Investing in Dallas From the San Francisco Bay Area

25 Replies

Any out of state investors investing in Dallas, TX? I just started my out of state investing journey from the Bay Area and would love to connect with fellow investors both remote and local. Would love to get your thoughts on your experience so far and where you're headed. 

Thanks!

Hai

I may be in the minority, but I don't think DFW is all that great of a market to invest.

Dallas specifically has a huge shortage of police and there has been a huge spike in crime.  Property values have stagnated and rents are not keeping up with massive increases in property taxes.

I am sure there are individuals who have found deals, but for the most part we aren't seeing anything worth investing in, and I don't know that it is a very good market for out of towners.

@Hai G. Texas might be a good place to invest in general, but it sucks if you live in CA. Texas has high property taxes (balanced by no state income tax) but as a CA resident you gotta pay CA state income tax.

So high property taxes, high state income tax. Double whammy. You might still come out ahead, but you’re far better off investing locally.

@Hai G. it truly depends on your goals. Are there cheaper markets? Are there markets that are appreciating faster? Are there markets that are just overall much different than DFW? 100%. But every investor is different and everyone has their own desires behind investing. I will agree with @Saj Shah that paying CA state income tax and then the high property taxes in TX aren't ideal - but I help a lot of people in LA/SF/SD that have no other choice. Their job in SF pays them nearly 3x what it would pay them in an area that they could move to and invest locally - so financially it doesn't make any sense.

I also can agree and disagree with @Bart H. - as him and I talk frequently. My taxes went up significantly in Plano ISD but I also just increased rent $100/unit on my duplex and they didn't blink an eye. I'm still helping tons of people invest in DFW and some are realizing the numbers aren't as GREAT as they hope - but there are also plenty of places TO invest in DFW if you want more cash flow, more appreciation, or just a stable rental. Again, it comes back to what you as an investor and what you're looking to do. I'm currently under contract for a 4-plex and I'll be purchasing at least one more SFH by the EOY.

I laugh when people say we pay high property taxes....yes it is 2-3% of the value vs what 1% in CA, but our values for the same house are still probably 1/4 to 1/3...so it ends up being about the same, for the same type/age/style of house.  Rents here are about double what I see in CA for the same investment.  You might get $1500/month on a $185,000 here, where the same rent might cost you $450,000 in CA.   That's what I have seen.

As someone above mentioned you may not want to invest in the City of Dallas, but just like many big cities in CA there are smaller cities around the Metroplex that might be attractive for you.

Rumor today is Honda is now looking to put their North American HDQ in DFW area...so just one more big company with great pay moving here....probably 2-3 more major moves like this will be announced this year.

Originally posted by @Bruce Lynn :

I laugh when people say we pay high property taxes....yes it is 2-3% of the value vs what 1% in CA, but our values for the same house are still probably 1/4 to 1/3...so it ends up being about the same, for the same type/age/style of house.  Rents here are about double what I see in CA for the same investment.  You might get $1500/month on a $185,000 here, where the same rent might cost you $450,000 in CA.   That's what I have seen.

As someone above mentioned you may not want to invest in the City of Dallas, but just like many big cities in CA there are smaller cities around the Metroplex that might be attractive for you.

Rumor today is Honda is now looking to put their North American HDQ in DFW area...so just one more big company with great pay moving here....probably 2-3 more major moves like this will be announced this year.

I respectfully will have to disagree on the property taxes.


Bought a house in 2014 for 230K, property taxes were $2,400.

2018 property taxes on the same house $7,000, 


Another property I have 180K 2015, taxes $2,400, current taxes $7,900 and doing this from memory but 2019 they will be right at $10K.

I fully believe in certain areas the taxing authorities are trying to stick it to anyone who has a SFH and whose property resides in areas otherwise of interest to MF developers. I think thats a dynamic that someone from out of state would not recognize. And its not obvious on the taxes when you are running the numbers.



 

@Hai G. Thanks for starting this thread. I'm in the exact same position and trying to run the numbers to see if and what type of an investment in DFW makes sense. I've been communicating with @Kenneth McKeown as well to pick his brain on this. Look forward to this discussion.

This is a great discussion and super helpful for all the contexts. I agree while the barrier of entry in terms of price point is lower, future increases in property tax can wreck havoc to the math. @Bart H. looks like you've built up a big portfolio, how are you going about it and what's your philosophy given these challenges?

@Kenneth McKeown - great point, would love to connect and pick your brain as well.

@Vansh Makh, let's definitely connect, would be great to meet up and share notes. I'll shoot you a message.

Originally posted by @Bruce Lynn :

I laugh when people say we pay high property taxes....yes it is 2-3% of the value vs what 1% in CA, but our values for the same house are still probably 1/4 to 1/3...so it ends up being about the same, for the same type/age/style of house.  Rents here are about double what I see in CA for the same investment.  You might get $1500/month on a $185,000 here, where the same rent might cost you $450,000 in CA.   That's what I have seen.

As someone above mentioned you may not want to invest in the City of Dallas, but just like many big cities in CA there are smaller cities around the Metroplex that might be attractive for you.

Rumor today is Honda is now looking to put their North American HDQ in DFW area...so just one more big company with great pay moving here....probably 2-3 more major moves like this will be announced this year.

Does your state have something similar to Prop 13 in California? Because here in LA, our property tax assessed values are based primarily on the original cost plus a very marginal increase. In other words a condo I purchased in 2011 for $175,000 is still being taxed at just around that assessed value despite it appraising for around 500K. 

But I agree with you on your point about the cap rates. 


Great spot to invest, just factor 4% for property taxes and 1% for insurance. $1 a square foot for monthly rent should get you in the ballpark. Look outside of the NE metroplex for some good deals.

Originally posted by @Hai G. :

This is a great discussion and super helpful for all the contexts. I agree while the barrier of entry in terms of price point is lower, future increases in property tax can wreck havoc to the math. @Bart H. looks like you've built up a big portfolio, how are you going about it and what's your philosophy given these challenges?

@Kenneth McKeown - great point, would love to connect and pick your brain as well.

@Vansh Makh , let's definitely connect, would be great to meet up and share notes. I'll shoot you a message.

I wouldn't say we have a huge portfolio, not by BP standards at least.  But we have a few properties.  

Here is the thing, our philosophy is to go slow and steady, with the goal of having a portfolio essentially paid off by the time we hit retirement.  

Compared to most on these boards, we are risk averse.  And compared to most we can be patient since my wife and I have full time day jobs, we don't absolutely need to keep doing deals to put food on the table.

By design our business model is to have properties with fully amortizing debt. We look at keeping moderate leverage, and like to BRRR, But we also focus on areas of the city that we think are up and coming. We also want to be all in after rehab for about $150K-$180, with an ARV of $200K+ in a property that can rent for $1,800-$2,000. In a trendy/up and coming neighborhood.

We might move those numbers up a little if it was as an additional out, or some other upside, for example if it was zoned MF-2, or was good for a college or medical District rental. OR could be redeveloped in the future.

My main point is that I think there are better places for out of state investors to invest.  Its a common theme that Dallas is a great market.  I think those getting here now are getting here late in the game, It looks to me as though Dallas is slowing 

Now @Kenneth McKeown and myself have met in person and we have looked at a few properites together over the last couple of years.  We haven't bought anything from him yet, but it will happen one of these days.  

Kenneth busts his butt as a real estate investor and realtor and he is able to buy a few deals by using his commissions to fund the next down payment.  HE also has a lot more years than my wife and I do.  He can afford to be more aggressive than we can.  Its just a slightly different business model .

Look, I think its possible to find deals in any market.  My wife and I generally prefer to invest close to home. (Fort Worth is too far for us), and within the areas we are looking there have been very few if any deals that fit our criteria.  So we will wait it out


IMo if you have long term time horizon, I am sure you will do ok,  If you are looking at Dallas as a super high cash flow market over the next couple of years, I think there will be some disappointment.





Updated about 1 month ago

BTW....Since I posted this I have heard rumors of Honda and Uber moving large portions of their business to DFW. IF either or especially both happen, then my post wont age very gracefully. There were substantial increases in property values when Toyota and portions of State Farm moved here. IF we get a similar influx of corporate headquarters moving here, then you will see a significant leg up in housing prices.

@Hai G. lots of good feedback here. And as you can see some very different opinions too.  Out of state investing is a very challenging proposition.  Your network of professionals is critical to your success.  As mentioned above, there are "pros" and "cons" to all of it....and I would personally love to have LESS people competing for deals here locally.  But there are thousands of homes you can purchase here for under $200,000.  For any major metropolitan area in the US our average home price is BY FAR the lowest.  Dallas-Fort Worth is now the 4th largest metropolitan area in the country.  You certainly can't buy a $200,000 home in Chicago or LA or NYC or San Francisco?...just forget it.  But Dallas, Fort Worth, Houston, San Antonio....all of those have plenty of choices at that price point and below.  And the great thing about those cities is that they have population to support an out of state investor.  Sure, you could find better deals in some small town with less than 50,000 people in it...but do you know a property manager there?  Or a roofer?  Or a plumber?  Electrician?  Yard Person?  Etc?  Here in a major city, you can find those things fairly easy (comparatively speaking).  Again, lots of things to think about. 

For me personally, I have never invested outside of a place that I know.  I own properties in Florida...but I used to live there.  I feel there's got to be some towns that might be an hour or two outside of San Fran that might be a little easier to invest in than San Fran proper.  Just a thought.  Thanks for posting and I hope some of this helps.

@Tony Kim we do NOT have Prop 13 type limits with the exception of homestead properties. BUT ALL PROPERTIES get reappraised every year. If your homestead went from 100k to 200k from one year to the next there is a 10% cap per year. Taxed at 100k year one, 110k year two, 121k year three, etc. If you sell the property, the new owner will be taxed at 200k or whatever it is in that year.

I know almost all properties in CA can go up only 2% AND they only get reappraised at sale. So yes, property taxes are usually WAY lower in CA.

@Amit Saini what was just passed is NOT what CA has at all. The limit is the percentage that a county or city or taxing entity can raise their percentage. They can only raise their levy by a certain percentage. BUT if values go up 100%, they are collecting twice the amount of revenue because their levy is the same. Personally, I dont see why the levy percentage should change at all if values are going up all the time!!

Thanks, all, for the thoughtful discussions. I learned a ton from this, and may adjust my criteria for investing based on many of the great points brought up in this thread. If anyone else has perspectives to share, would love to hear them as well. 

@Hai G. thanks for starting this discussion. I have been contemplating the DFW market as well and doing some research. Great discussion and tons of useful information.

Hai and @Vansh Makh: It would be great to get together and exchange notes and run some numbers.

Given the strong projected growth (price, population), rental ROI and lower entry point compared to other hot markets it's definitely a good market to explore.

I invest in the Dallas area and love it. Quick way to pay off cheap property and obtain positive cash instantly. One of the homes I own in Dallas its mortgage use to be the same as what I pay for rent here in California for a tiny apartment. In Dallas, you got land, serious square footage and a instant return on your investment because you can pay it off quicker if that's your goal. It's a win win situation for me.

Originally posted by @Andrew Postell :

@Hai G. lots of good feedback here. And as you can see some very different opinions too.  Out of state investing is a very challenging proposition.  Your network of professionals is critical to your success.  As mentioned above, there are "pros" and "cons" to all of it....and I would personally love to have LESS people competing for deals here locally.  But there are thousands of homes you can purchase here for under $200,000.  For any major metropolitan area in the US our average home price is BY FAR the lowest.  Dallas-Fort Worth is now the 4th largest metropolitan area in the country.  You certainly can't buy a $200,000 home in Chicago or LA or NYC or San Francisco?...just forget it.  But Dallas, Fort Worth, Houston, San Antonio....all of those have plenty of choices at that price point and below.  And the great thing about those cities is that they have population to support an out of state investor.  Sure, you could find better deals in some small town with less than 50,000 people in it...but do you know a property manager there?  Or a roofer?  Or a plumber?  Electrician?  Yard Person?  Etc?  Here in a major city, you can find those things fairly easy (comparatively speaking).  Again, lots of things to think about. 

For me personally, I have never invested outside of a place that I know.  I own properties in Florida...but I used to live there.  I feel there's got to be some towns that might be an hour or two outside of San Fran that might be a little easier to invest in than San Fran proper.  Just a thought.  Thanks for posting and I hope some of this helps.

you hit the nail on the head you can drive an hour or two from SF proper and buy properties for a fraction of the cost of SF proper. and you can buy SFR's in and around Chicago in the 200k range as well plenty of them. NYC an hour out of there you can find lower priced homes. etc. I think one of the reason prices have remained or are lower in Texas is because of the property tax's. that's a fixed cost you cant mitigate.. where as higher priced homes in say CA with lower tax's at least your paying down the debt.. you cant pay down tax's they just stay forever and apparently keep rising.. I know many CA investors that thought they have 200 a month cash flow only to end up within two years having their cash flow go to zero or negative.. they run the numbers with todays tax's looks great pull the trigger.

so I agree high income tax in CA and high property tax in TX  makes not a lot of sense especially if we have seen values level off which I hear has and is happening in the DFW area.. And frankly in most MSA in the country right now.

 

Thanks for the comments, it’s been super helpful to see all the perspectives. Just an update, I’m scheduled to close on a duplex tomorrow in a good town north of Dallas. I was able to purchase it under market value that surpasses the 1% rule as is. I didn’t think it was possible especially for the criteria and location I was looking at, but there are definitely deals to be had if you look hard enough. Maybe it won’t turn out as good as I hoped, but it’s been a great learning experience so far with low risk. Will update more as I go.

@Hai G, what resources do you scout to look for property, I will be buying my first property September and want to flip, any pointers without a Real Estate license? Yes I already know to get this it's good but before obtaining this any tips?

@Hai G.

I’m from the Bay Area too. I live in the DFW area and own 6 SFRs out here. My cheaper properties cash flow a little more than my expensive ones. For example the one I paid 100k for last year gets $1,400/month. My most expensive one I paid 225k for two years ago gets only $1,950/month. My average is the 1% rule in rent. Not bad, not great.

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