Purchasing rental investment in Dallas? (Houston, Round Rock: real estate market, apartments, foreclosures)

[lh_newbie]

Originally Posted by Lakewooder

I only have single family homes plus a duplex. The last time I put up a lease sign in August I was absolutely bombarded (4-5 calls and 6-7 emails per day). I rented it to the second couple to see it (and went up $300). I've also had several people just asking since they know I have properties - I've gotten probably a dozen pms here and on another forum. Maybe it's just my part of town since there are fewer units these days due to teardowns.

It is my understanding that you've had your rentals for quite some time. If you had to take out an 80% mortgage based on today's market value - would your properties be cash flow positive? I'm quite curious on this question.

[Lakewooder]

Probably not, due to the property taxes...that's why I haven't bought any more. I still would have made a good amount through appreciation, though. I don't think it's a good idea to buy high-end properties for rentals (which is what East Dallas is becoming). You need something that you can rent in the $800-$900 range (could be duplex, fourplex etc. to $1500-$1600 range (that would be a 2 bedroom single family around here). Anything more expensive is more of a specialty property and harder to lease with picky tenants wanting everything perfect.

[momof2dfw]

After we moved out of our previous home we leased it. We ended up leasing it to the 3rd people that saw it the first week it was up w/ just a sign in the yard. The rent was $1400 a month and that did not cover the mortgage (original purchase price 5 years prior was $180Kish w/ 20% down), taxes and insurance PLUS making sure the house/yard was kept up. Ours had an automatic sprinkler system and the people did not want to turn it on ! Talk about causing major landscape problems w/ the grass but also the concerns of the damage that can be done to the foundation. We had to make sure our landscaper went by twice a week and used the cutoff in the yard to turn on the sprinklers just to protect OUR investment. Trying to rent anything out over $1200 a month and there just are not enough people wanting to shell over that amount in rent when they could get into a house for that price.

[USA_Mom]

One of my friends does have several homes (over 20 at any given time) that he uses as rentals. I know right now his vacancy rate isn't too bad, but he's been at this for 25 years AND he knows to expect a certain amount to be vacant. That said, I really think this is going to hit him hard at some point.

I also agree about the high end homes, people *generally* who can spend $1500-3000 a month to "rent" are going to own. In our neighborhood we had about 5 rental houses, 2 of which were 3000 square footers and in three years only one was rented for 6 months before the people moved and bought another house.

[galore]

I also wonder how being a landlord, if you need a mortgage, can be profitable.
For example, a low end home on 2206 Montalba is listed at $850/month lease. A comparable, if not in worse shape house on the same street is listed for $98k.

At $98k, with 20% down, PI@6.3% is $495. T is $191. I is $75. PITI total runs $761.
So without labor, maintenance, other hassles, you get $89/month. One major maintenance call (like AC replacement) will kill all profits for years!
I have no idea about tax deductions for a landlord but can it be enough to make it worthwhile?

[Lakewooder]

That's about right IMO. I was lucky to have gotten mine (going back to 1983) when I did. Now I almost have them all paid off. If I were to sell them and try to find a comparable rental property (could also be apartments) for a 1031 tax-free exchange, I would be hard-pressed to find something. The older apartments in Dallas are being torn down in many cases. I think 13,000 units have already been torn down. I think I would go for an older (say 1920s or 30s) small apartment building if you could get it at the right price and it didn't need too many repairs. Then at least you would have a unique and historical property that would differentiate you from the rest of the market.

[Lakewooder]

I used to think the Casa View area might be a good place to pick up rental properties but now I'm not so sure. What do you all think about Garland or Mesquite? Those are not in my expertise - I know a bit more about Richardson but I think those might be too expensive. Also, doesn't Garland have the rigorous ispection process?

[momof2dfw]

Originally Posted by Lakewooder

I used to think the Casa View area might be a good place to pick up rental properties but now I'm not so sure. What do you all think about Garland or Mesquite? Those are not in my expertise - I know a bit more about Richardson but I think those might be too expensive. Also, doesn't Garland have the rigorous ispection process?

Yes, Garland has the inspection process that many landlords hate. All I can say is it has helped clean up the city in the areas where true slumlords were flourishing. Now that they have the "rigorous inspection process" they have either sold them or gotten their act together and cleaned up their property. Garland has also condemned several apartment complexes and seized the property (tended to be out of state investors from what I've seen), relocated the tenants and bulldozed the place. One a few years ago was/ the Eastgate Apartments. Recently I believe the name of one such place was Miller Gardens?

[lh_newbie]

Originally Posted by Lakewooder

Probably not, due to the property taxes...that's why I haven't bought any more. I still would have made a good amount through appreciation, though. I don't think it's a good idea to buy high-end properties for rentals (which is what East Dallas is becoming). You need something that you can rent in the $800-$900 range (could be duplex, fourplex etc. to $1500-$1600 range (that would be a 2 bedroom single family around here). Anything more expensive is more of a specialty property and harder to lease with picky tenants wanting everything perfect.

That's what I suspected based on my research in the rental arena. I studied it for quite some time before I determined my money was best invested elsewhere with less demands on my time.

Originally Posted by galore

I also wonder how being a landlord, if you need a mortgage, can be profitable.
For example, a low end home on 2206 Montalba is listed at $850/month lease. A comparable, if not in worse shape house on the same street is listed for $98k.

At $98k, with 20% down, PI@6.3% is $495. T is $191. I is $75. PITI total runs $761.
So without labor, maintenance, other hassles, you get $89/month. One major maintenance call (like AC replacement) will kill all profits for years!
I have no idea about tax deductions for a landlord but can it be enough to make it worthwhile?

The whole concept of leverage does play very well with landlording IF you live in an area that has above normal appreciation rates. Dallas is just not such a place. I seriously looked into moving into rentals at one point - I was considering buying a duplex or quadplex, moving into one unit and renting the others. Lots of research and lots of math revealed to me that the Dallas market just wouldn't support the returns I could get in other, less time-intensive investments.

In order to be cash-flow positive in the Dallas market seems to require a roughly 40% down payment or getting a screaming deal on a fixer-upper and taking some time from work to get it updated.

Brian

[Lakewooder]

Well my area was undervalued years ago plus I bought a couple at the bottom of the 80s bust. So if you can find an undervalued area which you think will turn around for some reason..

I don't know about the future but believe me I never expected the 10-20% per year appreciation we have seen in my area for several years. I knew it would go up, but I had no idea...I believe in central Dallas but it would be hard for me to pinpoint a good area right now in the current market. I still wonder about what will happen to Mount Auburn in my area - but it's too risky for me. Now if a few people decided that would be the next hot area and a couple of dozen investors descended...

Yes it really can be that capricious.