A lot of the clients we work with are from out of town and they don’t know where to buy rental property in the Dallas and Fort Worth areas. There’s no right or wrong answer about the best places to buy – it depends on the investment plans. There are two options to consider. You’re going to buy based on appreciation or based on cash flow. Either way, never buy in a neighborhood that doesn’t feel safe. If you wouldn’t drive there at night, it’s not a good place to invest.
What to Consider When Buying a Rental Property in DFW
Buying with Cash Flow in Mind
The bread and butter houses are typically bought for cash flow. They’re long term holdings and they’re not going to appreciate dramatically. The Dallas/Fort Worth market is not known for significant appreciation, but it’s steady. For houses that will cash flow, we recommend looking for the basic rule of thumb, which is one percent of the value for the rental price. So, if you have a $130,000 property, we’re hoping for a monthly rent of $1,300. That’s going to be the typical three-bedroom, two-bathroom house in a good neighborhood, with a two-car garage. Generally, you can expect between $1,100 and $1,500 a month. This price point is where you have the largest concentration of good quality tenants. They stay longer and could be there six or seven years, and even longer. They get their children into schools, the keep their Christmas trees in the attic, they get to know their neighbors, and they work a few miles down the road. As an investor, I love these tenants because they stay and I don’t like turnover. School districts are not overly important with this demographic, but you want to make sure it’s not a war zone. Look for a centrally located property that is close to the interstate. One of the major benefits to this type of property is that the vacancy period is shorter. A lot more tenants are in this range, so you’ll have more tenants to choose from.
Buying with Appreciation in Mind
These are properties you buy because they will increase in value. You plan to sell in three or five years, or maybe 10 years, and you want appreciation. One note of caution – you cannot necessarily count on appreciation. You hope it will come, but you cannot guarantee it. These will be homes that cost $200,000 or more. They will rent for less than 0.9 percent every month, so a $250,000 house might bring in $2,100 in rent. There’s not as much cash flow, but the value will increase. School districts are more important with these properties, because appreciation follows better schools. The tenants you find for these properties will have stronger financials. They will be professionals with significant income. So, you won’t have as many bounced checks. They might purchase their own home before too long, so remember that the higher end property you buy, the shorter the tenancy. Another downfall is that when you do get a vacancy on higher end property, it’s usually for longer. There’s a smaller tenant pool and if the vacancy doesn’t occur during the summer, you might find that it lasts even longer.
People often ask for exact neighborhoods and communities, but it boils down to numbers. If you have any questions about buying investments or you’d like to talk about Fort Worth property management, please contact us at McCaw Property Management.