Beating the Dallas Heat - appraising two strategies

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Beating the Dallas Heat - appraising two strategies

Daniel PorterPro Member
Rental Property Investor · Dallas, TX · Member since 2015 · 94 posts · 20 votes

Battling between two strategies right now for my first rental property purchase, and equally terrified of both. For the record, i work regularly in downtown Dallas, so consider commute costs (time and money)...

Strategy 1.) Fixing up a horrid duplex in a rougher (C+) neighborhood.
Specifically, looking at Arlington, North/mid oak cliff (currently renting in North Oak cliff and i'm not getting stabbed every day, despite popular belief lol), or North Fort Worth areas. Couldn't live for FREE, but once i moved out, it would cashflow pretty well considering the current rises in MFH prices. 

pros: privacy, better (more easily appraised) rent rates, 
cons: getting into construction jobs i can't quite calculate as accurately, not having enough cash to cover it 

lots of these houses won't go FHA203k, because of how many offers mine would be competing with, and i'd really have to sweet talk a hardmoney lender to get some capital secured, because i look pretty awful on paper. 

Strategy 2.) House Hacking a SFH near a hub
There is much less competition for SFHs in DFW, imho. Most of the times, these MFHs are going to all cash offers in under a week, generally to out of state investors, etc., and even in these C+ neighborhoods i'm referring to. I'm currently sharing a house right now and i wouldn't mind having roommates. I'd look to buy near a "hub"" hospitals with 3,000 plus jobs or colleges, like SAGU in waxahachie, community college in lancaster, near UTA in arlington, near UNT/TWU in denton. 

pros: easily managed, easily bought and sold, less risk in getting a less destroyed property, accurately know the costs of minor renovations
cons: lower (more unpredictable) rental demand for a shared room, longer commutes (higher cost) from outskirts, less privacy. 

Right now i'm leaning towards strategy 1, but i'm not sold. These duplexes are terrifying, especially having very little background in home renovation. I'm all for it, if i can budget it into the cost. 

What are y'all doing to deal with the dallas market? What would you recommend a 25yr old first time residential real estate investor to do? I think DFW can sustain the increase, personally, so i don't think a bust is coming soon, but i do think there might be a market readjustment for MFH if a large portion of investors start substituting to SFRs or other vehichles instead of MFHs. 

Any thoughts would be much appreciated. love to get a conversation started on this. i'm sure many out of state investors could benefit from this as well. 

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  • Jack Edgar jr
    Rental Property Investor · Chicago, IL · Member since 2015 · 98 posts · 48 votes
    9y

    Based on everything mentioned I really thought you were going to pick the 2nd option. This may be a better fit for you starting out. At least finding an investment and less of a project. To help with your decision process,  look at creating a short and long term strategy plan that focuses where you want to be down the road. Figuring this out will help you with your decision. In the meantime, if you really want to, and have the time to go with option 1; definitely read up on the construction books offered by the bigger pockets family as starters so that you know the ins and out of renovation. 

    Finally, there are no quick fixes with real estate investing. One has to crawl before they walk.

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  • Bart H.
    Dallas, TX · Member since 2016 · 1k+ posts · 745 votes
    9y

    @Daniel Porter  Just my 2 cents as a person who has invested in almost exactly the same neighborhoods in Dallas.  Live Oak/Greenville (duplex), Kid Springs, Medical district, Elmwood and now the M Streets. Since 2013 I have lived in all of those neighborhoods and rented out our houses behind us.

    I wouldn't make my business plan with my first investment hinge on my ability to do a full gut job rehab, especially if you are going into a c class neighborhood to do it,  unless you have significant experience as a contractor or builder.

    I can tell you, whatever you do  will cost you twice as much, and take twice as long.

    In each of our deals we have done a little more rehab to the point where we are now comfortable with doing full rehabs, but I can tell you it takes a lot of cash reserves, especially when you are moving in and out of the properties.

    It has taken us several years to get a group of contractors we like and trust that we can use on these types of projects.

    I absolutely wouldn't do it on my first project.  And similarly, if you haven't ever been a landlord, can I recommend you learn in a B  (or even A  neighborhood?). A better property will get you better credit quality and usually fewer problems.

    IMO its not the worst thing to take on a little better property that ends up having a lower return in order to learn how to become a landlord.  Especially if it is a property you will use to house hack.

    Check out some neighborhoods like Kids Springs, Elmwood, the area near the medical district that is really hot right now.   Feel free to send me a shout if you have specific questions about Dallas

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  • Daniel PorterPro Member
    OP
    Rental Property Investor · Dallas, TX · Member since 2015 · 94 posts · 20 votes
    9y

    @Bart H. thanks, i'll look around. Yeah, I'm really uncertain about it. I've had some experience with renovations (habit for humanity, family members that have built their own homes, personal projects, etc), but risking the solvency of my investment on it seems like the wrong plan. I think youre right about the the B class - A class neighborhoods. Even if i'm not living for FREE, i'm minimizing my housing costs by around 60% per month, building the equity, and getting a first hand education in being a land lord. Sounds much better. 

    Do you have any idea how shared room rents compare with private room rents? Is it as easy as diving the rent by the number of rooms? I haven't found much written on this, and it's a pretty important part of the SFR house hacking strategy.



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