Seattle vs Dallas for rental property?

Question

I'm new to real estate investing and I've just been absorbing all of the info I possibly can. I'm interested in investing in rental property. I live in the Seattle area and I've been doing my own calculations on paper to see what kind of ROI would be possible. After including property taxes, insurance, property management, repairs, and including 2 months of vacancy per year (just to be safe), the BEST deals I've seen would only net me a 5% annual return on my investment. Has anyone else noticed this, or am I just not looking hard enough?

Then I started looking in other cities, like Dallas for example, and I see $30K-$60K houses that appear to rent for $800-1200/mo. With those numbers I could easily get a 10-15% return on my investment, but I know absolutely nothing about the Dallas market so maybe there's a reason for that. Is the rental market really saturated over there? Are vacancy rates a lot higher?

Robert Steele · Answer

That's terrible.

But DFW is a great rental market. The population is growing because employment is good here. Rents are increasing. Houses are affordable.

I've been raising my rents $100 to $150 this year and still have tenants fighting over my rentals. In just one day we got 40 calls on one property. My vacancies have been non existent. This year I had new tenants move in on the same day the old tenants moved out. Another place was vacant only 4 days.

Steve Babiak · Answer

Sounds like it really was 100% occupied, but not by any paying occupants :)

Rich Weese · Answer

Jerry,
      I can get close to your #'s in tX, but not in Dallas. If interested, join as a colleague or PM me if already one. Rich

Jerry Jones · Answer

Hi John,
We bought a REO 3bed SFR in Kirkland last year. The purchase price is about $225K, but it is rented only for $1500. If the high property tax in Texas is what hold back the appreciation,  the property tax in seattle area is killing the cash flow for sure. The property tax is pretty high, $3.8K per year. Besides, the house is old and insurance is expensive once you include the earth quake coverage. So, from my own experience, Seattle is definitely not a good market if you are pursuing the cash flow. We will definitely get out of the Seattle market once we see some significant appreciate, if there will be any.

Jerry Jones · Answer

Hi Robert,
What's the purchase price for your properties which can be rented for $1400~$1800? If you could recommend some good real estate agent or wholesaler in the north Dallas area, that would be awesome.
I am looking to buy some SFRs with price range of $100K~$150K. My goal is to achieve at least 15% cash on cash rate  with 25% down and 30 year conventional loan. Do you think it's easy to find such properties?

Rich Weese · Answer

Dallas for about 100 reasons over seattle. I have no "vested" interest like some of the posters in this thread. Not trying to sell my 154 unit fully occupied building in Dallas-just enjoying the cash flow. Much lower median price home, more positive business outlook, more conservative etc, etc, etc. Seattle wouldn't be in my top 50 and I have invested in multiple states-WA isn't one of them. Rich

Jon Klaus · Answer

I can't say much about Seattle, but Dallas has strong fundamentals for cash flow and growth, not necessarily appreciation, but population growth.  Excluding my high end rentals, my average purchase is about $40K, and average rent is $900.  Like Robert, demand is allowing me to raise rents and find new tenants quickly.

I work mostly east of Dallas, where I can buy for less.  Robert is working north. That's where the strongest growth is and has been since the 1970's.

Robert Steele · Answer

John C. Hopefully some other Dallas area investors will chime in. My rentals are in the cities north of Dallas and it seems to me at least that the further north you go the more demand there is. I don't invest in class C. My properties get $1,400 to $1,800 rent. So far this year I have had good rental demand in Frisco and McKinney.

Dale Osborn · Answer

Going to look at 2 HUD properties tomorrow - one is for $40K other is at $60K. Both are 3/2 doublewide homes with about 1/3 acre of land together. Doing a search of Snohomish County - I found 3 homes that are 3bed/2 bath = $70K, $72K, & $74K prices. One is in Stanwood, one is in Granite Falls and one is in Monroe.

Here is website to search:

http://foreclosurespugetsound.com/bank-owned-snohomish-county.asp

I prefer MHPs - but both are full so am looking at picking up some homes with land on the side.

John C. · Answer

Robert Steele: That's awesome. Can you recommend some specific areas that you know would be solid buys for rental property? I'd like to run some more calculations on potential properties that would likely have very low vacancy rates. Since I'm not from the area it's hard because the location of the property is so important.

Dale Osborn: I noticed you're in Washington. Do you invest in SFH at all? I've only been looking on the MLS, but even if I knock 20% off most of the "better deals", I'd be lucky to get a 5% cash return if I bought the properties without financing.

Seattle vs Dallas for rental property?

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