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I'm considering real estate investment in DFW. I had a brief experience as a long-distance landlord (not by choice) years ago and it was not pleasant. Yet, I'm considering it again to create extra income for now and to prepare for retirement in 20 yrs or so (I hope). My goal is to build a portfolio over years so that I can have net passive income of $100k+(current dollar) in 10yrs. I read some posts here on this topic and it was generally discouraging or made me more cautious at least. I have been living in DFW area for a few years by now but I wouldn't say I know this area well enough. I have a full time regular job, so I cannot spend too much time managing properties. I'll probably end up hiring a management company. I have $50k max to put in at the beginning. Where do I start? I have a investment-oriented realtor but that's about it. Several questions in mind. Residential or commertial? Multiple low-income condos or one mid-income single-family? Is it even possible to get a 90%+ financing as some real estate "guru"s promote? How is the rental market now? Is the rental going rate in DFW enough to cover all outgoing cashflows (I guess it depends on the area and also individual property)? What else am I missing? I also realized there are really low-price ($10~30k listing price) rental properties (for example, near Presbyterian hospital of Dallas at 75&Walnut Hill). Without too much cash upfront, it seems that buying a few of these could even things out a little bit better than having just one property. One of the posts says that low-income rental properties are very profitable. Would it be too much of a nightmare to deal with low-income tenants? What makes sense for my situation and goal? I would truly appreciate advices. Thank you in advance.
My sister lives north of SA but owns some low-income housing in SA and some of her renters are section 8 clients
she is a good landlord who tries to maintain her houses because she will have little else to sustain her after she quits teaching at a Catholic school in SA but SS and we know how that is going
her renters were intially pretty decent people who did not vandalize her properties that much--some of her houses she has had for more than 10 yrs I guess--
and she only has maybe 5--not a lot really
now the people she gets are much more problamatic--they will do stuff like steal the toilet when they leave or just trash the house so it takes two days to clean it out and she has to paint and replace sheetrock--
they are always trying to beat her down on the rent once they get in or they will just not pay--
buying a property that you are forced to rent to people with marginal income and marginal lives is NOT the way to make money in RE--
if you can't afford to buy a property that will rent for at least 800 a month (and make a profit) then (in my POV) you are running the risk of just throwing your money away AND getting into debt for no reason...
if you think you can buy outright a rental property for 50K--if that is your intent--then you need to get a real look at what living in that type of property means--
and if you pay management company for oversight--there is no profit to you--
that is just not smart move
Property management companies usually also have people who will help you buy the investment - they can steer you towards the hot areas and good long-term investments.
I recommend you start with a single property w/i 10 miles of where you live and don't even consider section 8 as a newbie investor. Single family houses are easiest to rent; then townhouses with attached yards and garages. There are a couple of good deals out there right now in Valley Ranch that have been tempting me to add to my portfolio. By good deals, I mean under $125K. I own one property in a sketchy neighborhood and would dump it like a bowl of cereal in sour milk if I could. Good tenants don't live in bad areas unless the rent is really, really great for the place..... which mean you won't make money. Bad tenants will agree to disproportionate rent for the area but they will cost you more money in the end.
Thank you very much for all your inputs. I just started reading about section 8. So I guess the potential tenant problems outweighs the benefit of direct (partial) rent payment by PHA and at least 1yr guarantee of lease.
Now here is one of the questions that I'm contemplating. I don't believe in property appreciation in DFW area. Also, I don't plan to flip. So, only way to create a positive cash flow or make money is getting montly rental higher than mortgage, tax, maintenance, vacancy cost etc. For a $150k single family home, with 20% down, 6% (I assume interest on investment is higher than primary residence) 30yr loan on $120k, tax rate 3% without homestead, $1000 insurance, monthly payment is already $1178. With $100/mo management fee, it is already $1278, which is already very close to if not higher than potential rental for a $150k property. That is if it is occupied 100% of the time without any unexpected maintenance cost. So, the way I see it is that only way to make money is buying a property seriously under its fair market value. With paying fair price at purchase, it is a losing game from the get-go. Am I being too pessimistic? Or residential property is just not a good investment vehicle in DFW?
Last edited by Mickey69; 08-13-2011 at 08:30 PM..
Reason: typo
Thank you very much for all your inputs. I just started reading about section 8. So I guess the potential tenant problems outweighs the benefit of direct (partial) rent payment by PHA and at least 1yr guarantee of lease.
Now here is one of the questions that I'm contemplating. I don't believe in property appreciation in DFW area. Also, I don't plan to flip. So, only way to create a positive cash flow or make money is getting montly rental higher than mortgage, tax, maintenance, vacancy cost etc. For a $150k single family home, with 20% down, 6% (I assume interest on investment is higher than primary residence) 30yr loan on $120k, tax rate 3% without homestead, $1000 insurance, monthly payment is already $1178. With $100/mo management fee, it is already $1278, which is already very close to if not higher than potential rental for a $150k property. That is if it is occupied 100% of the time without any unexpected maintenance cost. So, the way I see it is that only way to make money is buying a property seriously under its fair market value. With paying fair price at purchase, it is a losing game from the get-go. Am I being too pessimistic? Or residential property is just not a good investment vehicle in DFW?
IMHO, the only way to make money on RE for rental is to get a screaming deal on the properties. That means, usually, a property needing cosmetic work before renting. So, very important you can DIY or you know/can get investor friendly workers. When I acquire a property as a rental, my goal is to sell it in about 6 years for the money I have in it (original cost, updates, repairs) and my selling costs.
The point is that in 30 years, you will have x number of thousands of dollars that someone else gave you all built up in a house.
Even if you don't 'break even,' you should wind up ahead of the game...but it's a very long term investment.
My (retired) parents just sold one of their rental homes in Dallas...they've had it since the 80s, I think...so the house was paid off via rent. So that was straight cash into their pockets at a critical time.
That's all you really can reasonably expect. Use your good credit and your ability to carry the loan to make money in the long run.
Sorry for late reply.
Thank you again for your advice. I agree to both of your points, Squirl and stan4. I'm going to work with my realtor to find a property that makes sense to me. I just don't know when my search will bear a fruit and how it will do on lease but I guess I gotta take the first step to get somewhere. Wish me luck, please.
I'll post something when I make some progress.
Mickey,
I have been doing rehabs and turnarounds on apartment properties in north Texas for about 10 years. While I have not done single family/condo investing I have kept an eye on the market for about the last three years as well. There are a few very good groups out there that you should look into. One is the Texas Real Estate Investors Circle- TXREIC (I think that is the name). They have a group page on Meetup and collectively have a lot of people with great experience in single family and condo/duplex, etc investing. You can search Meetup for real estate investing groups near you- they have one of the biggest.
They have at least one and usually more meetings per month and there are members of the group that come in and share their expertise in certain areas, rehab budgeting, financing, hard money, flipping, foundation repair, etc.
I would strongly suggest joining and attending the meetings and meeting as many people as you can if you are going to do single family investments. They have a e-mail that you can subscribe to that people use to exchange information such as contractors they recommend (also handy for your personal home), wholesale deals that are available, and lots of other info.
You can get some key parts of your real estate investing knowledge through this group and there are some more groups out there as well doing similar things. I have looked at a few single family "wholesale" deals and some of these deal sourcers or "wholesalers" seem to provide deals with pretty good spread in them. Most/all of these deals are quick close deals. In other words, you have to have the cash or hard money arranged beforehand to be able to get them. All of them need rehab and work, thats why the sell fast and below market for their area.
There are hard money lenders in the group that might be an avenue to pursue. There are also a few turn-key contractors that seem to be good ones that can help with the rehab and make it less of a mountain to climb, although they are in business to make a profit and the scope of work needs to be 1)complete and thorough (all that needs to be done) and 2) kept on task and held to the contract scope and timelines, and 3) on budget.
You would need to also have a traditional lender sourced very early in the process that can take your short term financing (hard money) out and put you into a long term financing situation if you want to hold the property long-term and as a rental. You must make sure that your all-in price will allow you to do a traditional loan on the property when it is complete and you have your tenant in the house, not to mention the fact that it needs to be profitable on a monthly basis. If the deal is actually "a deal" the numbers are
Pick an area that you like (maybe close to home) that is not on its way down. Study the sold comps, what is on the market and their asking prices (per foot) and the situation surrounding each sale. Study the rental rates and try to track the amount of rentals in the area to get a handle on the area. Days on market is a good metric to track as well. Areas with fewer average days on the market until sale are obviously areas where people want to live. Map those properties that have sold and their prices and get yourself comfortable with the area- very comfortable. When an opportunity comes up that makes sense, either through MLS with a buyers agent that feeds you the information or from a "wholesaler" you will be ready to move with the knowledge you need about that area.
There are lots of other considerations to look at. One is that 3/2 homes are better than 2/1 homes in most situations and can accomodate a family better. Although nothing should be looked past if the deal is right. Some people love condos, others avoid them like the plague. Some people like the $30K areas, some people won't touch them. Some people won't do older houses (pre 1980 or so), others make their living on them. Talk to as many people that have done it or are doing it and ask them as many questions as they will answer, you don't have to agree and you will get conflicting opinions with many being valid on both sides of a "situation". People have different things that they think are too much risk, others see opportunity in their aversion to that risk.
Overall you really need to find a deal with "hair" on it that the normal owner-occupy buyer is not going to want to deal with- therein lies the opportunity to profit. If you are competing on price for a house with joe buyer and not joe investor, chances are high that it will not bear fruit as a rental- at least initially and the road might be very bumpy to get to profitability.
Overleverage kills and 20% down is not great breathing room and that is why your initial calculations of your all-in monthly cost vs rent attainable does not work. You either have to pay the same price and put 50% down or all cash (giving you return and breathing room) or you have to get a good deal and put the effort and capital into bringing it back up to nice.
Another option is to rent your money out. There are many who become lenders to experienced rehabbers/flippers and find that is a great way for them to get a good return. There are just as many risks but not as much dealing with cabinets, toilets, HVAC systems, and tenants. Some in that group are only lenders and two or more people with money can lend to one operator on one project if the size is too big for just one of them. The bottom line there is that you only want to lend an amount equal to what you would pay on a "no brainer" basis so you still have to know the area/market/rents/comps, etc.
There are also experienced attorneys in that group working these types of transactions every day. They do many of the education meetings the group puts together. You will need one if you lend or buy and legal fees are good "ounces of prevention" if spent with the right attorney.
Hope that helps.
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