Where Real Estate Investors Are Buying Down South in 2020

It’s no coincidence that so many real estate investors have chosen to buy in the Dallas metropolitan area. Its population is exploding, the job market is continuing to grow, and the cost of living and housing is relatively affordable.

Located in Northern Texas, Dallas is part of the fourth largest metropolitan area by GDP in the United States. The metro includes Dallas, Fort Worth, and Arlington, Texas.

The city of Dallas is the top destination in the state for visitors and leisure. Dallas boasts the biggest arts district in the entire country, with 19 blocks of museums, theaters, galleries, and music venues. The summers are hot and humid but the winters are mild with spurts of colder temperatures.

The NBA’s Dallas Mavericks, MLB’s Texas Rangers and NFL’s Dallas Cowboys all reside in the Dallas area and bring a passionate fan base. It’s about a 3-hour drive to Austin and Oklahoma City and a 3.5-hour drive to Houston. Southern Methodist University is located in a suburb of Dallas, and the University of Dallas is located in Irving—about a 20-minute drive to the downtown. These universities and others nearby attract a large student population.

The Dallas metro is third in the state in terms of population, behind the Houston and San Antonio metro areas. Home to approximately 7.6 million residents, more people are moving to Dallas than any other metro in the country. The job industry is diverse and the economy remains strong, even amidst the COVID-19 pandemic. While the price of homes in Dallas has gone up quite a bit over the last several years, there are still very affordable areas.

How Dallas Has Been Impacted by COVID-19

The resurgence of coronavirus cases in Texas has slowed down economic recovery all over the country, and Dallas is no exception. Texas continues to have a high unemployment rate of 8.3%, while Dallas’s unemployment rate is 7.5%. That said, the job market in Dallas has experienced the second slowest rate of job loss compared to the 12 largest metropolitan areas in the country. The number of jobs in the Dallas metro is just 3.5% less than jobs a year ago.

Eight of the 11 major industries in the state of Texas added jobs last month. The leisure and hospitality industries saw the biggest job growth, followed by the government sector, and professional and business services, respectively.

Home values in Dallas have continued their upward trend, regardless of the pandemic. It’s difficult to say how the next few months are going to play out. Having said that, strong housing markets are still out there. You just have to find places with indicators of a solid real estate market.

Top 3 Reasons to Invest in DFW

Here are the reasons people are looking to invest down south in areas like Dallas, Fort Worth, and Arlington.

Reason #1: People Are Moving to Dallas More Than Any Metro in the US

The Dallas-Fort Worth area leads the nation in metros with the largest number of new residents. Over the last 10 years, DFWs population grew by more than 1.3 million. In the next decade, the population of the Dallas metro area is expected to go up by another 1.4 million. One-third of Texas’s population growth has come from people moving to the Dallas-Fort Worth area.

A population that’s growing so quickly indicates that the Dallas area could be a great place for cash-flowing rental property.

Reason #2: Dallas Has Jobs and Above-Average Incomes

The Dallas-Fort Worth area offers lots of job opportunities in different sectors. The top employers include American Airlines, AT&T, Bank of America, JPMorgan Chase, Kroger, Baylor Scott & White Health, HRC North Texas, Dallas Children’s Hospital, U.S. Postal Service, and FedEx.

There is a wide variety of jobs in multiple industries in the Dallas metropolitan area, which means the area is not dependent on any one business. Plus, the median household income is just over $72,000, which is 10% higher than both Texas’s and the U.S.’s averages.

The job market in Dallas offers above-average incomes, which should continue to attract people. And people will always need a place to live—it’s that simple.

Reason #3: Living in Dallas is Affordable & Rental Demand is High

In the Dallas metropolitan area, the average home price is $270,907, according to Zillow. Since last year, home values in Dallas have increased by 4.5% and are expected to go up by 4.8% over the next 12 months.

Average rents for a 3-bedroom, single-family home in the Dallas area are around $1,600. More than half of the people living in Dallas County are renters. In the last decade, the number of renters has gone up exponentially. There’s also a huge and growing number of high-income renters in the Dallas area. Lower-income tenants are going up, as well—just not as quickly as high-income renters.

Dallas’s rental population and demand have shown major growth over the last several years and the trend is expected to continue. This presents an opportunity for real estate investors to earn passive rental income and cash flow.

A Sample Property in Dallas

Here is an example of a rental property located in a good market in Dallas. (Keep in mind these numbers are estimates.)

New Construction, Single-Family Rental

Property: 3 beds, 2 baths, 1,299 sq. ft.
Purchase Price: $165,000
Down Payment if Financing: $33,000
Initial Cash Invested (including closing costs): $36,300
All Cash Purchase Initial Cash Invested (including closing costs): $166,650
Monthly Rental Income: $1,350
Monthly Cash Flow: $205 with loan; $1,350 cash purchase
Annual Cash Flow: $2,460 with loan; $10,020 cash purchase

Best Dallas Neighborhoods To Invest In

Dallas can be a tough market for cash flow. When I started investing in Dallas back in 2005, I bought in Rowlett/Rockwall. Back then, homes only cost around $150,000. Now, these same homes are selling for $250,000 or more. With so much population growth in recent years, home prices have increased significantly, making it a lot harder to find cash-flowing rental properties.

The following suburbs are highly desirable places to live because they offer some of the best schools and lots of job opportunities. However, these suburbs are no longer a great option for cash flow investors.

The Hottest Suburbs in the Dallas Metropolitan Area to Live

Frisco
Allen
Plano
Garland
Sachse
Rockwall
Rowlett

The property teams we work with in Dallas focus on the suburbs that are 45-60 minutes outside of Dallas. These areas are in the path of progress, so new homes can be built much more affordably and offer investors good cash flow. These are working-class neighborhoods and “in-fill” lots.

The schools aren’t quite as good and crime rates may be slightly higher (still below the national average), but these homes attract young professionals and families. And since the majority of young professionals and families just starting out tend to be renters, demand in these areas is good for affordable single-family homes. Take the following markets, for example.

The Most Affordable Suburbs Near Dallas

Sherman
Denison
Greenville

Final Thoughts

The Dallas metro has all the indicators of a strong real estate market: a fast growing population, job growth, and affordability. Investors will likely find the best cash flowing properties in neighborhoods just outside of the city—particularly places that are experiencing a rise in population. When housing demand goes up, so do home values.

To learn more about what’s going on in other markets around the country, check out BPInsights for lots of helpful information.

What do you think about Texas and Dallas, specifically?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.