in a condo long term, versus I have tenants that will be living in my SFH or MFHs for decade+). But again, I have friends that all they do is buy 50k homes out in the middle of no where or south Dallas homes or very cheap homes. Just not the route I'm going - but everyone is different!
6. Of course - that's what this forum/site is for! Network your butt off and create a great team and your success will come! I've seen it from so many first hand - including myself.
@Wes Johnson Thanks for your feedback!!! I want to eventually balance between cash flow and appreciation but am thinking the cash flow property seems a good starting point for beginners. I have not found many multiplex available in DFW and most of them seem to be in a C class neighborhood. Is that correct? Which areas should I look if searching for multiplexes?
@Kenneth McKeown I appreciate your detailed answers. I see definitely negative cash flow in a class A neighborhood and do not want to start with such property/area because some positive cash flow, even if small, can give me some momentum to keep me going. For that reason, although I live in Frisco, I do not look at investment properties in north Dallas and my living area and am open to all areas of DFW. I see huge appreciation and crazy bidding in bay area so I don't feel much appreciation in DFW although a lot of folks in DFW area said big price increase in recent years. To me, I will be totally fine if appreciation can follow inflation, and in a long run, buy and hold would have some appreciation, I believe. DFW is a huge metro and seems to have very various and wide levels of neighborhoods so I believe DFW is an excellent REI area in terms of diversity, but at the same time, it is a little difficult to set a target and plan for beginners because there are too many options and strategies available. I have exactly the same feeling on Condos as you described, and that's why I was hesitant even though math gives me good opportunity with positive cash flow. I guess I need more research and study to set a right plan and target at this moment, and your feedback really helped a lot!!! Regarding your two more purchases, are you buying those two properties in a class C neighborhood?
@Sehun Kook Indeed I will be. I don't have any desire to purchase in a war zone with terrific cash flow. I've seen what an eviction can do for cash flow and I like C-class neighborhoods... maybe B. DFW can be overwhelming for newer investors but all you have to do is study and dive into this world! It's a blast. Appreciation has been kind to me with my investments - but I also know that won't always be the case. But I definitely won't ever own a condo - just my preference.
As to where you should be searching for Multiplexes, I have provided you with a map (see below) of all of Dallas County and the percentage of properties that have 5 to 9 units for various sub-markets. Greener areas indicate higher concentrations of such property types.
The 2nd map shows the areas that have over 10 percent of properties meeting the unit requirement and are located in B/C neighborhoods.
I suggest using the dropbox link, since the images attached will be compressed and hard to read.
@Art Perkitny Thanks a lot for your suggestion and awesome maps. These maps indeed help me get an idea of which areas to look!!! Really appreciate.
@Sehun Kook if you have a good paying W2 job and your timeline is at least a decade out why would you even bother looking at cash flow today? You should be planning for cash flow when you are retired. So stay away from the crap and buy quality, preferably newer, in quality neighborhoods.
I wouldn't touch a condo with a ten foot pole. Too many horror stories. I tried a four-plex once but too many problem tenants. I figure if you're going to do multi-family go all in and buy 16, 24, or 50 doors.
@Robert Steele Great point, Robert.
No one is certain about the future but I wish I could work for next 20yrs. :)
I acknowledged that I did not make myself clear and was misleading with positive cash flow. In fact, I do not need cash flow because I am able to max out 401k, do backdoor Roth IRA, and still can invest in stock/bond right now with my current job. However, due to future uncertainty, I do not want to hold properties with "negative" cash flow. In another word, "even" or "zero" cash flow after all the associated costs for the ownership is great, and I will be totally happy with that. I understand some temporary out of pocket costs or negative cash flow for a few months but do not want any property that constantly drains my savings/other investments.
And, you got exactly my concern about condo and class C neighborhood: too many problems with tenants, which may drain so much of my energy, mentally and physically. I did not do enough research yet, however, I only see opportunity so far in poor neighborhood properties, especially condos and multiplex. With current rent price range and house price, my math simply does not give me "even cash flow" in quality neighborhoods. (I don't expect more than $2,000 rent for the $300s house.). And, I don't expect much appreciation in DFW from now since I think the market seems to be pretty saturated, but I hope I am wrong.
Anyways, your feedback was very well received and really appreciated. Your suggestion makes me do more research and open more options with proper risk assessments.
@Sehun Kook I know cash flow is the holy grail and we're all taught to not bank on appreciation or take a rental with negative cash flow but I think these truisms have led many down the wrong path.
You are correct, you are not going to get a 1%/month gross rental yield. You don't want anything that gives you 1% anyway. To give you a guide, I am getting 7-8% p.a. gross rental yields on my desirable median priced or above SFH rentals.
I strongly suggest you read everything on this Investing Architect site. The author contributes here on BP. He advocates purchasing quality assets in desirable neighborhoods that attract quality tenants in order to build wealth. I wish I had subscribed to his ideas when I first started. It took more than a decade for it to 'click' with me through experience.
@Robert Steele Thanks Robert again for your comment. With short study/research, I was actually leaning toward a class C neighborhood but your suggestion is changing my perspective... probably I should forget about cash flow and look at some quality neighborhood because I have ZERO experience with tenants and I do not want to get exhausted by a lot of hassles with tenants in the class C neighborhood..
May I ask you what price range of property/properties in the good, quality neighborhood you are buying recently and how much rents you are collecting from those? Your experience will give me some guidance. Thanks a ton again!!!
1. Depends on what your definition of a "good deal" is. Everyone has different models of success. Some people flip, some people buy and hold, some people like C neighborhoods, some people like A neightborhoods. Some people like cheap rent, some like expensive rent, some like AirBnB, some like single family, some like multifamily. So it all depends on you and what you want....Some people won't buy if they dont get 1% rule or maybe more than that. Sometimes you work into that.....so maybe today it is .8, but 2-3-4 years from now it is doing 1%. I feel sorry for many of my investor clients who didn't like the returns 2-3-4 years ago, that missed great opportunities to buy, because they bid too low at the time, and now could have gained so much appreciation and rents are significantly higher.
2. I get a fair amount of calls for people wanting to rent. Sometimes we quote the rent and they want to hang up fast. I always try to slow them down and ask them what they're looking for. My quick answer is most want $1500 or less. So you can back into that number and see what price range you need to buy in....I also say you can back into a good number by what people make......so most people say people can afford housing at 1/4 to 1/3 their income....so take that and you know what they can pay in rent, then take the rent and calculate the purchase price. So the trick with the 1% rule is if you want $1500 in rent you need to find houses that are $150,000 or less and that is tough to do in DFW. If you can find them you will likely have competition....from retail buyers and investors. I saw someplace recently that 25% of the sales in DFW under $300,000 are cash buyers....so typically that would mean investors. Not sure if that's a good number....but I think it is plausible.
3. I think you are probably low on apartment rents. I think it would be hard to find most apartments in decent areas of DFW and maybe even any area of DFW for $500/month. Again back into the rents.....while there are homes that rent for $3000-4-5-10,000/month.....think about the income it takes to do that....as you move up the income curve there are less and less people who can afford that. Lower the rent, the bigger population you will have as a potential customer base.
4. Under $200K if you can find the right house in the right area. If the area is good the cheaper the better. Maybe $150-$200K.
5. I think you will hate your life if you buy cheap condos. My personal opinion is that for the most part condos/townhomes normally don't work well for investments in DFW. There are maybe a handful of exceptions. The reasons are the HOA dues eat your returns. I often thing you're paying for the amenities for your tenants to enjoy. The pool, maybe gates, maybe security, maybe a concierge, maybe a fitness center....and you just can't charge enough rent to pay for it. On the ultra cheap condos you also have to think about exit strategy. Who can/will buy it. They can be tough to finance with traditional bank financing....so the buyers who would like to buy can't get financing. On the ultra cheap ones like you mention....who is your customer? Is that the type of tenant you want to attract? Drive the area on a Saturday afternoon....see who's in the neighborhood, what kinds of cars are in the lot. Get out and walk around and talk to people. Are they owners or renters? If renters what are they paying? Do they like the area? Do they think it is safe?
6.Happy to sit down for coffee with you sometime and talk through all these issues if you're interested.
@Bruce Lynn Wow, thanks a lot for very detailed comments. I am reading it several times already. And, you have a really great point about rent to purchase ratio... it may be low today but can increase in years. Thanks to you and @Robert Steele , now I am switching my interest and target. With no experience in this area so far, dealing with problematic tenants and a lot of issues appears just too risky for me. I will definitely ping you soon for coffee and interesting and productive discussion!!
I am new to BP. And this is my first post! Nervous but excited. So if this post is not perfect or missing a detail just post and ask and I will respond and I promise I will get better! I have been listening and watching bigger pockets for awhile now. Anyways let’s get to the deal. Or situation I’m in.
I have a .44 (19,000sqft) 97x 200ish) single family Vacant lot in downtown Celina TX. My father bought it for me in 2002 for $22,000 as a “just in case” investment. And held it since.
If you are familiar with this soon-to-be big city. Then great! You can help me out. I know everything about celina and how it’s growing I’m stuck in a hard decision I feel like.
My goal is to use this lot (that I own free and clear) to start my real estate investing career. I have had my real estate license since 2017, and have been studying a lot about real estate Investing. And would like to start having cash-flow properties. Maybe start using the BRRRR method.
What would be the best way to leverage or use this lot that I have to start investing in real estate?
Sell my lot. Now I already put up a for sale by owner sign and have received plenty of phone calls. My best offer that was sent to me was a $120,000 cash offer, no option. So this option is still available since we have made a good connection with the buyer. Then I could purchase my own property. Brrrr and repeat.
I have contacted the city about zoning change as well as building a multi-family unit. (Duplex, quadplex). Currently my property is zoned single-family. The city replied and said that the city is finalizing all new zoning changes in 2019. And my property is able to build a multi-family house with permits and plans required. However, I don’t have a down payment for a loan or the credit. So I’m kinda stuck. The city even said that there could be a possibility that my lot my become a commercial property.
What would be the best way to use this vacant lot to start REI?
Here is the kicker:
there is a vacant lot next to mine that is the exact same size also zoned SFR. The lot on the right side is a commercial lot C-2. Maybe some warehouses.
I told the city city that maybe my multi family lot could be the buffer from commercial to SF homes. And they said show us the plans and we can work it out.
Across the street is what is soon to be more vacant lots as there is a old metal building workshops across the street along with another vacant lot. So the surrounding area is going to be new builds eventually. Either housing or commercial.
If you have gotten this far, thank you for your time! And if you have anything to share please do!
once again thank you! Look forward to being a active member here on BP!
Welcome to the area!
I'm also a newer investor going into this business with my family, so perhaps we'll see each other around the area.
Best of luck to you!
@Sehun Kook . Welcome to Frisco. I live right down the street from you. I been an investor for few years now, have few SFH. Let's connect.