Struggling with Price and Timeline, When do I Invest?

Question

It's the age old dilemma. The nicer (and higher demand) areas are more expensive but command higher rents. The lower end areas are cheaper but demand more repairs/updates and are harder to rent out. I'm in Dallas and I work in downtown Dallas, I'm currently renting but my ideal situation would be to find a househack so I can save up for more rental properties. My work location exacerbates my problem as I'm tethered to downtown and I'm trying to avoid a massive commute. However, if you are familiar with Dallas you'll know that the market is competitive and I find myself priced out of many areas.

My question is: do I buy a cheaper place in a potentially less desirable area or do I continue saving so I can afford a property in a more expensive area with higher demand? Most (not all) of the properties in the 130k-160k range are either thrashed, cheaply built, or in a dicey area I wouldn't feel comfortable living in. Should I wait longer and save more to try to get a property in a better area ("location, location, location")?

I'm checking my MLS searches almost every day and I have a good realtor, but I'm beginning to wonder if I'll need to expand my price range. Any advice helps! I'm trying to be realistic with my expectations.

Jon Shoop · Answer

Hi Haley! That is certainly the age-old dilemma. Something that I've learned from property management, is that a lot of times, the higher priced rental homes take much longer than the $1k-2k range. Like significantly more. And that can definitely eat into your year-long returns on a rental property. So don't sweat so much not being able to get an expensive home right now. That's not always the case, as we got an expensive home in Keller rented within 2 weeks of listing.

Since you are downtown I'll make a couple suggestions:

Have you looked into duplexes around White Rock Lake? I think anything on the West side of the lake you are good on for your commute. The east side you'd probably want to stick to the lower half of the lake. I have a client who is doing exactly what you are looking to do: live in half a duplex and house hack the other half - granted she's using property management services so she really doesn't have to interact or deal with the next door neighbor in case something goes south. She lives in the M streets at a not too expensive duplex.

Another option is to find and refurb a distressed home. My company owner does this all the time for clients and we have really good success and the client-owner's have all been very pleased and gotten good rent returns. When I was looking for my first home, I found a bunch of distressed properties off Mockingbird towards the lake.

A third option would be to go to the Bishop Arts District or one of the up and coming areas in South Dallas that is becoming gentrified.

Hope that helped!

Haley Powell · Answer

Hey Jon!

These are great suggestions! I haven't come across any duplexes around WRL but I will definitely make a point to look now! I've found one in north Oak Cliff and when I looked at the neighborhood basically the whole street was duplexes! Sadly there was only one for sale, but I'll keep my eye on that area.

Theoretically, I'm not opposed to rehabbing a property but I don't have a lot of knowledge in that arena or a lot of cash on hand. My concern is that I'm going to get neck deep on a property and realize I had vastly underestimated the money it required or get hosed by a contractor. I do really like the idea of adding value to the property, though. I feel fairly confident about saving up for cosmetic fixes, but we do a fair number of reno's in my field (landscape architecture) and there's always something funky you can't foresee that usually takes a bite out of the budget. I hope to be able to do full rehabs in the future when I have more money to spend and more experience under my belt.

To your third point, most of what I'm finding right now is coming up in South Dallas or West Dallas. I've been to a few properties and I wasn't impressed with the quality of the rehab. Some of the new builds were pretty disappointing as well. These impressions wouldn't be deal breakers if the location was great, but most of the ones in South Dallas were in neighborhoods I didn't feel comfortable or welcome in. West Dallas was a bit better, but what made me second guess those was if I'd be able to make a return after "fixing" the rehab. I wasn't sure the area would command the rent I'd need, I could be wrong. But Bishop Arts seems like a great choice, I'll definitely keep a lookout!

Thank you for your response! It's given me a lot to think about!

Stone Jin · Answer

@Haley Powell

If you are house hacking with a low down payment of 3% then you should look at areas that you want to live in.  Personal safety and standard of living should be prioritized.  3% down on a 130K is 4K  down payment and 3% down on a 200K home is 6K, for only 2K you should get a better house to live in.  Plus I wager that the price to rent per room is higher as the neighborhoods get better.

Jon Shoop · Answer

You're welcome! I'm glad you found it helpful. I think to the first point, just need to be patient and I think you can find what you're looking for in the WRL area.

The second point, yeah I agree. Sometimes we can definitely get in over our heads. But maybe you stumble upon that shabby looking rarity that doesn't have any major needs or issues, or get connected with a good contractor... luck plays a role in those.

Third point, agreed!

Haley Powell · Answer

@Stone Jin excellent points, I will keep them in mind going forward. Thank you for your feedback!

Struggling with Price and Timeline, When do I Invest?

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