2 Properties in Dallas for Comparison
Hi All,
I m a total newbie in RE investment. I just saved up enough money for downpayment of my first investment house in North Dallas. Below are the key characteristics.
Investment objective:
I want to rent it out for passive income for the next 6-8 years and sell it off for capital gain around the 10th year.
House A:
Price: $250k
Size: 2024 sqft
Rental potential: $1800 - $2000
3 bedrooms, 2 Bath rooms, 1 flex room (study or office without door)
Plus point: Nice and huge yard with great unblock views, large master bedroom and large master bed room closet, large living room and family room. Fairly Good School zone (Prosper ISD).
Down side: Poor workmanship, cheap appliances and floor tiles with carpet. These are newly built and started selling since Nov/Dec 2019. There are many similar houses in market for rental in the same community.
House B:
Price: $238k
Size: 1564 sqft
Potential Rental: $1700 - $1850
3 bedrooms and 2 bathrooms
Plus point: Good design, House was already upgraded with $25k of designer appliances / sprinklers system and other premium options like Patio etc. Workmanship is great. Yard is fairly large with good view. Wood flooring with carpet. Seems limited house for rental in this community. The developer builds in small batches. Energy efficient design.
Downside: Small master bedroom and small master bed room closet. unpopular school zone (Danton ISD).
Rental ROI, seems house B is better option. But House A may fetch more money later when i sell since it has close to 500 sqft larger floor space and a better school zone.
Which do you guys advise? Which is easier to rent? They are close to each other. Like 3-4 mins drive. And I only have money for 1 investment property now.
Thanks.
@Meng Khong tong
Honestly neither of these jump out as good deals. It all depends on where they are and what rental and sale comps are in the area. The general rule of thumb around here is rent to price ratio of 1%. These don’t meet that hurdle which is ok if this is an appreciation play. Did you run your numbers with a BP calculator to look at cash flow, coc, capex, vacancy, etc.? More info is needed to do real analysis.
Hi @Meng Khong tong. Echoing @Darren Looker's point, more data is needed. Additionally, the source of your data will be just as important as the data itself. You mentioned the quality of workmanship and income projections. What's your source for this information?
Additionally, I'd caution against making appreciation your Plan A, even in a rosy market like Dallas. Appreciation is largely caused by factors outside of your control, such as the path of progress, changes in local demographics, micro- and macro-economic fluctuations, etc. Planning your purchase strategy around things outside of your control is not investing, it's speculating. Cash flow, in contrast, is much more within your control. It's not a sure thing (if it were, it wouldn't be an investment). Nothing in real estate is guaranteed. But at least with cash flow, you can shop around for better financing rates, control how much capital you devote to rehabbing, screen for a better quality of tenant, etc. All things which can positively or negatively affect your return.
Lastly, have you spoken with a realtor in the area about which attributes are most in-demand in this neighborhood? Maybe small master bedrooms and small closets are a deal-breaker for wide swaths of the buyer's market, or maybe they're not. Moreover, this criteria could totally change in the 6-8 year interim in which you plan to hold the property. So any criteria you use now may be invalid at that future date.
You asked which is easier to rent - here I would go look at the lease comps and see what kind of Days on Market properties similar to the two you are reviewing show for their respective areas. If houses similar to House A in the same or close subdivisions are taking 60 days to lease, and houses similar to House B in its subdivision or vicinity are taking 15 days, then you have your answer.
Personally, I try to stay closer to 1500 sq ft with my rentals, and don't go over 2000 sq ft. Bigger house is going to take more money to maintain (e.g. tenant moves out, more rooms to clean, more paint to touch up or repaint, larger foot print in terms of roof, etc, generally speaking).
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Real Estate Agent Texas (#692589)
- Highland Properties
@Richie Thomas
Both are new houses. Just complete built 3 weeks ago. I went to see the units myself twice.
Since they are new, I assume repair and maintenance are minimal. I didn’t factor in any maintenance fees for first 3 years.
@Darren Looker
In Dallas, I couldn’t find anything with 1% rental price ratio. Those house below $200k are either at no good location , difficult to rent out with higher vacancy rate or the house is very old and need to factor in high maintenance and repair cost. End up my cash flow is also not great even with 1% rent price ratio.
As I just started out, I don’t have too much time to manage the property. I am doing this part time. That’s why I choose new built property.
@Meng Khong tong
It’s not easy to hit 1% rule in Dallas and it’s not a deal breaker, just a quick rule of thumb to weed out properties.
@Richie Thomas gave some very sound advice for further analysis.
Since the house is new, your capex should be lower, but make sure it cash flows and have your inspector go through it very thoroughly. You don’t want to get a property with shoddy workmanship that shows up in a year or 2 and wipes out all your gains. If you see red flags when walking the property, then there are likely other issues you can’t see.
@Meng Khong tong - are you planning to rent out the house and you rent an apartment? If so, I would recommend house hacking as your first investment where you rent out the spare bedrooms which will significantly reduce your housing expense
@Chris Kim
I have another house in Dallas which I use as primary residence. I tried to rent out my entire second floor but so far I can’t find any tenants. Didn’t try actively. Just rely on 1-2 real estate agents.
@Meng Khong tong
Additional information for 2 houses above.
House A has current rental listing for 1.9-2k in Zillow. About 4-5 units in that same community. And some of them have been listed for 45 days -57 days.
For house B, current rental listing is about 1.8k-1.9k. Only 2 in the community. 1is recent listing and 1 has been listed for 40 plus days.
Where can I see past rental deal transaction in that community? I am worry if I buy it and I can’t find any tenant for months.
The agent told me that she has 3 units bought last year and all rented out within 3 weeks.
Rgds
Mk