Taking a Risk in a Gentrifying Area

[Brad Gibson]

Good afternoon y'all. I'm a pretty experienced LTR and MTR investor in Texas. I'm looking at perhaps acquiring two or three SFR's in the Fair Park/South Dallas area. I don't live in that area, but I frequently attend the State Fair of Texas and other events in the area...including the annual Texas/OU football game at the Cotton Bowl Stadium.

Dallas voters recently passed a new bond to invest additional moneys into the Fair Park to continue to have it serve as an attraction for in-town and out of town visitors.  On recent trips through the area, it is clear that what had been an underserved neighborhood is starting a transformation.  There are at least 10 new construction homes and an equal number of fix and flips on the market.  

The location puts it 5 mins from Deep Ellum (bar and live music district), 15 mins from Bishop Arts (one of the trendiest areas in DFW), 5 mins from downtown Dallas with no freeway time, and has the light rail green line running right through the center with the next stop at the Baylor medical center which is a large hospital complex.

Can anyone local to the area give some insight as to whether they see this as an up and coming area that will continue to gentrify or perhaps just a flash in the pan because the lots are comparatively inexpensive.

I'm considering purchasing two or three SFR to use as MTR's since STR's are now outlawed in Dallas. They will not be a cash flow monster or perhaps even positive, but should be break even. The play would be to hang onto them for 2-5 years while the area improves and then evaluate whether to sell or continue to grow the equity.

Thoughts?

[Andrew Postell]

@Brad Gibson ok, so I started out my real estate investing career in $30,000 homes. When you are targeting this type of a price point in housing your clients are a little different. Your neighborhoods are a little different. The crime rates are a little different. Etc, etc. It doesn't mean we can't make money though. Usually, you are cashflowing better on long term rentals in this price point when compared to other price points. Lower valued homes rent at a higher % compared to home value. Four $100,000 single family homes (SFH) will smoke one $400,000 SFH in rental income every time. Keep in mind that your expense ratio is higher though. Repairing a ceiling fan costs the same whether a home is $100,000 or $400,000...so the expense % is a little higher. And the main ingredient is screening. Again, it's a little tricky since your client base may not EVER have good credit in this space...but if you can screen well (maybe use a good property manager to help) then you can certainly be profitable. Likewise, we do not want our properties to be vacant - thus the reasoning for no STR or MTR - because if they are vacant then the crime exposure goes through the roof.

Please keep in mind we have 8million people living in our metro now.  This is the 4th largest metro area in the US.  So, building 10 homes is nothing.  What's $1.5billion?  That's a interstate  exchange connection.  In Fort Worth, it cost $42million to renovate one alley.  So, when $50million is allocated to Fair Park...that's a joke.  It's not supposed to be funny but it is.  That's just a number that sounds impressive so that the people who live there will believe that the city cares about their part of town...and they don't.  Cops don't even respond to calls there.  

Can you make money there?  Absolutely.  Should you make smart decisions when doing it - yes.  And I might encourage you that if you are successful already...just stay with what you know that makes you money.  It's up to you of course but this is what my suggestion is.

Hope all of that makes sense.